Oregon blazes trail for cannabis legalization

Cannabis plants grown outdoors in Oregon.

Cannabis plants grown outdoors in Oregon.

By Garrett Rudolph

The minute Washington voters approved legislation to legalize marijuana for recreational purposes, Oregon immediately became the next target for cannabis activists.

With somewhat of a sibling rivalry already existing between the neighboring states, it seemed nearly impossible that Oregon would stand by and watch Washington collect millions of dollars in marijuana tax revenue and keep wondering how it was going to make up for perpetual budget woes.

In November 2014, Oregon voters followed through, approving Measure 91 and ushering in a law that could be a game-changer for the entire world of cannabis. The minimal regulations identified in Measure 91 could — if lawmakers and other government agencies allow it to remain unmolested — become the model for future states to follow as the trend of legalization continues to gain momentum.

Oregon’s relatively simple and unobtrusive tax structure and lack of residency restrictions could spark a true green rush that’s never been seen before. Only time will tell what regulations will be implemented after the fact, but there’s plenty of support to avoid circumventing the will of the voters.

Measure 91 could provide Oregon the economic windfall that Colorado and Washington had envisioned.

There’s a buzz surrounding Oregon and the implementation of Measure 91, but many local business owners and people involved in the cannabis industry are leery of fully embracing it.

“At first, just like Denver, it’s going to be overwhelming,” said Brad Zusman, owner of Canna-Daddy’s, one of the most successful state-licensed dispensaries in Oregon.

Gordon Redman, the formulator and growers consultant with Flying Skull Products in Portland, echoed similar sentiments.

“Growers have been asking important questions of me as to how I think the federal, state and local laws will affect their newly-proposed or existing business,” he said. “Now that our federal government recognizes that the fact that marijuana will not affect the big drug companies as it once did and our state governments now see a new revenue producer waiting to be milked, the race to grow cannabis will be assuredly off to a shaky but sure start in Oregon.”

According to Zusman, part of the issue with the recreational market’s success is that a large percentage of the marijuana currently grown in Oregon goes out of state.

“When recreational comes in, I don’t feel that is going to change,” Zusman said. “We already have enough marijuana in Oregon to handle the recreational market. But still, we’re going to do all this licensing to bring in millions more feet of canopy space. Until they merge both programs (medical and recreational), I don’t think recreational is going to work very well.”

One independent medical grower who goes by the nickname Juice Oregrown, said he’s glad to see the prohibition of cannabis ending, but he’s also skeptical about some of the details of Measure 91 and the potential commercialization of the industry.

“I’m on the fence about it, because I do believe there are a lot of things that could be improved,” Juice said. “It’s great to see the state moving in a direction to legalize and decriminalize. Ten years ago, I never thought this day would come, and I didn’t think I’d be alive to see it. It’s really just a huge step, not just for us, but for the nation.”

His biggest fear, though, is that smaller, independent growers like himself don’t get pushed out of the industry.

However, Thomas McLanahan, from the Good Earth Organics, doesn’t expect that to happen. McLanahan said Measure 91, along with the medical marijuana program and the allowance of home grows, creates a size for all types of growers.

Commercial growers that want hundreds of plants will have the recreational market; mid-sized growers have the medical market; and the hobbyist that wants to grow a couple plants in a greenhouse, closet or basement will also be able to do so legally once Measure 91 is implemented.

He also added that Oregon’s system is much more conducive for support businesses, such as traditional grow stores like Good Earth Organics, in comparison to the system Washington implemented.

Because home grows are outlawed in Washington, and medical grows appear to be on the verge of being eliminated as well, smaller grow stores that might supply a few lights here or a quart of nutrients there, are losing their customer base.

“Washington’s model is making it so no small guys can grow,” he said. “You have to be licensed. To me, that’s an insidious thing to do.”

 

Testing

As the rule-making process begins in earnest for Oregon’s Measure 91, there are a wide range of regulations that will need to be addressed. Some may carry over directly from the state’s medical dispensary program, but others will need to be completely revamped.

Testing regulations stand out as one of the areas that needs attention.

