May 3, 2022

Will the Oregon Moratorium on Cannabis Business Licenses Really Work?

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The Oregon Liquor & Cannabis Commission (OLCC) announced last week that it is formally implementing a moratorium on issuing new cannabis business licenses “to applicants who submitted an application after January 1, 2022.” The moratorium was enabled by legislation passed last year, which we covered at the time; it applies to all license types and will remain in effect for two years.

The OLCC statement says that the state’s market has “experienced exponential growth, which has led to a crowded marketplace.” By some measures, however, growth has been slowing in Oregon’s legal cannabis market as of late, with 2021’s sales of $1.18 billion up just 6% over 2020’s tally of $1.11 billion, the smallest year-on-year increase in legal sales since they began in 2016. On the other hand, production and supply increased at impressive rates in 2021, with the state’s outdoor harvest volume wet weight ballooning by 55% year-on-year and indoor harvest volume jumping by about 30%.

Oversupply and a saturated market have led to wholesale prices falling to extremely low levels in Oregon, with competition in the retail sector also leading to reports of rock-bottom prices and shrinking margins, where they still exist. Whether the new moratorium will work to ameliorate the state’s current cutthroat market conditions remains to be seen.

If history is any guide, it is unlikely that the moratorium will have a prompt and direct impact on the existing market landscape. Oregon officials previously limited the issuance of new producer licenses in 2018, with a formal moratorium on that license type put in place in June 2019 by the passage of legislation. However, since previously submitted applications could still be processed under the terms of the moratorium, as is the case with the new moratorium, the number of producer licenses continued to expand. Information from OLCC shows 1,136 active producer licenses as of the end of June 2019. The most recent information available from the Commission lists 1,395 active producer licenses as of mid-March 2022. As noted above, harvest volumes increased substantially in 2021 – and in 2020 as well – despite the previous moratorium remaining in effect.

March 22, 2022

What are Lawmakers in Oregon Doing to Aid the Cannabis Industry?

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Oregon perhaps exemplifies the cannabis price crash better than other states, in that policymakers have stepped in on multiple occasions in what was understood to be efforts to “fix” the oversupply problem with two license moratoriums. The second moratorium was instituted this month and will stay most new licenses for growers and retailers until March 31, 2024. Given Oregon spot prices tanked during the last moratorium there is some question about the purpose and effect of the new moratorium.

Casey Houlihan, Executive Director of Oregon Retailers of Cannabis Association, told Cannabis Benchmarks the moratorium is not about cannabis prices. Indeed, Houlihan said the newly passed two-year grower and retailer moratorium had no effect on prices last week; it was not the reason Oregon’s Spot rose nearly $63. Last week’s price gain was the largest weekly rise since the third week of March 2021, when Oregon’s Spot rose $66. Houlihan put last week’s price increase down to seasonal demand and not the moratorium, which he says “is to stop the bleeding” in the industry.

“Price swings will continue until cannabis is legal everywhere” and “Oregon prices are suppressed by the illicit market,” said Houlihan. He admitted illicit cannabis, which is readily available in Oregon, competes with legal cannabis on quality, and said discerning buyers will buy high quality illicit cannabis before they buy lesser quality legal product, no matter the price. That said, he sees illicit, high quality cannabis going for $70 per ounce, which suggests illicit prices may also be suffering from oversupply. Houlihan has seen legal product at $72 for two ounces at retail, which he noted is $1.15 per gram, but he also sees “good retail marijuana for $200-300 an ounce.”

The price dichotomy in Oregon, according to Houlihan, is based on quality and prices are not neatly siloed by grow type or source. Oregon cannabis consumers are perhaps more sophisticated buyers, with years of experience in the legal and illicit cannabis markets. These buyers do not base purchases on a seller’s license designation, but on the nature of the product itself and on product consistency. There is a tacit acknowledgement that legalization has not made a dent in the thriving illicit market.

Houlihan offered a more nuanced view of the two-year license stay on growers and retailers; “it was never designed to have a major impact on price,” he said. Instead, it was intended to “encourage competition” and “prevent longer term additional instability.” He noted the moratorium is not supported by the entire cannabis community and recounted how “smaller retailers,” those with “one or two stores,” see the moratorium as impeding their ability to grow their businesses such that they cannot be easily taken over by big cannabis companies. In short, the larger the retail footprint, the less likely smaller retailers are to be taken over by “big cannabis.”

