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January 9, 2019
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Oregon’s recreational marijuana program sales began in 2016 after an initial harvest that was naturally contained by weather. Things looked promising, and the state, which doesn’t limit the number of cultivator licenses or the amount of marijuana that each cultivator can grow, continued to issue licenses and expand the industry. Fast forward to the 2017 marijuana harvest, and things looked very different.
Can Oregon Solve Its Cannabis Cultivation Problems?
More than 1 million pounds of cannabis were logged into the state’s database for sale after the 2017 harvest, which was about three times more marijuana than the state’s 4.1 million residents purchased in the previous year. With even more cultivators licensed in 2018, the most recent fall harvest brought a 5% larger amount of marijuana than what was available in 2017, which created an even bigger surplus.
As you’d expect based on the laws of economics, prices for marijuana plummeted as the oversupply problem got worse in 2018, and many growers either went out of business or sold their licenses at rock-bottom prices to larger companies with deeper pockets. The state’s main goal when it developed its recreational marijuana program – to reduce black market sales – backfired as many growers who entered the legal market after years of operating in the black market returned to illicit sales to avoid losing large amounts of money on marijuana they’d be forced by law to destroy if they couldn’t sell it legally.
In addition, many struggling license holders haven’t been able to pay their taxes. KATU News reported in November that 176 Oregon cannabis businesses owed the state $15.7 million in overdue taxes. Keep in mind that since cannabis is still illegal at the federal level, these businesses can’t file for bankruptcy. Despite these unpaid taxes, the state reports that its marijuana tax collections exceeded forecasts by 7% during the period of 2017 through 2019 citing increased sales overall as the cause for more tax revenue.
The oversupply problem isn’t unique to Oregon. Washington had a 60% larger supply in 2017 than 2016, and its marijuana prices fell in 2018. Business owners called for changes to the state’s canopy limits and cultivation facility sizes.
Some people in the Washington cannabis industry wanted the state to stop issuing cultivation licenses, while others wanted to end license transfers, which would mean when a business failed, its license would not be available for sale or transfer of any kind. It would simply no longer be valid. Ultimately, the state stopped processing license applications to curb the problem.
A number of suggestions have been discussed to solve Oregon’s marijuana oversupply problem. The three most common are:
So far, the state has indicated that it prefers a free market approach to the industry and has no plans to officially cap licenses or reduce canopy sizes. That would lead one to believe Oregon will take the “do nothing” approach and wait for the strongest to survive. In the cannabis industry – like most industries – that will likely be the big companies with enough money to ride through market adjustments where profits might be thin or nonexistent.
One thing is clear based on data extracted from the Cannabiz Media License Database, oversupply isn’t strictly a “number of licenses” problem. While it’s easy to say there are too many cultivators growing too much cannabis, this might not be the root cause. States like Oregon, Washington, and Colorado, which experienced marijuana oversupply problems, have approximately the same number of active cultivation licenses, but they also have their own unique state laws for commercial marijuana growing.
In addition, both Washington and Colorado stopped accepting cultivation licenses in efforts to solve their oversupply problems. As shown in the table below, these license caps resulted in limited or decreased cultivator license growth during 2018 while Oregon’s cultivation licenses grew by 26%.
Cultivator License Numbers According to the Cannabiz Media License Database:
As the data shows, Colorado and Washington have successfully curtailed cultivation licensing while Oregon has not. In a state where overproduction was a problem in 2017, adding another 231 licenses during 2018 without limiting canopy size certainly won’t help the problem.
Instead, Oregon increased the amount of marijuana that patients can buy to 8 oz. and opened the doors for delivery to medical marijuana patients in areas where retail sales are banned or licensed marijuana activity is prohibited. In both instances, the goal was to provide patients with better access and increase sales.
In addition, legislation backed by the Craft Cannabis Alliance is expected to be introduced by Oregon State Senator Floyd Prozanski (D) that would allow Oregon’s cannabis to be exported to other legal states like Washington and California. For many Oregon cultivators, exporting would be a huge win – assuming other states would have a need or desire to import marijuana. Since the legislation would not allow transportation by air and would require that exported cannabis only be transported through states that have legalized marijuana sales, Oregon’s options would be very limited.
Ultimately, the solution to Oregon’s oversupply problem will probably include a combination of the suggestions that have been discussed so far. Developing a licensing cap, allowing some consolidation to happen, and improving accessibility will help reduce harvest sizes while ensuring more patients and consumers have access to the marijuana products they need and want.
The missing piece of the puzzle so far has been for the state to take action by developing a plan to effectively curtail the oversupply problem. To date, there has been a lot of talk about the problem but not a lot of action.
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