A bill aimed at limiting Oregon’s supply of cannabis advanced out of the state Senate and will now go before the House for consideration. On Monday, Senate lawmakers voted 18-10 in favor of a temporary freeze on cannabis production. The freeze would hold marijuana production at its current level for the next two years. The bill would also suspend the issuance of any new cultivation licenses. Currently licensed growers, however, will be able to renew their licenses during the temporary freeze period.
Why is Oregon Freezing Cannabis Production?
Medical marijuana has been legal in Oregon since 1998. And in 2014, voters approved the legalization of cannabis for adult use. Since establishing a regulated retail industry for THC products, cultivation operations have exploded across the state, with growers taking advantage of Oregon’s ideal climate to produce massive quantities of high-quality flower.
Before long, Oregon’s wholesale cannabis market was absolutely saturated with product. And the large surplus of cannabis began to pose a number of problems for regulators, lawmakers and the industry itself. Growing more cannabis than the state’s retail market could possibly handle, Oregon had to ask where all that surplus cannabis was ending up.
Some suggested producers, motivated by profit, were diverting the surplus onto the so-called black market out of state. U.S. Attorney for the state of Oregon penned an op-ed about the issue in which he cited postal service data that agents had seized 2,644 pounds of outbound cannabis and more than $1.2 million in cash in 2017 alone.
Over the past couple years, that surplus and the concerns that come with it have only grown. According to State Sen. Michael Dembrow (D-Portland), Oregon has already produced enough cannabis to last it for the next 6-plus years, based on market projections.
What Does a Freeze on Cannabis Production Mean for Cultivators?
That massive surplus has an equally large impact on the cultivation industry. It drives down wholesale prices, cutting into profit margins and incentivizing illicit revenue streams. But a temporary freeze will also impact the cultivation and wholesale sectors of Oregon’s legal cannabis industry.
If passed, the bill to freeze production would also prevent state regulators from issuing new cultivation licenses. This move has drawn criticism from more libertarian politicians who feel the so-called free market, not the state, should regulate the forces of supply and demand shaping the industry.
Those criticism are not entirely without merit, considering how little the OLCC still knows about the relationship between supply and demand. According to the data, barely 11 percent of the one million pounds of cannabis produced in 2017 ended up in the hands of retail customers. But retail sales aren’t the only destination for flower. Manufacturers buy cannabis wholesale to create “value-added” THC products like oils, concentrates, edibles and tinctures.
In short, regulators don’t yet have a clear picture of how much inventory of flower Oregon needs to supply its regulated market. And that’s exactly what lawmakers hope to reveal through the two-year freeze on cultivation. Keeping production levels constant, at least for a couple years, will help give lawmakers, regulators and even the industry a better sense of how much cannabis they really need to grow.
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