According to Houlihan, the upside of the moratorium is that smaller retailers and growers are seeing an immediate bump in the value of their businesses, owing to the fact that new entrants will have no choice but to buy an existing business under the license moratorium. Cannabis businesses that have been pressured by falling prices might now rightly expect better prices for their businesses if they want to sell or take on a partner. So while the moratorium seeks to “stop the bleeding,” it may also offer a transfusion by bringing new blood into existing businesses, resulting in a more competitive, and perhaps innovative, market.

In a rundown of prices and retail demand, Houlihan has seen “dialed in” outdoor-grown product going for as high as $500 per pound. At the other end of the spectrum, he has observed “whole outdoor plants” going for $20 per plant. He noted the cost of raising outdoor cannabis runs about “$40-$50 per plant and [that] does not count getting the plant ready for sale.” So growers avoid the cost of trimming, packing, and shipping by selling in bulk to extractors. Trimmed outdoor flower of middling quality is going for $150 to $200 per pound. Outdoor quality greenhouse product typically draws outdoor flower prices, but “with an uptick.”

Regarding retail product demand, Houlihan said he would “not be shocked if an overall increase in volume, but not spending” occurs, suggesting an expectation that lower prices are here to stay. He noted that top-shelf pre-rolls are selling very well, but also noted the presence of some “abysmal” quality pre-rolls. He said the variability in quality can sometimes be down to established farms with recognized brands occasionally experiencing missteps resulting in poor outcomes. For outdoor growers with “branded farms” he does not see a move into products other than flower. Among consumers in Oregon, Houlihan does not see growing demand for tinctures, shatter, or more esoteric products, with consumers instead choosing among high quality flower. He is a proponent of high quality sun-grown flower and is seeing steady consumer demand in this category.

At the end of the day, Houlihan sees the moratorium as a public good for Oregon’s cannabis industry, providing a reset for growers and retailers buffeted by falling prices in an overcrowded market. It is not about price, it is about new blood; a transfusion for one of the most mature markets in the country.

February 22, 2022

Retail Cannabis Demand in Oregon Continues to Decline

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The Oregon Liquor and Cannabis Commission (OLCC) recently issued sales data for January 2022. Overall sales came in at $83.6 million, 6% lower than the (upwardly adjusted) $89 million figure from December 2021 and down 16.7% from January 2021’s $100.4 million.

Oregon’s unemployment rate dropped again in December, to 4.1%, a 2.2% year-on-year decrease. Moreover, government supplemental unemployment payments have run out as have payments to families with children, so employees are back to relying on just wages, which have been adversely impacted by decades-high inflation. The Consumer Price Index showed prices climbed 7.5% in January 2021. Consumer Goods Spending (personal consumption expenditures) fell 0.6% in December, which showed up in a 1.9% drop in Retail Sales data for December.

Oregon cannabis sales are now at the lowest level since March 2020, a not unexpected reversion to pre-pandemic levels. Indeed, the 2020 pandemic year may ultimately be seen as an anomaly in reference to cannabis price and demand.

January adult use sales fell by 5.9% to $77.8 million from $82.7 million in December 2021. They are also down 15.2% year-on-year. Adult use sales are likewise down to levels not seen since March 2020.

Medical sales fell 8.2% month-on-month to $5.8 million from December’s $6.3 million. Year-on-year, medical sales are off by 33% from $8.7 million in January 2021. The last time medical sales were at this level was in January 2020.

 

Month-on-month changes in retail sale revenue for OLCC’s product categories are as follows:

Usable Marijuana (flower, trim, pre-rolls) fell just over 5% to $43 million in January 2022 versus $45.3 million in December 2021. The market share of usable marijuana fell 1.2% month-on-month to 55.3% in January 2022.

Concentrates and extracts generated $21 million in January 2022, down 6.2% from $22.5 million in December 2021. Concentrates and extracts made up 27% of sales, a 1.8% increase over the 25.2% percentage of sales accounted for by this category in December.

Edibles and tinctures sales were $10.6 million in January 2022, a 7% drop from $11.5 million in December 2021. Edibles and tinctures made up 13.6% of total sales in January 2022, up 0.8% from December 2021.

 

Monthly harvest data show a 10.3% drop to 251,240 pounds of wet weight in January 2022 versus 280,108 pounds in December 2021. Year-on-year, however, January 2022 harvest volume is up 4.4%, indicating that non-outdoor production is continuing to expand, although not at the pace observed last year, even as the market is swamped with supply.

