Uneasy marijuana industry seeks broader trade amid vast glut

TUMWATER, Washington (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 that some licensed growers have funneled product to the out-of-state black market just to stay afloat.

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 United States marijuana production long before states began to legalise 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 per cent 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 legalising 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 legalised the drug. That would allow the West Coast – with its favourable 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’ – modelled after ones already passed in Oregon and California – authorising the governor to enter into interstate cannabis trade agreements should the feds allow it.

Twenty-one states have now legalised the recreational use of cannabis by adults. Sales just began in Missouri, are expected to begin in July in Maryland, and totalled $300 million in the first year of New Mexico’s programme.

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 legalise 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.

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 that marijuana businesses were sitting on about three million pounds (1.36 million kilogrammes) of unused cannabis, as well as 75,000 pounds (34,000 kilogrammes) 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 T.J. 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.

With such cheap prices, keeping the industry sustainable is a challenge.

Industry insiders say legal growers generally want to supply the legal market, rather than risk their businesses and freedom should they get caught selling out the back door. But some have only hung on by getting product to the black market.

“They were either going to die or get creative,” said Tanner Mariani, head of sales for Portland Cannabis Market. “And a lot of people chose to get creative and ... found a way to get it from this market into the other side and then out of the state.”