Although the Oregon Medical Marijuana Dispensary Program mandates testing, the requirements are limited and the oversight of labs performing tests is nonexistent.

Products must be tested for potency, pesticides and mold, but there is no certification program to determine which labs are qualified to do so.

In an email to Marijuana Venture, Bethany Sherman, executive director of Oregon Growers Analytical, said that lack of oversight has “created a flood of under-qualified laboratories entering the marketplace. … In our current state of affairs, lab certification of safety is a complete farce, and creates a false sense of security.”

She said the result has been inaccurately reported data, particularly in the realm of pesticides.

“The EPA is traditionally the only organization in the nation that sets tolerances on pesticides, and these tolerances are established through evidence-based research with the purpose of protecting consumers, applicators and the environment,” Sherman said. “This is how we can go into a grocery store and purchase an apple without fear of getting ill. Without the help of the EPA, each state that implements marijuana policy is responsible for developing their own regulation on pesticide use for cannabis cultivation.”

While some growers in Washington have complained that the testing regulations for recreational cannabis are stricter than those for apples and cherries, Sherman and Green Leaf Lab owner Rowshan Reordan said that’s not really a fair comparison.

“We can refer to EPA tolerances for other commodities, but they are less than relevant,” Sherman said. “Almost all established EPA tolerances on agricultural commodities were developed for ingestibles and take into consideration the body’s natural filtration system (liver, kidneys, etc.). Cannabis is traditionally combusted and inhaled, and is absorbed directly into the blood stream through the capillaries in our lungs. Smoking pesticides is considerably more dangerous than eating them.”

“Lungs are a lot more sensitive than the stomach,” Reordan said.

In the absence of EPA oversight, due to marijuana’s status as a federally banned substance, it’s even more important that individual states implement sensible pesticide regulations to protect consumers, Sherman said. Additionally, she said it’s important that consumers, cultivators and dispensaries are educated about both pesticides and the testing process.

As it stands, lab testing in Oregon can create a false sense of security for consumers, which can be particularly dangerous for those that have medical ailments that could be further compounded by unknowingly consuming pesticides or other contaminants, said Sherman, who is also the founder and director of the Cannabis Safety Institute.

With that said, even stricter testing regulations and laboratory oversight for the recreational market doesn’t necessarily mean an overhaul of the separate and independent regulations for Oregon’s medical program.

“Dispensaries need to be cautious about which lab tested products they carry, because one contaminated product could cause a lawsuit that causes them to lose everything,” Sherman said.

That’s part of what made Reordan jump into the testing business after previously working as a criminal defense attorney in Southern Oregon. An ill friend of hers consumed some medicine that was contaminated and resulted in further damage to his immune system. Reordan opened Green Leaf Lab in 2011. She no longer practices law, but still has her license.

She said she would like to see the testing requirements changed to provide better consumer protection.

For example, Reordan wants the testing to be focused more toward harmful molds.

“(Currently), molds can’t be above 10,000 colony forming units per gram, but it’s a general mold scan, that doesn’t always show harmful molds,” she said.

Likewise, pesticide screening is required, but it’s very general, she said.

She would also like to see residual solvent testing for concentrates, as well as heavy metals testing required.

When testing requirements were first implemented with the Oregon Medical Marijuana Dispensary Program, there was a lot of fear that a lot of sun-grown cannabis would fail.

However, she hasn’t seen that to be the case, and doesn’t expect that to change even with stiffer regulations with Measure 91.

“While we want regulations, we also want testing to be successful and affordable,” Reordan said.

And it’s not just lab operators who see the need for better testing regulations.

Clark Tippin, of the Organic Cannabis Growers Society, said he’s disappointed that Oregon’s medical requirements don’t require a standard similar to the National Organic Program.

“I think Washington’s pesticide testing is better than what Oregon has for medical,” Tippin said. “I would love to see them kind of crack down on that kind of stuff. … In my mind, pure medicine is so important.”

Washington comes close to organic standards with its testing regulations, Tippin said. However, Oregon doesn’t have any restrictions against fungicides, among other testing components like residual solvents and heavy metals that are not required.