Oregon spot market prices have continued in a downward spiral that began in earnest in mid-June 2021. Outdoor grown flower prices fell 26.9% between mid-May 2021 and August 2021, followed by a period of price consolidation from mid-August to mid-September. Harvest season saw prices drop another 20% at the end of October. In short, the summer sell-off was exacerbated by the seasonal harvest effect, which was then followed by the news that the state’s outdoor harvest volume increased over 50% year-on-year.

Greenhouse and indoor flower prices peaked in mid-July, after outdoor prices peaked in May 2021, illustrating the contagion effects of massive outdoor inventory on other grow types.

For a more granular view on Oregon markets, Cannabis Benchmarks spoke with Casey Houlihan, Executive Director of the Oregon Retailers of Cannabis Association.

Houlihan sees prices continue to deteriorate; he noted “there was no real holiday demand” last year. He sees outdoor flower under constant price pressure and noted that selling to extractors “is the only option” for much of the outdoor grown market. He understands outdoor growers need to cater to the extraction market due to the size of demand and the ease of payment.

That said, he has noticed a move away from vape products; he blamed dwindling demand on both the lingering effects of the “vape scare” of 2019, as well as the significantly lower price of outdoor flower, saying “flower is so inexpensive compared to vape products.” Houlihan also noted consumers are feeling pressure due to the lack of federal subsidies that ended last year – namely, enhanced unemployment payments and the child tax credit – and are thus seeking out inexpensive smokable cannabis. He also noted consumer interest in “rosin style” concentrates versus butane extractions but pointed out that the former are a more expensive product.

On the legislative front, Houlihan sees the two-year license moratorium on cultivation, production, and retail licenses as a much needed break in the Oregon markets, though he noted he is not necessarily for government control of markets. He said the issue is contentious with some smaller retail shops because they will have to delay expansion plans should the moratorium pass. Houlihan is confident the moratorium will pass the legislature in the first week of March and hopes it will be a lifeline for licensed cannabis businesses, especially small growers.

January 18, 2022

How Much Marijuana Was Grown in Oregon in 2021?

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The Oregon Liquor and Cannabis Commission issued sales data for December 2021 recently,  with overall sales coming in at $88.5 million, up 2.3% from November sales of $86.5 million, but down 8.2% from December 2020 sales of $96.5 million. This is the first uptick in monthly sales since July 2021.

For 2021 overall, Oregon’s legal cannabis market generated over $1.18 billion in retail revenues, up 6.3% from over $1.11 billion in retail sales in 2020.

December adult use sales ticked up by 2.7% to $82.3 million versus November adult use sales of $80 million. Year-on-year, adult use sales fell 6.8% from December 2020’s sales of $88.2 million. Sales to registered patients in Oregon were $6.3 million in December 2021, a 2.9% month-on-month drop from November’s sales of $6.5 million. Year-on-year, medical sales are down 6.8% from nearly $8 million in December 2020.

 

Month-on-month changes in retail sales revenue for the OLCC’s product categories are as follows:

Usable Marijuana (flower, trim, pre-rolls) rose 0.8% to $45 million in December 2021 versus $44.7 million in November 2021. The market share of usable marijuana jumped 5% to 56.5% in December from the November 2021 market share of 51.6%.

Concentrates and extracts generated $22.3 million in sales in December 2021, a 3.5% jump over November 2021’s sales of $21.5 million. Concentrates and extracts had a 25.2% market share in December 2021, a 0.3% increase from November 2021.

Edibles and tinctures sales were $11.4 million in December 2021, a 6.5% increase over November’s sales of $10.7 million. Edible and tincture market share was up 0.5% month-on-month to 12.8% in December 2021.

 

Monthly harvest data shows a 66.8% decrease in total harvest volume in December 2021, with wet weight at 275,044 pounds versus 829,224 pounds in November 2021. Year-on-year, total wet weight harvest is up 1.9% over the December 2020 figure of 269,920 pounds.

In 2021, total harvest volume by outdoor growers was 6.4 million pounds (wet), a 55% increase from 4.2 million pounds in 2020. In 2021, indoor harvest was 2.8 million pounds, a 30.1% increase over 2020’s total indoor harvest of 2.1 million pounds. Mixed harvest figures for 2021 show a rather restrained increase of 7.6% year-on-year, with 2021 mixed harvest weight reaching nearly 2 million pounds.

Oregon spot prices are in a strong downtrend with myriad factors weighing on the market, not the least of which is annual harvests increasing by over 50% in some cases as growers leaned into the notion of federal legalization. In 2020, some growers bought into the notion that interstate trade would be available in 2021; when that did not happen, cannabis set aside for the expected demand increase was put on the market, adding to overproduction price pressure from mid to late 2021. Oregon also has the most retailers per capita of any legal cannabis state. Although retail stores’ average sales have remained in a broad uptrend, per-store averages have been falling since March 2021. There has been some talk of a moratorium on retail licenses, but little hard news to report on the topic.

