Oregon Cannabis: State of the State (2023)

Welcome to the eighth annual “State of the State” put up on Oregon hashish. Final yr was memorable for Oregon the business, pockmarked by OLCC scandal, heavy regulatory swings, and even marquee litigation. We additionally noticed the state’s first very-large-business failure, extra commerce affiliation consolidation, and different altibajos as my mother-in-law may say. Let’s go!

Gross sales fell (once more) together with licensee numbers (for the primary time)

In keeping with OLCC knowledge, retail gross sales between January 1, 2023 and November 30, 2023 clocked in at $874 million. By my math, the state is on tempo for roughly $953 million this yr. That tally could be a 4.1% lower from $994 million in 2022, which itself was the primary calendar yr hashish gross sales contracted in Oregon. Somebody with higher credentials than me might confirm whether or not this yr’s drop is because of pricing decreases, quantity decreases, or each, alongside no matter different elements (like inhabitants shrinkage). Total, a 4.1% decline isn’t nice information for business, however it’s not horrible.

Almost half, or 48.7%, of retail gross sales are “useable marijuana” (dried leaves and flower). The concentrates/extracts class sits at 24.7%; edibles/tinctures are 13.7%; inhalable merchandise with “non-cannabis components” are 7%; “different” is 5.2%; and industrial hemp merchandise convey up the rear at 0.7%. This follows a years-long development of usable marijuana gross sales lowering per capita in favor of different classes. Like final yr, my impression is that near-term progress could also be restricted to pick out SKUs and product classes.

Along with decreased quantity, costs stay low; however not as dangerous as final yr. Right now in 2022, wholesale useable marijuana had been sitting at $600/lb for months, bottoming out at $550/lb for December. For the latest three months of 2023, we’ve hovered at a decent $745/lb. That stated, the total results of the Croptober harvest haven’t rippled via the system. This yr’s harvest got here in at an unwelcome 15% larger than 2022.

To the plus, we’ve barely fewer licensees vying for market share than a yr in the past as we speak. It’s not an enormous drop, however this was the primary yr I noticed license numbers fall because the 2016 roll-out of the grownup use program. Regardless of the variety of “pending” license purposes beneath, you may count on the quantity to flatline or fall a bit once more subsequent yr. Sure, the HB 4016 licensing moratorium sunsets on March 31, 2024, however I’m guessing our legislators will move an extension invoice early within the 2024 session. Let’s see.

2022
2023
2023 (lively + pending)

Producers
1,408
1,389
1,520

Processors
331
312
363

Wholesalers
276
269
299

Retailers
827
818
881

Labs
19
15
15

Analysis
1
1
4

Trade is within the doldrums, with one spectacular flameout

Final yr presently, I wrote that “fairly just a few companies are struggling and others have failed.” Identical deal as we speak. All all year long, we helped individuals promote (and attempt to promote) companies we had helped them purchase simply a few years in the past. It looks like the biggest variety of “enterprise gross sales” are little asset buy agreements for bare licenses. We’ve additionally helped fairly just a few purchasers throw within the towel, and our litigation workforce continues to help in a collection of disputes associated to enterprise dysfunction—for many who can really afford to litigate.

Nothing higher exemplified the weak state of the Oregon market than the Chalice receivership sale (see: Chalice Receivership Replace: Weak Market, Insiders Pounce). Curiosity was scant, affords have been few, and in the end 20+ companies offered for a mere $3 million. Final yr presently, I noticed that Chalice was one of many largest operators in Oregon, trailing solely Nectar Markets. Right this moment, in one of many largest Oregon hashish tales of 2023, the Canadian heavy has gone stomach up, to the detriment of stiffed collectors and hapless staff.

Powerful yr for OLCC

If one state company must be completely happy to depart 2023 behind, it’s received to be OLCC. I defined in an earlier put up that OLCC and the hashish business have been “at a nadir with two-bit scandals” this spring. Stellar investigative reporting round OLCC’s dealing with of the La Mota chain precipitated the Oregon Secretary of State to resign, but additionally result in some unlucky, reactionary guidelines for the hashish business (extra on that beneath). Individually, the OLCC’s Govt Director resigned as effectively, within the context of separate misconduct.

Most just lately, the Fee received some excellent news in that the previous Secretary of State’s hashish program audit will stand, albeit with a disclaimer, turning the web page on a tough chapter for just about everybody and giving the Fee room to maneuver. As an apart, one former OLCC official commented that the audit “reads like a Leafly weblog”, as a consequence of its basic and particular suggestions to loosen regulatory strictures. Trade favored these findings clearly, and it’s a disgrace the method was tarred.

