The Future of Cannabis in Washington and Oregon

In late January, Portland hosted the Cannabis Collaborative Conference (“CCC” or “Conference”), an annual forum created by cannabis industry leaders, aimed at addressing the most pressing issues facing this emerging market. This year’s conference focused on the future of the cannabis industry.

Rick Garza, Director of the Washington State Liquor and Cannabis Board (“WLCB”), was one of the key speakers at this year’s Conference. Mr. Garza discussed the possibility of Washington state allowing small cannabis farmers to sell directly to consumers. This practice would be comparable to that allowed for wineries, breweries and distilleries. If approved by the Washington State Legislature, this move would afford small growers an opportunity to increase their sales and, consequently, boost the local economy. This initiative would mirror the practice adopted by several Canadian provinces, which allow licensed producers to sell marijuana to consumers at cultivation facilities, and states like Colorado and Oregon, which authorize licensed cannabis growers to concurrently hold retailer licenses.

The Washington cannabis regulator was also joined by Steve Marks, Executive Director of the Oregon Liquor Control Commission (“OLCC”). Both discussed upcoming changes to the Washington and Oregon programs, which respond to the ongoing and growing issues of oversupply. As we previously discussed, Oregon’s supply has far exceeded local demands: the state is currently sitting on approximately 1.4 million pounds of marijuana that state and federal laws prohibit from selling outside state lines. This tremendous oversupply in Oregon has caused prices to crater, putting many licensed growers on precariously thin ice. In 2018, the wholesale price of Oregon flower dropped from $3.90 per gram at the beginning of the year to $1.86 as of the end of the summer. Washington growers find themselves in an equally challenging situation.

In addressing the overproduction issue and interstate leakage, the OLCC leader said he expected more discussion about legislation capping the number of cannabis business licenses in Oregon. However, as we explained before, controlling supply by capping Oregon licenses as a fearful response to interstate leakage could also incentivize black markets, especially for Oregon sales, because a cap would increase the prices of cannabis.

Mr. Marks also shared that he has seen an infusion of capital into Oregon cannabis companies from investors who believe marijuana will become federally legal. Similarly to those investors, we believe federal legalization is merely a matter of time and that it will help put an end to unapproved interstate leakage. Indeed, the federal prohibition of cannabis is encouraging unscrupulous and desperate cannabis businesses to cut their losses and sell their surplus in the black market.

Although solving the issue of oversupply and interstate leakage will inevitably require the federal legalization of cannabis, it is encouraging to know that Washington and Oregon cannabis regulators are actively exploring ways to improve the industry and insure its sustainability. We expect to see some very important developments in both states in 2019, in addition to any federal law updates.