The Oregon Liquor and Cannabis Commission (OLCC) issued a news release outlining cannabis industry changes that took effect on January 1, 2022. Regarding cannabis rules, the OLCC states they will continue to pursue “a large scale re-categorization of violations, including reducing types of violations that could result in OLCC canceling a license.” OLCC said they will continue to “overhaul the violation and penalty process” this year, “including reducing penalties for committed violations.”

The OLCC also raised the amount of cannabis consumers can buy from one ounce to two ounces and increased the allowable THC content in edible products from 50 milligrams to 100 milligrams, with the latter change effective April 22, 2022. The OLCC notes that up to 10 milligrams of “single serving portions will need to be scored,” or clearly marked in up to 10 milligram increments. The agency is now accepting label applications for edible packages containing more than 50 milligrams of product but reiterates that packages larger than 50 milligrams cannot be offered for sale before April 22, 2022 even if OLCC has approved the new labeling.

As well, OLCC has said they will allow delivery across city and county lines, contingent on local authorities’ approval, allowing retailers to sell outside of their city or county for the first time. OLCC will provide delivery maps of new delivery zones so consumers can ascertain whether they can receive delivery at their location.

December 14, 2021

Oregon Cannabis Prices and Demand Decline as Oversupply Continues

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The Oregon Liquor & Cannabis Commission (OLCC) recently released sales data for November. According to OLCC, licensed retailers generated over $86.4 million in revenue last month, down by 7.9% from over $93.8 million in October 2021. November sales are down 4% year-over-year, from nearly $90 million in November 2020.

November is the fourth month in a row of lower monthly cannabis sales figures in Oregon and lower monthly average spot and outdoor prices are a factor. The average Oregon spot price in November 2020 was $1,391 per pound versus $1,105 in November 2021, a difference of $285 per pound year-on-year. November’s price for outdoor flower has dropped over 43% year-on-year.

Average monthly sales per retailer are down for the fourth month in a row as well, falling 8.3% in November 2021 and falling 11.3% year-on-year, which is likely a consequence of lower prices and lessening demand as employment rises. The Oregon unemployment rate has fallen from 7% in October 2020 to 4.4% as of October 2021.

November adult use purchases were $79.9 million, down 7.8% month-on-month and down 2.6% year-on-year. Adult use retail sales were 92% of total sales. Medical sales, at $6.4 million, were down 10% month-on-month and down 19% year-on-year. Medical sales were 8% of November 2021 total sales.

Month-on-month changes in retail sales revenue for the OLCC’s product categories are as follows: Usable marijuana (flower, trim and pre-rolls) was down 10.7% month-on-month and down 10.9% year-on-year, with November sales at $44.6 million. Usable marijuana made up 51.6% of total sales in November 2021.

Concentrates and extracts sales fell 6.6% month-on-month to $21.5 million, and were down 10% year-on-year. Concentrates and extracts were 24.9% of total sales in November 2021 versus 24.5% of total sales in October 2021.

Sales revenue from edibles and tinctures, at $10.6 million, was down 3.1% month-on-month, but were up 12.9% year-on-year. Edibles and tinctures accounted for 12.3% of November’s total sales revenue, versus 11.7% of total sales in October 2021 and 10.5% of total sales in November 2020.

The OLCC reports monthly harvest figures fell from October’s 5.54 million pounds of wet weight to 820,175 pounds as the harvest wrapped up in November, an 85% decrease month-on-month. Year-on-year, November 2021 wet weight is up nearly 9% from 752,609 pounds in November 2020.

The Oregon oversupply situation has been exacerbated by a 54.6% increase in outdoor-grown product in 2021. To date in 2021, outdoor growers have produced 6.4 million pounds of wet weight product versus all of 2020, when 4.1 million pounds of outdoor wet weight was harvested. At this rate of production there is no successful exit door for the Oregon market except for the one marked federal legalization.

Indoor production figures show a 20.6% increase year-on-year. Mixed-light production – greenhouse and light deprivation – show a rather restrained increase of 4.5% from 2020 to 2021.

Oregon’s Spot Index average in November was down 3.9% month-on-month and down 20.6% year-on-year, reflecting increased harvest (supply) year-on-year and plateauing demand in one of the more established state markets.