January 15, 2024

Oregon's cannabis industry, once flourishing in the wake of legalization, now faces a significant challenge: oversaturation. This state, known for its progressive stance on cannabis, has approved over 3,000 licenses for the cultivation, processing, and sale of marijuana. However, this growth has outpaced market demand, leading to a call for new restrictions to stabilize the industry.

The Call for Change

The call for change in Oregon's cannabis industry is driven by several key factors, primarily stemming from the current state of market oversaturation and its associated challenges. The following factors underscore the cannabis industry's complex landscape in Oregon, where regulatory, market, and operational dynamics intersect. Industry leaders and regulatory bodies are continuously working to navigate these challenges to ensure a sustainable and equitable market environment:

• Excessive Number of Licenses: Oregon has approved a staggering number of licenses - over 3,000 - for farming, processing, and selling marijuana. This number significantly exceeds the market's capacity to absorb the produced cannabis, especially given that interstate export is not an option. The current saturation of businesses is competing for a limited market share, making the situation untenable for many operators.

• Need for Regulatory Adjustments: There have been legislative and informal moratoriums in place since June 2018 to stop the issuance of additional licenses. These moratoriums are nearing their expiry, and without intervention, the state would need to start processing new applications again. Industry leaders are therefore advocating for the state to enforce permanent restrictions on new marijuana business licenses to prevent exacerbating the current oversaturation.

• Tying License Issuance to Population Growth: A proposed solution to manage the situation involves tying the issuance of new licenses to the state's population growth. This approach is expected to create a balance between supply and demand. Specifically, the idea is to have less than one license per 7,500 smoking-age adults for cultivation and manufacturing and one per 12,500 for processing and wholesale operations.

• Current Moratoriums and Future Proposals: The current situation is a result of both market conditions and regulatory decisions. Past legislation like SB 408 has brought clarity to violations and licensing issues, reflecting the industry's evolving regulatory needs. Additionally, recent proposals, such as HB 4016, seek to extend moratoriums on new cannabis licenses, with some exceptions, until 2024. This move is partly aimed at managing the market oversupply and addressing equity and resource allocation within the industry.

• Market Conditions and Resources: The decision to extend the moratorium on new producer licenses and the processing of new retailer, wholesaler, and processor license applications considers several factors. These include market conditions, resource allocation, equity issues, and the need to manage illegal grow operations statewide.

The Impact of Oversaturation

The cannabis industry in Oregon is currently navigating a challenging period due to market oversaturation. This complex situation has various dimensions that influence both the market and the stakeholders involved.

• Harvest Dynamics and Market Fluctuations: A significant factor contributing to oversaturation is the timing of the cannabis harvest. Approximately 85% of Oregon's cannabis is grown outdoors, with the majority being harvested in October. However, planting decisions are made in April or May, often based on market conditions from the previous fall. This lag in response time to market changes leads to fluctuations in supply and demand, often resulting in oversupply. For instance, in 2023, the marijuana harvest was 9% lower than the previous year, but the large October harvest again tipped the scales, exacerbating the oversupply issue.

• Economic Impact: The glut of cannabis has had a profound economic impact. With an oversupply, prices for wholesale cannabis and retail products have dropped significantly. This is beneficial for consumers, but it leaves cannabis businesses with diminishing margins and, in some cases, no profits. This situation has led to difficulties in paying taxes and managing debts for more than one-third of cannabis businesses, as per a survey. Moreover, the state of Oregon has witnessed a decline in cannabis tax revenue, falling short of estimates in recent quarters.

• Retail Environment and Consumer Behavior: The market dynamics have also led to a highly competitive retail environment. Oregon has licensed a notably high number of cannabis retailers per capita compared to other states. This competition, combined with an oversupply and declining demand, has fostered a price war among retailers. Businesses are offering steep discounts in an effort to attract customers and remain solvent, adding to the financial strain on the industry.

• Future Outlook and Industry Response: The future of many cannabis businesses in Oregon seems to hinge on the success of the upcoming seasons. Without a turnaround, the industry could face closures and job losses. In response to these challenges, two major cannabis industry groups in Oregon merged to form the Cannabis Industry Alliance of Oregon, representing over 500 member businesses. This merger aims to consolidate efforts for advocating reasonable regulations and future opportunities for the industry.

The oversaturation of Oregon's cannabis market has led to significant economic and operational challenges for businesses. The industry is at a critical juncture, needing to adapt and respond to these challenges to ensure sustainability and growth.

The Struggle for Survival

The consequences of the oversaturated market are far-reaching. Many cannabis businesses in Oregon are struggling to stay afloat amid falling prices and stagnant customer growth. Mason Walker, CEO of East Fork Cultivars, voices concerns about the sustainability of businesses in this environment. Retailers are forced to offer steep discounts to remain solvent, leading to a precarious situation where the viability of many businesses hangs in the balance. The upcoming summer season is viewed as crucial for the industry's survival, with the potential for business closures and job losses if the situation doesn't improve.

Conclusion

Oregon's cannabis industry is at a pivotal moment. The state's progressive approach to legalization has led to a booming industry, but it now faces the consequences of its own success. The call for new restrictions is a response to the urgent need to balance supply with demand. The outcome of this struggle will not only shape the future of the cannabis industry in Oregon but also offer valuable lessons for other states navigating the complex dynamics of a legalized cannabis market.

References:

• Nathan Wilk's report on OPB discusses the industry's request for new restrictions and the current state of the cannabis market in Oregon (OPB).
• 420intel.com also covers the industry's call for new restrictions and the oversaturation problem.
• Additional insights are provided by Roman Battaglia's piece on OPB, highlighting the economic struggles faced by Oregon cannabis businesses amid record-low prices.

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