While regions in Canada are reporting a shortage of cannabis the United States is producing and cultivating cannabis in record numbers. The Oregon Liquor Control Commission reported that the state of Oregon is producing twice as much cannabis as people are using with an estimated six years’ worth of supply either stored in farms or sitting on dispensary shelves.
As the rule of business, when there is more supply than demand, prices go down. In Oregon, prices have dropped from $10 a gram to less than $5 a gram. Wholesale trim is reported to be selling at a low as $50 per pound, which is driving cultivators in the state out of business. According to the Colorado Department of Revenue, the average wholesale cost of cannabis in Colorado has dropped from nearly $3,500 per pound at the start of legalization in 2013 to about $1,012 a pound on April 1, 2018.
Consumers love the lower prices, but ironically, this business climate can actually fuel the cannabis black market. After learning their cannabis crop is not worth as much as the first forecast, cultivators and farmers might be tempted to illegally sell their plant to the black market in another state.
Now the federal government has stated it will crack down on the black market and illegal exports. The Trump administration rescinded earlier guidelines set in 2013 that directed prosecutors not to prioritize federal enforcement over cannabis laws in states where it had been legalized. U.S. Attorney for Oregon Billy Williams has since committed to reducing the cannabis black market.
“[M]ake no mistake about it, we’re going to do something,” Williams said in a press report.
“Preventing diversion is imperative to ensure federal authorities maintain confidence in Oregon’s ability to adequately regulate the use and sale of marijuana,” said Secretary of State Dennis Richardson.
In its study on cannabis supply and demand, the OLCC suggests four possible policy ideas in response to the oversupply in Oregon. It is stated that capitalism could “correct the problem” and just allow business to take its natural course. In any industry, businesses fail, others consolidate and, eventually, the market will find a balance with supply and demand. One statistic is that the U.S. Bureau of Labor estimates 40 to 50 percent of all businesses fail within the first four to five years and Oregon’s cannabis industry is three years old. The three other OLCC policy suggestions include limiting canopy sizes, increase license fees, and capping the number of licenses granted.
The Oregon secretary of state’s office also released an audit stating Oregon’s system for regulating and inspecting cannabis needs to be strengthened. An inspection audit found more cannabis inspectors are required.
“As the market is still developing, agency tracking of Oregon’s marijuana supply and inspections is lacking,” said Richardson. “This increases the risk that marijuana businesses in Oregon will find themselves subject to federal scrutiny.”
The state of Oregon initially set up cannabis sales to encourage the opening of small businesses. Oregon policymakers used the business model of the state’s thriving craft brewing businesses. Cannabis businesses are faltering when they should be succeeding.
The conclusion many insiders are drawing is that there’s just too much cheap cannabis in the state of Oregon.