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© 2017 MERRY JANE. All Rights Reserved.

Oregon’s Marijuana Market in “Crisis”: Growing Pains or Total Meltdown?

Industry representatives say strict regulations are making cannabusiness unsustainable.

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Whitney Economics, a cannabis-focused research and consulting firm based in Portland, Ore., released a timorous report Wednesday which claims that both the recreational and medical sides of Oregon’s marijuana industry have been severely hindered by the state’s new testing requirements for herbal cannabis, products, and concentrates since they went into force on October 1st.

The report details the preliminary results from a survey of Oregon canna-businesses who answered questions regarding the effect of the new regulations on their operations, and their responses were less than encouraging. Although only 72 of the 683 businesses invited to participate had replied by the time of the report’s release, there was apparently enough evidence for the firm to direly conclude that “the Oregon [cannabis] industry is in crisis,” arguing the testing regime’s debut has caused “higher prices, less supply, job losses, and economic hardships.”
 
Of the 72 early respondents, 81 percent said they were experiencing diminished supply in turn causing higher prices, while 22 percent said they were planning to go out of business as a direct result of the new regulations. 78 percent said they’d experienced significant decreases in revenue under the new rules, and 15 percent replied their straits were so grim that they planned to lay off employees. Beau Whitney, founder of the consulting firm, told Marijuana Business Daily that “this could be a death knell for Oregon’s cannabis industry,” adding that “the (Oregon Health Authority) tried to address a bigger safety issue by driving consumers and product into the black market. This is a policy that has gone very, very wrong.” So what allegedly has gone so awry?
 
After the testing requirements for cannabis and related products were publicized in October, one testing lab proclaimed the standards made consuming Oregon-grown reefer safer than food. That may be true, but critics have retorted that the state’s comparatively stringent regulations have put its cannabis supply in a chokehold. By the time the rules began to be enforced, only six cannabis testing labs (of the several dozen which operated in the state prior to October) had received accreditation from the Oregon Health Authority (OHA)—the state agency responsible for establishing safety standards for legal cannabis—which detractors allege only occurred because the agency didn’t have enough funding to certify additional labs. Recent journalism anecdotally validates the claims of Whitney’s report: business owners say that the dearth of labs, responsible for servicing a statewide industry, has increased the wait time for test results on product from days to weeks. The lack of labs has also raised the price of testing: Trista Okel, a manufacturer of cannabis-infused oils and soaking salts, told Leafly earlier in November that the cost of getting her products tested now exceeds the wholesale price she can fetch for them from retailers. Moreover, Whitney says that the state’s high testing standards, particularly for pesticides which opponents claim are tolerated for other produce, “have translated into test failures of 40 to 60 percent of submissions”, forcing Oregon growers to burn cannabis crops deemed unsuitable for public consumption. The prolonged wait times and higher fees for testing combined have led to less supply for retailers, higher prices for consumers once products finally hit shelves, and shrinking revenue across the supply chain.
 
Okel also believes the new regulatory framework was written to inherently advantage well-funded entities from out-of-state that can more easily comply with narrow and expensive rules: “My educated guess is the new testing regulations won’t ease up until the majority of the small local businesses are gone, and big business takes over.” Matt Walstatter, co-owner of a Portland dispensary, concurs; “It’s an existential threat to any individual business out there unless you are incredibly well-capitalized and can ride out several months without any income. For the rest of us, it’s touch and go.” Even Ashley Preece Sackett, co-founder of one of the few currently accredited testing companies, agrees, saying that “[Testing] is cost-prohibitive for most craft-scale cannabis processors, as many of these businesses are still in startup mode.”
 
Yet Richard Voelker, founder of a competing lab and prominent supporter of the new regulations, believes that supply problems will soon be resolved, and a year from now the system will be running normally again, adding “These [regulations] are expected of any industry where people are putting things in their mouth.” However a year may be too long for canna-businesses without sizeable savings. Whitney estimates that producers will instead just return to the black market, which he projects will grow by $187.5 million annually under the current rules; also meaning that Oregon would lose millions in tax revenue from weed that would have otherwise been sold legally.
 
As the industry in Oregon “is slowly grinding to a halt due to the serious and systemic problems with the new testing regime”, according to Oregon Cannabis Association director Amy Margolis, she’s called for a temporary moratorium on the regulations, where any retail products that don’t meet the current requirements would labeled with a sticker informing consumers that they consume at their own risk; a temporary solution with which the Whitney report agrees. However Mark Pettinger of the Oregon Liquor Control Board, which controls licensing and zoning rules for the industry, says that the rules can’t be revised until the state legislature reconvenes in early 2017. While the resolution for this unprecedented predicament is currently unclear, it’s apparent that Oregon may be an early test case for whether regulators can strike a sufficient balance between the interests of public safety and the viability of small business owners in the cannabis industry.