Could interstate commerce be the answer to oversupply?

Oregon could lead the charge, but it needs cooperation

Overproduction in Oregon’s legal cannabis market has reached crisis proportions. And while this is Oregon’s problem now, California will undoubtedly face the same problem at a much larger scale.

Oregon currently has far more cannabis in its legal system than the state can possibly consume, and wholesale prices have declined by more than 50% over the past year, threatening the survival of the majority of the state’s producers.

As a result, hundreds of millions of dollars in local capital — belonging to thousands of Oregonians who have gone all-in to be part of the legal industry — stands to be wiped out. The beneficiaries of this looming devastation will be deep-pocketed, out-of-state and foreign corporations that can afford to lose money while buying up local brands, farms and retail shops for pennies on the dollar. Those companies are not in Oregon to make their money in the state market. They are here to own a storied brand when the walls come down and they can sell “Oregon Cannabis” nationally and internationally.

The loss of a significant local ownership stake, in a state that has suffered economically for decades from the waning timber and fishing industries, is a looming economic and social catastrophe for Oregon and its communities. But it is not inevitable.

The time is now to move quickly toward licensed transfers of cannabis products between legal states.

Oregon, like California, is a natural exporter of cannabis. The state’s near-perfect growing climate, fertile soil, access to water, reasonable energy costs and generations of knowledge and experience make it one of the best places in the world to grow cannabis. Under any rational legal model, Oregon and California would be supplying world-class, inexpensive cannabis products to states across North America, as well as internationally. But we are not functioning under a rational legal model. We are laboring under the market-distorting effects of the end days of prohibition, where cannabis cannot cross state lines regardless of either state’s legal status.

Instead, hundreds of Oregon growers, with no legal market for their product, remain unlicensed, meaning thousands of pounds of unregulated cannabis enter the illicit market, headed for states where it is not legal and sold to anyone regardless of age.

In May, Billy Williams, the U.S. attorney for Oregon, released a memo outlining his major priorities in the wake of Attorney General Jeff Sessions’ rescission of the Cole Memo. Those priorities include reducing overproduction and interstate trafficking, protecting children and public safety, combating organized crime and fighting environmental degradation.

Across the country, adult-use and medical states face shortages or substandard product, or contemplate creating entire production industries from scratch. Meanwhile, in Oregon, literally tons of the best cannabis in the world, produced far cheaper and more sustainably, will rot in storage while thousands of jobs and hundreds of local businesses disappear.

Allowing the market to efficiently allocate resources and product among legal states would quickly and significantly reduce the size of the illicit market on the West Coast, and nationally, by eliminating diversion and incentivizing licensure among illicit producers.

While Congress lurches toward the inevitable descheduling, which could still take at least three to six years, it should immediately protect licensed interstate transfers. It would be the single most effective thing Congress could do to reduce the scope of the illicit market nationally. But of course, if we had waited for Congress to act, we would have neither a medical nor adult-use cannabis industry today.

In the meantime, states need to take the lead.

In 2019, the Oregon Legislature will consider a bill that would make it legal, under state law, to approve licensed, out-of-state transfers of cannabis. This is only a first step; at least one other state with a new or existing legal regime would need to do the same.

While that is happening, U.S. attorneys have an opportunity to take leadership by announcing that licensed transfers between legal states will be a low priority for enforcement. This will not make the transfers legal under federal law, but it will encourage states to explore the issue and give the industry the same kind of breathing room that allowed the early medical industry to flourish.

Maintaining separate cannabis industries in each legal state is neither normal nor efficient. It is, instead, a manifestation of the market distortions imposed by a prohibitionist policy that is no longer reality in much of the country and that is not coming back. The result is expanded illicit markets, environmental degradation and regional economic devastation. Congress should act. But as in all things cannabis, the people are ahead of the politicians, and the states are ahead of the Feds. It is time for the industry, working with their states and their U.S. attorneys, to push for legal transfer of licensed product between legal states. It’s the next step forward, and it will serve the interests of producers, consumers and law enforcement alike.

And for the nation’s premier cannabis growing states, like Oregon and California, it can’t come soon enough.

 

Adam Smith is the founder and director of the Craft Cannabis Alliance, an Oregon-based nonprofit trade group.

Comment

One response to “Could interstate commerce be the answer to oversupply?”

  1. Jade says:

    So, Oregon wants a piece of everyone else’s marijuana business? So that the rest of us can choke on that Oregon glut? Um, no thanks.

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