Oregon is exploring their options when it comes to interstate cannabis exports due to the massive gulf between supply and demand within the state.
Oregon, one of the first states to legalize recreational use of marijuana in 2015, produces over 2 million pounds of legal cannabis per year, generating about $70.2 million in sales taxes from its sale in 2017 alone according to the Oregon Department of Revenue. Despite the legalization and thriving legal cannabis industry, however, in-state demand for cannabis is only between 186,100 – 273,600 pounds according to the Oregon-Idaho Drug Trafficking Area report.
According to the report, “only 31 percent of available cannabis inventory was distributed [in-state], leaving 69 percent unconsumed within the state-sanctioned recreational system.” This massive disparity between supply and demand has not only impacted Oregon but the surrounding states around it as well.
Oversupply is Fueling the Black Market
Current federal law does not allow for cannabis to be transported between states and Oregon state law dictates that any cannabis grown within the state needs to stay in-state.
The lack of options for what to do with all of that Oregon-produced legal cannabis has led to something authorities call “diversion” – the funneling of legally grown product out into surrounding states like Idaho. Law enforcement in Idaho has seized more trafficked cannabis in the past year than they have in the last three years combined.
Between July 2015 and January 2018, 14,550 pounds of Oregon-grown marijuana have been seized while in-route to 37 other states. That’s about $48 million dollars in cannabis that the state’s legal cannabis industry could have been profiting from instead.
Hardships in the Legal Industry
That missing profit doesn’t go unnoticed from business owners with a stake in the legal cannabis industry either.
Cameron Yee, a founder of cannabis edibles company Lunchbox Alchemy, said he felt that the legal cannabis industry as a whole would benefit from changes in the law.
“I don’t have to tell you what exports could mean for your bottom line,” Yee said. “That’s particularly true for our locally owned business. We can’t wait — we have to go out and get it.”
Jason Schwartz, the owner of Cascade High farm, has seen a major dip on the prices he can get per pound for his yield due to the surplus.
“This time last year, I was getting $1,800 to $2,200 per pound for my flower,” Schwartz said. “Right now, I can get $500 to $800 per pound on average. Last year, I had 15 employees, and now I can only afford four. Most of us are on the verge of going out of business—we can’t afford to wait another five years.”
Mason Walker, CEO of East Fork Cultivators, feels that the proposed inter-state sales idea is a great way to further advance the legal cannabis industry.
“We’re definitely huge proponents of interstate sales,” he says. “I think it’s a no-brainer—a really good solution to our immediate issues with supply and demand imbalance in many states. Nevada has a massive quality cannabis shortage right now, and Oregon has an abundance. Just even matching those two states would be a boon for both.”
The logical solution would be to work on some way to legally export that legal cannabis to other states where recreational cannabis use is legal.
Nine other states – Alaska, California, Colorado, Maine, Massachusetts, Michigan, Nevada, Vermont and Washington – and Washington, D.C., have legalized recreational cannabis use.
Adam Smith, the founder and executive producer of the Craft Cannabis Alliance, is working with legislators to build and format a plan for interstate sales.
One of the CCA’s main goals, as listed on their website, is to ensure that Oregon cannabis is owned in Oregon, building wealth where it’s grown, supporting local communities, institutions and economies.
“Our industry is in an economic crisis,” Smith said. “One solution that does address this and gives us markets to sell in is exporting our world-class product. We need to take the lead and get it done now.”
Legal Exports Would Combat the Black Market
Smith thinks a key component of keeping and building that wealth within communities is to legalize cannabis transfers between states that share recreational cannabis laws.
“We legalized cannabis, but the only people making a living in the cannabis industry are the ones who decided not to get licenses,” Smith said. “A licensed transfer into another legal state isn’t radical. There is no faster way to incentivize growers to transition from the black market to the legal, regulated market than legalizing export.”
Smith says that “champion” legislators like Oregon Sen. Floyd Prozanski are key figures in this battle.
Prozanski had previously introduced SB 1042, legislation that would have put the power to make deals for inter-state cannabis exports with neighboring states with similar recreational laws like Washington and California in the lap of Oregon’s governor.
The legislation would have measures to introduce testing on all outgoing cannabis exports from the state, dictate packaging and labeling rules and tax those out-of-state purchases at a 17 percent rate.
The bill died in the state house in 2017, but Prozanski plans to reconfigure and reintroduce the bill during the upcoming February legislative session.
A Change in Paradigm
It feels like things are beginning to shift further in the right direction for the legal cannabis industry, with even the FDA considering softening their stance on CBD oil sales and looking into “pathways” to sell cannabis-based food and beverages across state lines.
The recently signed farm bill softened some long-standing, hard-line federal policies, like legalizing hemp by taking it off the Controlled Substances Act and opens the door to relaxing its grip on the booming CBD industry.
In a statement about the policy change, FDA Commissioner Scott Gottlieb said the agency is “aware of the growing public interest in cannabis and cannabis-derived products.”
“While products containing cannabis and cannabis-derived compounds remain subject to the FDA’s authorities and requirements, there are pathways available for those who seek to lawfully introduce these products into interstate commerce,” Gottlieb said. “The FDA will continue to take steps to make the pathways for the lawful marketing of these products more efficient.”
With the state currently sitting on about 1 million pounds of cannabis flower inventory according to the Oregon Liquor Control Commission and no restrictions on the number of producers, retailers and processors in the industry, the issue is likely to get worse unless something were to change.