“I’ve been encouraging dispensaries to have a better test,” Tippin said. “You don’t want to have that liability. They can’t afford to have somebody whose immunity is compromised and then sue them for everything they’ve got.”

 

Real estate

Could Oregon see a real estate boom associated with the implementation of Measure 91 and the state’s changing marijuana laws?

The short answer seems to be, yes.

In fact, it may have already begun.

Some real estate agents in Southern Oregon have already seen a rise in interest for properties that fit the billing of a grow site, even though Measure 91 regulations — and potentially local restrictions — are still in their infancy. Southern Oregon’s nearly perfect growing conditions, combined with the fact that no residency restrictions were written into Measure 91, mean Oregon could potentially see a “green rush” of outside investors that Washington and Colorado didn’t experience.

Jake Rockwell, from the Medford-based Rockwell Group, said he’s noticed a steady rise in action for about a year.

The Jackson County real estate market has seen an 8% bump in the past year, with certain pockets jumping 15-20%. It’s reminiscent of the market eight to nine years ago, Rockwell said, when agents were regularly getting multiple offers on properties.

While Jackson and Josephine counties are likely to be the two primary hotbeds for outdoor grow operations, Oregon’s coastal region could be a hidden gem.

Shirley Conley, of Realty on the Rogue, said the lush green winters, warm dry summers and low humidity makes Curry County perfect for growers and gardeners of all varieties.

“Our growing climate here is so fantastic,” she said. “Every other person in the community is a gardener, and we have several medical growers in the area. … It’s one of those places you don’t want people to come, but you’re a realtor, so you have to.”

Most people that are shopping for land, whether it’s to grow medical marijuana or for the impending recreational market, are looking for a few basic traits, Rockwell said.

Those traits include plots of land that are at least five acres, with some sort of building on the property and plenty of southern exposure to the sun. Privacy also tends to be key selling point, but only about half the buyers are particularly concerned about irrigation.

There’s also been rising interest from people looking to lease or purchase indoor space, but so far, Rockwell hasn’t seen many people with warehouses for rent. While warehouse prices in Colorado were hitting $4-5 a square foot during its legal marijuana boom, rent has remained less than $1 a square foot in Oregon, Rockwell said.

While some people may skirt the issue on why they’re looking for a particular type of property, Rockwell said it’s best to avoid playing games and speaking in innuendo.

“Help me help you,” Rockwell tells those potential investors that are beating around the bush.

One other piece of advice Rockwell conveyed was to arrange financing in advance. With the obvious complications between traditional lending services and the cannabis industry, investors shouldn’t wait until they’ve found the perfect property to arrange financing.

“Property will go quick,” Rockwell said.

“You’ve got to get it while the getting’s good,” Conley added.

But location and price aren’t the only factors potential investors need to consider, cautioned attorney Mark S. Bartholomew.

Bartholomew practices real estate, land use and business law, among other categories, for Hornecker Cowling, the largest law firm in Southern Oregon. Even he’s heard some of the hype surrounding Southern Oregon investment properties, but, like any lawyer, he emphasizes the importance of due diligence before an investor dives into the market.

“To me the biggest things are areas of concern that would apply regardless of federal status (of marijuana),” Bartholomew said.

Investing in land or property for growing purposes is a relatively safe bet in comparison to buying property with retail space in mind. Not only could retail locations be affected by regulations, taxes and local rules that have not been written yet, but individual municipalities do have a process they can go through to ban marijuana shops.

Bartholomew said it’s a “big gamble at this point” to invest in retail space, and suggested those that are set on going that route at least have a back-up plan in preparing for the worst.

Potential conflicts such as zoning laws, water rights and local regulations, such as Jackson County’s ban on GMOs, should be checked out prior to purchasing land.

“Oregon has some of the most strict zoning in the country, especially when it comes to the term ‘resource land’ — in general, farm or forest zones,” Bartholomew said.

It’s not uncommon to have forest or woodland zones that don’t resemble forests or woodlands. There’s also the chance that agriculturally-zoned property (known as exclusive farm use or EFU) is not great for farming, but has been designated EFU simply because it’s outside city limits.

“When you’re in a resource zone, you’re very restricted on what you’re allowed to do,” Bartholomew said. “It’s typically very, very difficult to build a dwelling on property.”

