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The Great Oregon Extract Debacle

By Matt Walstatter Last month, I wrote about the Oregon Health Authority’s new rules governing the Oregon Medical Marijuana Program. The day that column was published, one of those rules (governing processing of extracts) set off a huge firestorm that threatened to take down Oregon’s entire cannabis processing sector, with ripple effects that would have touched every corner of the Cannabis Industry. Fortunately, in a stunning turn, Oregon’s cannabis community coalesced around this issue and worked collaboratively to reach a resolution. We narrowly avoided witnessing a disaster that would have cost hundreds of jobs and wiped out many businesses. Instead, we achieved a victory for the industry. In the process, we set an example for how cannabis advocates can work together with government to keep the industry healthy and viable. Here’s the story… Setting the scene Last year, the Oregon Legislature passed HB 3400, which made many changes to the Oregon Medical Marijuana Program. Among those was a provision directing the Health Authority to create a license for processors. The law mandated that beginning March 1, 2016, dispensaries could only buy edibles, concentrates and extracts from licensed processors. As February progressed, it became clear that the Oregon Health Authority would not have the licensing program operational in time to meet the March 1 deadline. In late February, they sent out a bulletin announcing that this new rule would not be enforced until October 1, giving everyone — Health Authority and industry alike — enough time to get their ducks in a row. This provision was one of many that was scheduled to take effect March 1, then delayed or altered. As a result, early March saw members of the Oregon Cannabis Industry struggling to understand what rules were in effect and how to comply. Because of the chaos and confusion, the Oregon Cannabis Association decided to have an emergency briefing on the Oregon Health Authority rules to help members and non-members alike navigate this murky regulatory landscape. (Full disclosure: I am a founding member of the Cannabis Association and worked on the association’s response to this matter). We were fortunate enough to convince Andre Ourso, who runs the Oregon Medical Marijuana Program, to attend our briefing and answer questions asked by Cannabis Association Executive Director Amy Margolis. When Ms. Margolis asked about the rules around processing, Mr. Ourso dropped the bombshell: while the Health Authority would not enforce requirement that concentrates and edibles come from licensed processors, the rule would be effective immediately with regard to extracts. In Oregon, extracts are defined as any substance obtained by separating cannabinoids from marijuana by:

  1. A chemical extraction process using a hydrocarbon-based solvent, such as butane, hexane or propane; or,
  2. A chemical extraction process using the hydrocarbon-based solvent carbon dioxide, if the process uses high heat or pressure.

That meant that as of March 1, it would be considered a felony to process extracts or sell them to a dispensary without a processor license. According to Mr. Ourso, the Health Authority would begin taking license applications on April 1, with the first licenses following approximately 60-120 days later. In the mean time, dispensaries would be permitted to sell existing extract inventory purchased prior to March 1, but could not purchase any new extracts until processors were licensed. Obviously this would have been devastating to Oregon’s emerging Cannabis Industry. Most extract processors, deprived of any revenue for 2-5 months, would go under. Those that survived would have to lay off most or all employees. Edibles manufactured using extracts would also be forbidden, which means patients would lose access to many popular edibles as well as all extracts. At our dispensary, extracts and extract-based edibles comprise approximately 20 percent of our sales. I’m not sure how we would have survived if we had lost them. Fortunately, the Cannabis Association stepped in with a coordinated response that involved members and non-members alike. The results were astounding. The Response The reaction to Mr. Ourso’s comments was palpable and quickly consumed Oregon’s cannabis community. Posts went up on blogs and social media and the various organizations representing the Cannabis Industry huddled up to figure out how to proceed. At the Cannabis Association, we quickly realized that this problem could be approached from either a legal or political perspective and that any potential solution would arise from some combination of these two. On the legal side, we started with the understanding that this particular Oregon Health Association policy resulted from their interpretation of the statute in question. One solution would be to offer them an alternative interpretation that would follow the statute without eviscerating the extract industry. As our team read and reread the statute, we saw that while the law states that a dispensary may only buy extracts from a licensed processor, it defines a licensed processor as someone who has received or applied for a processor license. Here was our alternative interpretation. If we could convince the Health Authority to embrace it, we could save the extracts processors from being wiped out. This would be the focus of the political response. The Cannabis Association has been engaged with both the State Legislature and the Executive Branch for years. We were very involved with crafting and passing the legislation in question. As a result, we knew with certainty that the Legislature had never intended this law to have such a negative impact on the Cannabis Industry. In fact, they had expressly stated their intent was the opposite—to help bring about a smooth transition to the new rules, and later to the recreational program, with as little disruption as possible for both the industry and Oregon Medical Marijuana Program patients. Legislative intent was incredibly important here. When executive agencies like the Health Authority interpret and implement legislation, they must consider legislative intent. That is, they must interpret the law in a way that leads to outcomes that align with the goals of the Legislature that passed the law. We had found a clear conflict between the legislative intent and the Health Authority’s interpretation. We reached out to Sen. Ginny Burdick and Rep. Ann Lininger, the co-chairs of the legislative committee responsible for this law. They let the executive branch know that they were expecting a very different outcome. At the same time, our team reached out to the Governor’s office. We wanted to make certain that they were aware of the existential peril faced by extracts processors and extract-based edibles manufacturers, the ripples that would result for the rest of the industry and the hardship that patients would face. The results of this effort were both rapid and dramatic. On Monday March 21, a scant 6 days after Mr. Ourso’s announcement, the Health Authority amended its position. Extract processors who apply for a license will be allowed to process and sell to dispensaries until their application is either approved or denied. The Upshot This situation represents a clear example of tragedy narrowly averted. We were likely to see most extract and extract-based edibles manufacturers go out of business. Employees would have lost their jobs. Business owners would have lost their life savings. Patients would have lost access to desperately needed medicine. Instead, we saw one of the Oregon cannabis community’s finest moments. Competing businesses worked together to reach a solution. Competing industry organizations coordinated their responses. Industry groups and patient advocates collaborated productively. Our state government responded admirably as well. Instead of digging in, as regulators and bureaucrats often do, our government engaged with the industry in a constructive manner. The legislative branch supported our efforts and the executive branch heard our concerns and responded quickly in a meaningful way. There is a blueprint here, one that can be used with other issues that arise here in Oregon and in other jurisdictions. As an industry, we must organize ourselves so that we have advocates like the Cannabis Authority ready to represent us in these types of situations. Once we organize, we can engage with lawmakers and regulators. By building relationships before problems arise, we lay the groundwork that will allow us to resolve them as they come up. Finally, when these issues do arise, we need to put aside our differences and advocate for our industry in a coordinated, professional manner. As the tide of legalization rolls on nationally, we will undoubtedly see similar issues arise. How we respond will shape the future of the Cannabis Industry, for better or for worse, for years to come.

Matt Walstatter

Matt Walstatter

Matt Walstatter and his wife, Meghan, are the owners of Pure Green, a patient owned and operated dispensary in Portland, Oregon. They have jointly owned and operated cultivation centers since 2001. Their dispensary opened in 2013. Matt can be reached at (971) 242-8561 or [email protected]

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