For my part, nevertheless, a key subject with OLCC stays unaddressed, and that’s the Fee’s disparate remedy of enormous and small hashish corporations (see: The Actual OLCC Scandal is that There are Two Units of Guidelines). OLCC has allowed the biggest Oregon hashish retailers to coast after citing them for important and repeated violations– together with allegations of hashish diversion. Small companies get their tickets punched for much less. In all, I see scant rhyme or motive to OLCC’s erratic enforcement efforts.

New guidelines, highlighted by tax compliance (endlessly) and aspergillus testing (for a minute)

The Oregon regulatory panorama is ever altering. We had new guidelines to kick off the yr, adopted by new legal guidelines handed in Salem. Rulemaking commenced all through the autumn per regular. The largest change, nevertheless, was the arrival of “emergency” (and now everlasting) tax compliance guidelines that arose from the La Mota scandal referenced above. All retailers and their “applicant” homeowners (however not producers or processors or wholesalers) at the moment are required to certify tax compliance with OLCC by way of the Oregon Division of Income, to resume or switch a marijuana license. Right here within the workplace, we’ve seen the principles affect fairly just a few renewals and gross sales already.

One other large story in Oregon hashish for 2023 includes a rule that got here and went, relating to aspergillus testing. In March, the Oregon Well being Authority (OHA) promulgated a rule that required marijuana testing for sure microbiological contaminants, together with aspergillus. The Hashish Trade Alliance (CIAO) and others filed a movement for emergency reduction. These events received a brief “keep of enforcement” of the rule, pending completion of judicial evaluation. Somewhat than defend the rule at a subsequent listening to, OHA withdrew it. And doesn’t seem to need a second chunk on the apple.

This can be a nice end result for our hashish producer purchasers, at the least within the brief time period. I admittedly didn’t suppose they might win. Whether or not it’s a great long-term play stays to be seen. Oregon producers have lengthy pushed for hashish export rights— which conceivably might occur sooner quite than later if federal regulation modifications. (See: Audit: Marijuana-rich Oregon should prep for US legalization.) That is salient as a consequence of the truth that most states require aspergillus testing for hashish. It’s arduous to think about a state of affairs the place these states agree to simply accept Oregon hashish “contaminated” with aspergillus.

Commerce organizations merged

Lastly, we’ve only one main commerce group in Oregon hashish. Previous to October, the Oregon Hashish Affiliation (OCA) and the Hashish Trade Alliance of Oregon existed facet by facet (fairly just a few others have come and gone over time). Now, it’s all CIAO. Judging by all of the emails I’m getting, the big-tent outfit is energized.

The primary large job for CIAO ought to come up within the 2024 legislative session. I submit that the Oregon legislature appears much less eager on coping with hashish points over the previous couple of periods, than it has been traditionally. Given collateral harm to OCA from the La Mota scandal and the entire oxygen being taken up by Measure 110 scrutiny, CIAO can have its work lower out come February.

Hollowed out hemp

Oregon has solely issued 187 hemp grower licenses as of December 7. This can be a noteworthy drop from 294 licenses in 2022, to say nothing of the 1,961 licenses issued within the heyday of 2019. Regardless of all of it, Oregon remains to be a hemp chief on the nationwide stage, one way or the other, per the 2023 Nationwide Hemp Report.

Final yr I wrote:

the continued downward development can’t final endlessly. Congress is scheduled to resume the Farm Invoice in 2023. Adjustments on the desk embrace the whole lot from elevating the “hemp threshold” from 0.3% THC to 1.0% THC, to addressing regulation of intoxicating cannabinoids derived from hemp. One other large driver would be the continued adoption of hemp-based textiles and constructing supplies. Despite the fact that Oregon hemp has slowed dramatically, count on the state to stay on the fore if and when the development reverses.

All of that’s in all probability nonetheless true, besides that Congress missed its deadline and we could not see a renewal of the Farm Invoice till late in 2024. Within the meantime, I and lots of others have been asking, “What Happed to Hemp”?

Odds and ends

We’ve seen some noteworthy exercise across the edges, domestically, which I’d be remiss to depart off:

Longtime hashish champion, Earl Blumenauer, introduced his coming retirement as an Oregon congressional consultant. We’re going to overlook him.
Scotts closed 4 hashish provide warehouses in and across the Portland metro.
Curaleaf gave up on Oregon (and Colorado and California).
The dormant commerce clause lawsuit filed by our colleague Andrew DeWeese inched slowly ahead, with a listening to now set for January 2024. Good luck Andrew!
Left Coast Monetary Options, a shady money-services startup serving the business, had its license suspended by the State Division of Monetary Regulation.
Oregon’s hashish gross sales tax revenues dropped at the side of falling gross sales, and continued diverting partly to poor Measure 110 packages.

Oregon hashish: that’s a wrap

Let me know within the feedback when you suppose I missed something price mentioning, or shoot me an electronic mail. There’s at all times one thing. Within the meantime, right here’s hoping for higher occasions for Oregon hashish in 2024.

For earlier posts on this collection, take a look at the next: