Ganja glut? With excess weed, growers seek interstate sales
Bonno
April 19, 2023
TUMWATER, Wash. (AP) — The email went out to legal cannabis growers around Washington state, alerting them that another of their colleagues had gone under.
“Liquidation sale,” it said. Attached was a spreadsheet of items up for grabs: LED grow lights for $500 apiece. Rotary evaporators for hash oil, $10,000.
Across the Columbia River in Oregon, where the state’s top marijuana regulator recently warned of an “existential crisis” in the industry, it’s an open secret some licensed growers have funneled product to the out-of-state black market just to stay afloat.
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California’s “Apple store of weed,” MedMen, is teetering with millions in unpaid bills, while the Canadian cannabis company Curaleaf has shuttered most of its cultivation operations in California, Oregon and Colorado.
Along the West Coast, which dominated U.S. marijuana production long before states began to legalize it, producers face what many call the failed economics of legal pot.
There is vast supply, thanks to great growing conditions and a wealth of expertise, but any surplus remains officially trapped within each state’s borders due to the federal ban on marijuana. Prices have plunged and producers have struggled.
“I’m at rock bottom,” said Jeremy Moberg, who owns CannaSol Farms in north-central Washington and, like many licensed growers, complains that the state’s 37% cannabis tax leaves virtually no profit margin for producers. “I’m tired of running a failing business.”
No one in the industry expects a fractured Congress to help out anytime soon by legalizing the drug, allowing pot businesses to deduct expenses or even just easing banking restrictions that frequently cut them off from loans or credit.
Instead, some are pinning their hopes, however faint, on President Joe Biden’s administration clearing the way for marijuana trade among states that have legalized the drug. That would allow the West Coast — with its favorable climate and cheap, clean hydropower for indoor growing — to help supply the rest of the country, they argue.
In Senate testimony last month, Attorney General Merrick Garland said the Justice Department will soon announce a new marijuana policy — one that would hew close to the “Cole Memorandum” of 2013, which made clear the feds would not interfere with state efforts to regulate marijuana as long as certain law enforcement priorities were met.
Drug policy experts say they do not expect the new policy to go as far as permitting interstate commerce.
Nevertheless, lawmakers in Washington state last week approved a “trigger bill” — modeled after ones already passed in Oregon and California — authorizing the governor to enter into interstate cannabis trade agreements should the feds allow it.
Twenty-one states have now legalized the recreational use of cannabis by adults. Sales just began in Missouri, are expected to begin in July in Maryland and totaled $300 million in the first year of New Mexico’s program.
How states have set up their markets has implications for how their industries are doing now — and how they might fare should businesses be allowed to sell out of state.
Washington and Colorado were the first states to legalize recreational marijuana in 2012. Many of the early regulations Washington adopted to keep the Justice Department at bay — including restricting the size of growing facilities and banning out-of-state investment — remain in place.
That has helped some smaller growers thrive. But it could hamstring those hoping to compete in an interstate marketplace alongside larger, more efficient producers from Oregon or California, who operate under fewer limits.
A large selection of marijuana is on display at Preserve Oregon, a shop in Salem, Ore., on Jan. 31, 2023. Along the West Coast, which has dominated U.S. marijuana production from long before legalization, producers are struggling with what many call the failed economics of legal pot...a challenge inherent in regulating a product that remains illegal under federal law. (AP Photo/Andrew Selsky)
A large selection of marijuana is on display at Preserve Oregon, a shop in Salem, Ore., on Jan. 31, 2023. (AP Photo/Andrew Selsky)
In Oregon, where sales began in 2015, large growers have achieved some economy of scale that could give them a leg up in a broader market. But in the meantime, the state’s oversupply is considered the nation’s worst.
In February, the Oregon Liquor and Cannabis Commission reported marijuana businesses were sitting on about 3 million pounds (1.36 million kilograms) of unused cannabis, as well as 75,000 pounds (34,000 kilograms) of concentrates and extracts.
Steve Marks, then the commission’s executive director, said Oregonians already buy as much weed as they can use. Federal inaction poses “an existential crisis” for Oregon’s industry, he warned.
“Cannabis in Oregon is like corn in Iowa,” said TJ Sheehy, an analyst for the commission. “If you put a box around Iowa and said you can only grow corn in Iowa to sell to Iowans, you’d have exactly the same dynamic.”
Contributing to the glut in Oregon and to a lesser degree in Washington is that the states licensed so many growers. The initial idea was to ensure enough supply for the legal market, bringing down prices to compete with the black market. Oregon, with a little over half of Washington’s population, has hundreds more licensed growers.
The oversupply has been terrific for cannabis consumers.
When legal sales began in Oregon, a pound of cannabis might have gone for $3,000 wholesale; today, that same pound might be $100 to $150, said Isaac Foster, co-founder of Portland Cannabis Market, a wholesale distributor.
In Washington, which has some of the highest cannabis taxes in the country, the prices consumers pay in pot shops are still cheaper than illicit weed. The state is raking in half a billion dollars a year in taxes, money it devotes to health care and government operations.
Three-quarters or more of cannabis users in Washington, Oregon and Colorado — all among the earliest legalization states — reported they bought marijuana products from legal retail outlets in 2021, according to the International Cannabis Policy Study, based at the University of Waterloo in Ontario, Canada.
With such cheap prices, keeping the industry sustainable is a challenge.
Moberg, of CannaSol Farms, is down to seven employees — a drop from more than 30 in 2014 and 2015 as Washington’s pioneering industry launched amid tight supply and high prices.
