The Oregon Liquor and Cannabis Commission (OLCC) met on September 23, 2021. Commissioners and staff held an in-depth discussion of current market conditions, specifically the illicit market and its deleterious effects on the state’s legal system. One speaker asserted that if the illicit market is not met with more police resources, it will destroy the legal cannabis market. The OLCC does not fund or direct policing activities and one member pointed out that such initiatives would have to be funded by the legislature. Some staff members noted that illicit growers, especially in southern Oregon, are undercutting legal cannabis prices.
Also of particular interest to Cannabis Benchmarks readers: OLCC staff recommended the moratorium on new cannabis producer licenses be extended for two years. The moratorium is likely to be extended, with procedural and timing details outlined in the interview below. While the intent of the initial moratorium to curb supply and support market price was largely defeated by the clearing of backlogged producer licenses, a second bite at the moratorium apple, in conjunction with increased policing of the illicit market, may help in supporting Oregon cannabis prices in future years.
Casey Houlihan, Executive Director of the Oregon Retailers Association (ORCA), said that the recommendation to extend the moratorium was expected given that the initial moratorium “slowed the bleeding” in the industry, but did not stop it. The OLCC appears to have the authority to extend the moratorium on its own, but will take a more nuanced approach, according to Houlihan. The commission will likely look for statutory approval of an extension of the moratorium and, given Oregon’s truncated legislative calendar next year, the moratorium should receive such approval in February or March 2022.
Houlihan supports the moratorium extension. He told Cannabis Benchmarks, “even the existing canopy is far more than is needed to supply the state’s existing consumers” and issuing more licenses at this time “would create instability” in the cannabis market. As far as supply goes, the OLCC may be over-stating the supply situation because they rely on “wet weight,” which includes wasted product that is not ultimately marketable. Still, he reiterated the fact that outdoor growers kept finished inventory off the market last year, thus adding to supply generated this year and compounding price pressures.
That the market is oversupplied is not in doubt and while outdoor product is changing hands at $300, $400, and $500 per pound, depending on quality, that is for single pounds for retail sale as smokable flower. Larger volume outdoor product sales have seen prices as low as $80 per pound and it seems likely that flower is going to processors to make shelf-stable products such as extracts, concentrates, and infused products. Trim still trades at $50 per pound but lower prices for quantity are not unknown.
Indoor-grown product can trade for as little as $800 per pound, up to $1200 for higher quality, but for “5% of indoor growers” prices can range much higher. This small number of indoor growers are getting $2,700 per pound before the product is even planted, according to Houlihan, and “demand for this product exceeds supply.” Greenhouse product is “almost a bifurcated market” with some greenhouse quality as high as indoor and some on par with outdoor, with prices to match. Houlihan noted product grown in hoop houses is mostly getting outdoor-grown prices.
In a wide-ranging conversation, one sensed the outdoor market may again undergo a type of creative destruction, where growers throw in the towel and new growers come to the market. Indeed, one advantage of the moratorium, as Houlihan sees it, was that it offered growers crushed by oversupply and tanking prices the opportunity to sell their businesses to new growers, rather than some less desirable alternatives. At the end of the day, it seems as if the high-end producers will continue to thrive even as supply swamps price on some greenhouse and most outdoor production.
Houlihan sees federal legalization as the road to a robust and stable Oregon cannabis market but is not optimistic about President Joe Biden supporting such a bill. He did concede that there are other signs Biden may come around if a legalization “democratic bill” were to land on his desk. For now, Oregon prices remain under pressure and the market is likely to see a new two-year moratorium on cannabis producer licensing receive statutory approval in late winter or early spring next year. In the interim, Houlihan does not see the OLCC processing new license applications even after the moratorium expires on January 1, 2022.