Prices freefall in Oregon pot glut

Brooke Smith, owner of the Tree PDX marijuana shop in Portland, Ore., shows Oregon Craft Cannabis Alliance executive Adam Smith a marijuana variety called Cherry Skunk.
Brooke Smith, owner of the Tree PDX marijuana shop in Portland, Ore., shows Oregon Craft Cannabis Alliance executive Adam Smith a marijuana variety called Cherry Skunk.

PORTLAND, Ore. -- When Oregon lawmakers created the state's legal marijuana program, they had one goal in mind above all else: to persuade illicit pot growers to leave the black market.

That meant low barriers for entering the industry that also targeted long-standing medical marijuana growers, whose product is not taxed. As a result, weed production boomed -- with a bitter consequence.

Now, marijuana prices here are in freefall, and the craft cannabis farmers who put Oregon on the map decades before broad legalization say they are in peril of losing their now-legal businesses as the market adjusts.

Oregon regulators on Wednesday announced they will stop processing new applications for marijuana licenses in two weeks to address a severe backlog and ask state lawmakers to take up the issue next year.

Experts say the dizzying evolution of Oregon's marijuana industry may well be a cautionary tale for California, where a similar regulatory structure could mean an oversupply on a much larger scale.

"For the way the program is set up, the state [California] just wants to get as many people in as possible, and they make no bones about it," said Hilary Bricken, a Los Angeles-based attorney specializing in marijuana business law. "Most of these companies will fail as a result of oversaturation."

Oregon has nearly 1 million pounds of marijuana flower -- commonly called bud -- in its inventory, a staggering amount for a state with about 4 million people. Producers told The Associated Press that wholesale prices fell more than 50 percent in the past year; a study by the state's Office of Economic Analysis found the retail cost of a gram of marijuana fell from $14 in 2015 to $7 in 2017.

The oversupply can be traced largely to state lawmakers' and regulators' earliest decisions to shape the industry.

They were acutely aware of Oregon's entrenched history of providing top-drawer pot to the black market nationwide, as well as a concentration of small farmers who had years of cultivation experience in the legal, but largely unregulated, medical pot program.

Getting those growers into the system was critical if a legitimate industry was to flourish, said Sen. Ginny Burdick, a Portland Democrat who co-chaired a committee created to implement the voter-approved legalization measure.

Lawmakers decided not to cap licenses; to allow businesses to apply for multiple licenses; and to implement relatively inexpensive licensing fees.

Oregon's Liquor Control Commission announced Wednesday it will put aside applications for new licenses received after June 15 until a backlog of pending applications is cleared. The decision comes after U.S. Attorney Billy Williams challenged state officials to address the oversupply.

"In my view, and frankly in the view of those in the industry that I've heard from, it's a failing of the state for not stepping back and taking a look at where this industry is at following legalization," Williams told the AP in a phone interview.

But those in the industry supported the initial decisions that led to the oversupply, Burdick said.

"We really tried to focus on policies that would rein in the medical industry and snuff out the black market as much as possible," Burdick said.

Lawmakers also quickly backtracked on a rule requiring marijuana businesses have a majority ownership by someone with Oregon residency after entrepreneurs complained it was hard to secure startup money. That change opened the door to deep-pocketed, out-of-state companies that could begin consolidating the industry.

The state has granted 1,001 producer licenses and had another 950 in process as of last week. State officials worry if they cut off licensing or turn away those already in the application process, they'll get sued or encourage illegal trade.

Some of the same parameters are taking shape in California, equally known for black-market pot from its Emerald Triangle.

Information for this article was contributed by Gene Johnson, Michael R. Blood and Kathleen Foody of The Associated Press.

Business on 06/01/2018

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