Is Oregon’s Cannabis Industry Really “Out of Control”?

Earlier this month, Billy J. Williams, U.S. Attorney for the District of Oregon, responded to a recent federal report on drug policy in Oregon by calling the state’s cannabis program “out of control.” The report in question was published by the Oregon-Idaho High Intensity Drug Trafficking Area (“HIDTA”), a federally-funded organization dedicated to combatting drug trafficking and to preventing the diversion of marijuana from states where it is legal to states where it is not, which examined Oregon’s cannabis production, distribution, and consumption since its legalization in 2014 (“HIDTA Report”).

By and large, the HIDTA Report reiterates the findings of last year’s controversial report published by the Oregon State Police Drug Enforcement Section (“2017 Report”)—which, interestingly, was drafted by the same author—and concludes that the Beaver State is the top source for black market pot in the country. Similarly to the 2017 Report, the HIDTA Report stresses the negative impact overproduction has had on fueling illegal trade from Oregon to other states where marijuana remains illegal.

The HIDTA Report associates overproduction with the unlimited number of cannabis licenses issued in Oregon. Yet, shrinking the pool of available licenses would not make the black market disappear. As we explained before, overproduction in the state is driven by substantial and relentless demand from other states, which have come to identify Oregon weed as a superior product. Therefore, even if the Oregon Legislature were to impose a cap on the number of licenses the OLCC is allowed to issue, black market activity would continue because the demand would not likely decrease.

In addition, the HIDTA Report highlights that Oregon produces more than 2 million pounds of marijuana each year, equating to more than 6 times Oregon’s annual consumption demands, which range from 186,100 to 372,600 pounds. This means that roughly 70 percent of the cannabis produced in Oregon is not state-approved and is instead exported to states where cannabis is currently illegal.

Unfortunately, like the 2017 Report, the findings in the HIDTA Report appear incomplete in that its author cannot point to a single source for direct, reliable information on total state production, which includes both legally and illegally grown marijuana. Although the issues of overproduction in Oregon and interstate leakage are very well present, it is important to stress that such surplus does not commonly emanate from the state-sanctioned cannabis production market (i.e., cannabis grown and produced by Oregon Liquor Control Commission (“OLCC”) licensees). Instead, overproduction tends to stem from illegal growth and from unsanctioned, poorly regulated, quasi-commercial systems like the Oregon Medical Marijuana Program.

Although we suspect that the findings of the 2017 Report and the HIDTA Report reflect the anti-legalization position of the federal government—if you recall, both reports were federally funded—the reports stress the need to tackle overproduction and interstate leakage in a responsive and comprehensive manner, a goal shared by prohibitionists and legalization proponents. For its part, the OLCC has taken recent steps to corral diversion, including its harvest notification rule alongside reduction in purchase limits for medical cardholders. The agency also seems to be taking a tougher stance on rules violations by licensees.

Regardless of OLCC actions, though, and whatever the Oregon legislature decides to do in early 2019, the state’s response must take into consideration the fact that federal illegality is encouraging unscrupulous and desperate cannabis businesses to cut their losses and sell their surplus in the black market. In addition, controlling supply by capping Oregon licenses as a fearful response to interstate leakage would in fact incentivize black markets, because a cap would increase the prices of cannabis. Illegal marijuana grows were prevalent in Oregon prior to 2015, after all.

The legal cannabis market is a nascent industry, making it difficult to determine how it will respond to outside forces. Consequently, we must accept that it will take time for the cannabis industry to adjust to these outside forces and find its equilibrium. This process promises to be rocky, and yes, possibly “out of control” to some.

For more on Oregon cannabis and the oversupply issue, please see the following: