As Wikileaf has previously reported, Oregon is sitting on a massive oversupply of cannabis that it can’t get rid of, costing the state millions, creating black market diversion into non-recreational states and hurting small growers within the state.
With the future looking bright for more states legalizing going forward, it’s important that other states avoid the same pitfalls Oregon has dealt with so far.
While the first logical conclusion to come to would be to pass legislation to allow for inter-state cannabis exports, the presence of the federal government and the Trump administration’s hard-line DEA cannabis enforcement guidelines are still a major concern for the possibility of inter-state cannabis trading.
Look no farther than last year’s rescission of the Cole memorandum, an Obama-era decision that federal government would not enforce their own cannabis guidelines on states that “legalized marijuana in some form and … implemented strong and effective regulatory and enforcement systems to control the cultivation, distribution, sale, and possession of marijuana,” as a clear indicator of the standard for cannabis policy until 2020.
Inter-State Exports Are A Possible Solution
While Oregon politicians do plan to reintroduce the inter-state export legislation this month, the last time it was introduced it never even made it to a vote. Although that type of legislation is a step in the right direction, there are still many hurdles it would need to clear.
Even if this version of the bill did make it to law, other states would still need to make changes in their current systems to be able to trade with states like Colorado, for example.
Wikileaf spoke with Jean Smith Connell, a Colorado-based lawyer specializing in cannabis law, about how other states can use Colorado as a model for how to avoid Oregon’s oversupply problem.
“Every state has their own idea of how the system should work and what’s best for their own state,” Connell said. “We’re going to need these states to change part of their system to allow for it.”
States Would Need To Buy In To Seed-To-Sale Tracking
Colorado, according to Connell, strictly follows their seed-to-sale method of keeping track of every bit of cannabis they grow. She doesn’t see a way Colorado could take on imported cannabis from out of state and properly track it without a sweeping plan.
“Every piece of marijuana, every flower, every edible has to be tracked,” Connell said. “There’s no way in its current legal system.”
While it might seem like an impossible task to be able to export to another state that then needs to be accountable for every ounce of cannabis, it’s actually a process that has the potential to be streamlined and utilized due to the seed-to-sale software involved.
Alaska, California, Colorado, D.C., Massachusetts, Michigan, Nevada, and Oregon all use the same seed-to-sale tracking software, Franwell’s Metrc system, for their recreational product, each signing lucrative contracts. For example, California’s contract with Franwell is worth up to nearly $60 million over the two-year deal.
With all of the data from each state available in the same database, the next logical step would be to allow those states to access one another’s data for importing and exporting purposes.
That way, plants could be tracked across every step of the process, even across state lines. Once the product is taken in by the other state, all information on it could be transferred to the receiving state’s database.
While the idea is completely hypothetical, it’s one that has future potential if utilized correctly. This would require all the states involved to buy in and play ball. It’s worth exploring if this type of system could be effectively used for inter-state exports and imports if legislation were to pass.
Aside from the seed-to-sale tracking system, Connell feels that the best ways for a state to avoid oversupply issues in their state is vertical integration within the cannabis market and keeping close tabs on the number of licenses handed out to retailers and growers.
For the cannabis industry, vertical integration has long been a heated and debated topic.
Many see vertical integration, which is consolidating multiple steps of the business like growing, processing and distributing down to one company, in a series of pros and cons.
Clearly, there are upsides to a system set up like that. Growers are able to keep track of their product from the start, cultivating it to their standards and adhering to laws within the state.
There are downsides as well.
Many have pointed out that because of the high costs of running a grow and getting the required licensing, the cost of entry to the cannabis industry in states like Colorado is prohibitive to small business owners.
Others have been quick to point out that because of those high operating costs that those small operations who do manage to get into the market in the first place are quickly being suffocated by bigger, corporate-backed grow operations.
While Connell does recognize that vertical integration can be cost-prohibitive to some, he says it’s still an important factor in keeping supply and demand within normal range.
“Vertical integration is the key to ensuring there’s not a huge supply-demand issue,” Connell said. “It’s kind of a pain because you need more money up front, but I do think it’s helpful.”
States can even temporarily implement vertical integration as Colorado did for both their recreational and medical cannabis sides, giving time for retailers and growers get their footing in the industry instead of letting that process be a free for all right off the bat.
States looking to avoid Oregon’s oversupply issue can utilize vertical integration to limit the number of growers in the market, keeping that potential surplus at a minimum.
According to Connell, Colorado keeps a tighter grip on its licensing system than states like Oregon, who had no limits on how many licenses were distributed up until very recently. They handed out so many that Oregon legislators agreed to stop processing applications in June 2018 due to the massive amount of interest.
Last year, Oregon reported they had as many as 1863 licensed cannabis businesses and 1001 growers, along with the 847 assigned applications and 477 ready for assignment waiting to be licensed. That’s a lot of people growing a lot of cannabis.
The problem got so bad that Billy J. Williams, the U.S. attorney for Oregon, named oversupply and out-of-state trafficking as his main priorities.
When you compare that with the 509 retail dispensaries in all of Colorado, 720 retail cultivations, 279 edible makers, 505 medical dispensaries, 752 medical cultivations and 252 medical infused product makers, it’s easy to see the difference in the numbers.
Connell credits Oregon’s oversupply problem in large part to their less rigid licensing system.
“I don’t think I can think of a single licensing authority that has a free for all,” Connell said. “If you give out five store licenses, only give out five grow licenses.”
States looking to avoid similar massive oversupply issues like in Oregon would be smart to follow Colorado’s model and be a little more judicious in how many licenses they hand out.