Oregon’s Legal Cannabis Market Is Generating Huge Revenues—But None of It Is Going to Regulation

Oregon's legal cannabis market is producing bumper harvests and robust tax revenues. But none of that money is going to regulate the weed industry.

The results of those two realities were on display last week.

An audit showed lawmakers have underfunded regulation. Meanwhile, a new analysis confirmed that the massive oversupply first reported by WW ("Too Much Weed," April 18, 2018) will continue unabated. And a recent drug bust in Idaho showed the leakiness of Oregon's cannabis market.

In the mind of one of the state's leading drug policy veterans, the current system for regulating cannabis was almost designed to fail.

"It's like we're driving this shiny new car full speed down the road, hoping it doesn't crash," says Rob Bovett, former Lincoln County district attorney and now legal counsel for the Association of Oregon Counties. "We haven't checked the oil or the tires. It's just kind of irresponsible."

Bovett says political choices made by the framers of Measure 91, which legalized recreational weed in 2014, threaten to undermine the integrity of the system.

Specifically, the Oregon Liquor Control Commission, which is charged with licensing and regulating the industry from seed to sale, can only afford regular inspections of a small fraction of its nearly 2,100 license holders.

Oregon's decision—different from other states—to allow an unlimited number of growers, processors and retailers means they've engaged in unfettered competition, driving cannabis supply through the roof and prices through the floor—down more than 50 percent since late 2016.

Related: Oregon grew more cannabis than customers can smoke. Now shops and farmers are left with mountains of unwanted bud.

Economist Beau Whitney of New Frontier Data closely tracks Oregon's cannabis inventory, which now equals 6.5 years of demand. He says prices could again fall by half.

"Oh yeah, absolutely," Whitney says. "And then some."

Oregon policymakers chose to allow the market to be flooded with cheap, legal weed in part to suppress the illicit market. Booming sales brought in $82 million in state tax revenues last year. Weed tax money goes into six different buckets, including mental health and addiction services and the State Police. By far the biggest chunk of weed tax money, 40 percent, goes to fund schools.

But not a penny went to the OLCC for regulation. The agency funds its cannabis efforts through license fees, which are much lower here than in some other states that have legal weed. (By contrast, the OLCC last year received about $40 million from liquor sales—effectively tax money—to fund its regulation of alcoholic beverages.)

"We need to rewrite that formula," Bovett says. "We need to make the marijuana system accountable before sending money to other agencies."

The stress of oversupply on the market is also beginning to show at the state border.

On Jan. 29, Idaho State Police reported the seizure of 6,701 pounds of a "THC-containing substance," after pulling over a truck driven by a Portland man. (The police said the shipment was cannabis. Big Sky Scientific, the Colorado-based owner of the shipment, sued Idaho authorities, claiming the material in question was industrial hemp.)

Whitney says the oversupply of legal weed makes black market sellers cut prices and export to other states.

"As the price declines occur in the legal market," Whitney says, "it's forcing the illicit price to keep pace."

And the state is struggling to keep up. On Jan. 30, Oregon Secretary of State Dennis Richardson delivered an audit of the state's cannabis regulation.

Auditors found that the OLCC had only enough staff last year to inspect 3 percent of retailers and 32 percent of growers. The medical marijuana system got even less scrutiny: Four inspectors are responsible for tracking 14,000 grow sites. Such gaps, the audit found, "increase the risk of legal marijuana diverting to the black market."

OLCC officials will soon ask lawmakers for more money from the state's general fund. The outcome of that request won't be known for months—nor have any budget committees yet considered rewriting Measure 91's tax formula. Experts say something must change.

"The numbers are very clear," Whitney says. "Where we need more resources is compliance."