Water rights can be equally complex, and almost as important as zoning laws. Property owners have the right to drill their own well, but the amount of water that can be drawn from it depend on the type of property. For instance, there is a limitation of 15,000 gallons per day for household purposes, but only 5,000 gallons per day for any single industrial or commercial purpose.

Most agricultural land is going to have irrigation, and there’s always the option of supplementing water rights with bringing in outside water if absolutely necessary, Bartholomew said.

“It’s not uncommon for people to truck in water, especially with the profits that could potentially be made,” Bartholomew said.

Bartholomew also offered a piece of advice from a purely financial perspective: Since Measure 91 is a new law that is still in the midst of being implemented, there’s no telling how long it will take to get the retail marketplace up and running, and therefore tough to predict how long it will take for growers to start generating revenue to recoup their investments.

Rep. Carl Wilson, vice chair of the joint committee to implement Measure 91, said he’s definitely heard the concerns about people buying land on speculation, due to the lack of residency requirements in the bill.

He said concerns have been voiced from a number of people who own land adjacent to potential grow sites, but adjacent land owners don’t have much of a lobbying voice. For years, there has been increasing concern about the “outlaw growers” who don’t care about the land or the relationships with the community.

It’s led to more than a handful of “jawing matches over the fence line,” Wilson said. Similarly, the possibility of large, commercial grow operations owned by out-of-state investors has some Southern Oregon residents on edge.

 

Odds and ends

Hemp: Industrial hemp production has technically been legal in Oregon for several years, but it wasn’t until February that the state Department of Agriculture began licensing growers. When the first hemp production license went to Edgar Winters of Eagle Point, a controversy over crop separation was ignited.

Medical growers in the same region as Winters’ planned 25-acre hemp field have complained that drifting pollen could weaken or ruin their marijuana crops.

Rep. Wilson said the controversy is something he’s aware of, but hadn’t done enough research on the topic to address it yet.

He said there has been some talk of using Highway 97 to bisect the state, allowing outdoor marijuana production on the west side and limiting hemp to the west side. The Department of Agriculture does have the authority to restrict where some crops are grown, but that power does not currently extend to industrial hemp.

Lawmakers are working on a solution, but for the time being, it appears the hemp and marijuana industries may have to share the same space — and could be another avenue prospective investors will have to investigate prior to buying land for commercial marijuana production.

Taxes: Measure 91 enacts taxes at the producer level of the recreational cannabis industry. It is the sole tax written into the measure itself — and fairly reasonable compared to Washington’s triple hit of 25% (although Oregon business owners will have to contend with a state income tax that Washingtonians are able to avoid). As it stands, Oregon growers will be taxed $35 per ounce of flower, $10 per ounce of trim and $5 per immature plant.

However, like many facets of the measure, individual municipalities are pushing hard to implement their own local taxes. While local taxes are specifically prohibited by Measure 91, it hasn’t stopped the League of Oregon Cities from lobbying for changes.

Medical: Measure 91 has no effect on Oregon’s medical marijuana sector. But, then again, neither did Initiative 502 in Washington, and that appears on the verge of being changed dramatically by Washington’s Legislature.

One has to wonder how long Oregon can go with two systems that are largely in direct competition with each other. Will the Oregon Medical Marijuana Program, with its looser regulations and the ease of getting a medical authorization undercut the recreational sector?

Or will it be the other way around because patients won’t need an authorization and the product is likely (at least initially) to faced with a higher level of testing requirements?

 

Unlikely ally

Of the four states that have adopted recreational marijuana laws, Oregon’s Measure 91 received the highest percentage of “yes” votes at 56.11% (Washington voters passed Initiative 502 with 55.7% of the vote, while Colorado’s Amendment 64 received 55.32% of the vote).

But as Washington and Colorado residents and business people can surely attest, passing the law is only the first step in the process. Now, it’s up to lawmakers and the Oregon Liquor Control Commission to establish the full regulations that will govern the legal marijuana industry.

Once those guidelines are established, individual municipalities will certainly take a crack at their own set of rules. Many will approach the possibility of banning retail stores or adding their own taxes to cannabis sales. The bottom line is simple: The fight is far from over.

