Two Senate Bills Aim to Curtail Oregon's Cannabis Surplus

The current administration has been somewhat hostile toward any moves to legalize the cannabis trade.

(SALEM, Ore.) - For farmers and lawmakers in Oregon, too much cannabis turns out to be a problem. However, two bills in the state Senate aim to curtail the surplus – though in slightly different ways.

The recently passed Senate Bill 582 seeks to open a legal path for exporting marijuana, while Bill 218 would give more authority to state regulators when determining the criteria for licensing.

Since recreational use was legalized in 2014 the local market has been gripped by oversupply. Further complicating the matter is that federal laws ban the transportation of cannabis products across state lines. In doing so, the state has continually produced more marijuana than it can consume for years running.

Why has cultivation flourished in Oregon? There are several reasons, first among them is the state’s climate, which is well-suited for growing several strains of the plant. But the oversupply brought about by the end of prohibition has proved to be an unintended consequence for Oregon’s growers and lawmakers.

Senate Bill 582 would seek to open up a path for growers to ship surplus marijuana out of the state – legally. However, success might hinge on authorities in Washington, D.C. deciding where they want to intervene or not.

A decision by federal authorities not to intervene would create a path for a legal interstate, and possibly international, marijuana trade to emerge. However, there is no guarantee that other states would not grasp this opportunity to allow its producers to do the same.

Before reaching that point, lawmakers would first need to pass legislation and then use the courts or directly petition the Trump administration to test the federal acceptance of Senate Bill 582.

This is where moves to create an export market could fail as the current administration has been somewhat hostile toward any moves to legalize the cannabis trade. Last year, then-Attorney General, Jeff Sessions, issued an order to reverse the Cole Memorandum – an Obama-era order which opened the door for legalization at the state level.

While current Attorney General, William Barr, has publicly stated the Department of Justice would not pursue a crackdown; the reversal of the Cole Memorandum has left open the possibility of such a move.

This has created uncertainty and as a result, investors have cooled on the industry; especially in the public markets where the U.S. Marijuana index is down close to 25 percent over the past three months and is trading well off the highs reached in November 2018.

Granted much of the investment in the cannabis industry is in private companies, but the combination of waning investment and oversupply have hit cultivators and distributors in Oregon especially hard.

In fact, many growers are currently selling their harvest at or below production costs. While distributors are fighting like never before for customers and this has led to falling retail prices.

Even though the consumer-friendly environment has helped grow demand, it has yet to keep pace with the state’s supply. In fact, the Liquor Control Commission estimates Oregon can currently grow roughly 6.5 years supply every growing season.

The long-term risk is that low prices will lead to a wholesale exit from the industry which, in turn, would impact tax revenues from the sale of marijuana in the state.

To counter the impact of oversupply, the Senate has also taken up the debate of Bill 218. This provision would give the Oregon Liquor Control Commission increased authority in determining whether additional licenses are warranted.

This move would close a loophole in the state’s marijuana laws, which unlike other states, did not put in place tight restrictions on the number of licensed issued by the Liquor Control Commission.

Part of the reasoning behind such liberal licensing was the hope by authorities that legalization would lead many of the state’s black-market producers to become licensed and regulated businesses.

In fact, the state undertook a “Go Legal” campaign to get growers to become licensed and this worked – maybe too well. Based on the information provided by the state there were close to 2,100 licensed growers in Oregon at the start of the year.

What does this mean for current and would-be growers?

The answer is unclear at this point. For those setting up a business in Oregon’s marijuana industry, experts agree that now is the time to tread cautiously.

While the state’s cannabis market should continue to expand, lawmakers will need to undertake an overhaul of the regulations governing the market. Furthermore, uncertainty at the federal level could further impact Oregon's plans.

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