And during the course of the rulemaking process, the cannabis industry will have to rely on one of its opponents to be a voice of reason and support — a concept that probably makes many people wary.

Rep. Carl Wilson (R-Grants Pass) is vice chair of the joint committee tasked with implementing Measure 91. Wilson admits he’s “never been a fan” of marijuana and that he campaigned against Measure 91 prior to the election.

“My side lost, but I’m just competitive enough that I asked to be on this committee, because I knew it was important to my community,” he said.

Perhaps the most reassuring aspect of seeing a cannabis opponent in such a position of power is that Wilson believes in upholding the will of the voters. He said lawmakers need to be extremely careful about taking any action that could be construed as subverting the will of the voters.

One example in particular is with taxes.

“There is one tax in this bill and it was meant to be that way,” he said. “I think we need to be careful to resist any temptation to tax it further.”

With that said, Measure 91 is vague in several areas that will have to be addressed one way or another.

There are no provisions written into the measure for testing lab standardization, child-proof packaging requirements or how many licenses will be granted, if there is any limit at all.

“Those are unanswered questions that I think we will have to weigh in on,” Wilson said.

Wilson is joined by chairwoman Sen. Ginny Burdick (D-Portland), Rep. Peter Buckley (D-Ashland), Rep. Ken Helm (D-Beaverton), Rep. Andy Olson (R-Albany), Sen. Lee Beyer (D-Springfield), Sen. Jeff Kruse (R-Roseburg), Sen. Floyd Prozanski (D-Eugene) and Sen. Ted Ferrioli (R-John Day) on the joint committee.

Burdick did not respond to Marijuana Venture’s request for an interview.

“For a lot of us, it’s a lot of homework because we don’t know too much about marijuana and the lifestyle that goes with, so this has been a great learning experience,” Wilson said.

Some of that learning experience has been meeting with growers from the Williams area of Southern Oregon, which, according to the Associated Press, had the highest concentration of people registered to grow medical marijuana of any zip code in the state, as of 2011.

Wilson and a couple other members of the joint committee toured grow facilities and learned about different production techniques. It was really the first time many of the growers had interacted with their representatives, and likewise, the first time Wilson had interacted with them.

“It’s a new era and I think everybody realized that, so it was pretty darn special,” Wilson said. “I think we all recognized that it’s a special moment in history when this part of the universe is starting to change and it was great to be a part of it.”

Wilson has also turned his attention toward the two pioneer states that were first to legalize recreational marijuana, saying “I want to make this a better law than Colorado and Washington and try to avoid some of the problems that they have had.”

The problem he sees in Washington is largely a “market issue.”

Due to a wide range of factors, the Evergreen State was plagued with product shortages in the early months of its rollout. The primary culprit was a slow licensing process that didn’t allow producers enough time to get crops ready for harvest.

Then, by the time the state’s licensed outdoor growers were able to harvest their first full crops, the market was flooded with too much product and not enough retail stores. Wholesale prices have plummeted, forcing growers to either sell at rock-bottom prices or to sit on hundreds of pounds of marijuana and wait for the market’s volatility to even out. The sudden shift has pushed many growers to the brink of bankruptcy.

Meanwhile, Colorado’s vertically-integrated regulatory system has, thus far, created a more stable market. Wilson said the biggest problem he’s detected with Colorado is with edibles. The lack of standardization and packaging regulations, combined with irresponsible use, have resulted in a fair amount of bad press for cannabis industry.

Wilson said his opposition to marijuana legalization stems from his belief that it will result in a “social cost” that nobody can yet predict.

He said legalization potentially creates an overly lax attitude about smoking among youths. He also pointed out Oregon’s “severe vagrancy problem,” and news reports that legal marijuana led to a rising problem of homelessness in Denver.

The flip side, though, is the potential for a positive economic impact, particularly in his district and the rest of Southern Oregon, Wilson said.

“And goodness knows we certainly need an economic upside to anything,” he said.

Garrett Rudolph is the editor of Marijuana Venture. He can be reached by emailing Editor@MarijuanaVenture.com.

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