Well it’s been a few months, so of course it’s time for new rules in Oregon. We have seen significant regulatory changes several times in the last 2 ½ years and October 1, 2016 is yet another day that will live in cannabis regulatory infamy.
This month marks the formal launch of the recreational system, along with the most significant changes to the medical program since the advent of dispensaries in 2014. What follows should help you get up to speed on the changes in Oregon. We’ll start with the new rec system. Then, next time, we’ll look at the changes wrought by the OHA.
On October 1, 2016, Oregon’s first recreational cannabis stores opened. How can this be true, you ask? Rec customers have been buying cannabis in Oregon for a year now.
To understand, you need to know a bit about Oregon’s regulatory structure. Oregon has two types of cannabis stores. Medical stores are regulated by the Oregon Health Authority. They purchase products from medical growers and processors and they serve medical cardholders tax-free.
Recreational stores are licensed and supervised by the Oregon Liquor Control Commission (OLCC). They purchase products from OLCC-licensed growers, processors and wholesalers. They sell those products either to recreational customers (with tax added) or to cardholders (tax-free).
In July 2015, when it became legal for adults in Oregon to use and possess cannabis, we had medical stores but no adult use stores. With launch of the rec stores more than a year out, it became apparent that we needed a place for adults to buy cannabis if we wanted to avoid feeding the black market.
The answer was the early sales program, which allows medical stores to sell very limited amounts of certain cannabis products to adult users. These are the “recreational” sales that have been occurring in Oregon, but they have been under the aegis of the medical program.
This month, the first true rec stores opened in Oregon. For a number of reasons, we are witnessing more of a gradual rollout than a grand opening.
When the OLCC began the licensing process last spring, they announced they would first work on outdoor cultivation licenses, followed by indoor growers, processors, labs, wholesalers and retailers.
Starting with outdoor growers made sense for a number of reasons. The plan all along was to launch the new rec stores on October 1, 2016. The goal was to have as much of the 2016 outdoor harvest captured in the legal system. Otherwise we would have seen a flood of unauthorized product within a month of the launch, potentially undermining the entire program.
Since outdoor cannabis is often planted in early spring, the state decided to start licensing these businesses first. Cultivation also needs the most lead time of any license type, another reason why it made sense to begin there.
Unfortunately, the state quickly found itself far behind in the licensing process. Many outdoor farms are located in remote areas of Southern and Eastern Oregon, hours from the offices of the OLCC inspectors tasked with evaluating their readiness.
A number of these license applicants were unprepared at the time of their inspection, requiring inspectors to make a 10+-hour roundtrip two or three times. The OLCC also significantly underestimated the number of applications that they received, leaving them severely understaffed. New hires typically lacked any expertise about the business of growing and selling cannabis.
As a result, as September drew to a close, we had 300 OLCC licensed growers, but no retailers, only one processor and less than 10 labs.
This was a huge problem for the OLCC. They had licensed 300 growers who had already begun harvesting product and now had nowhere to sell it. Thousands of pounds of cannabis had begun piling up in farms throughout the state. If the OLCC didn’t get some stores open on time, these growers would face serious hardship, perhaps even go out of business.
So the OLCC pressed forward, licensing as many shops as it could before October 1. The last I heard, they had licensed 26 shops, but that doesn’t mean that 26 shops opened on October 1. Once the license is granted, the business has the ability to activate it at their discretion.
This decision poses a major difficulty for retailers. After all, we need more than flower and as of early last week, the OLCC had only licensed two processors, only one of whom had actually activated its rec license. Dispensaries can convert existing medical inventory to the recreational system, but once that inventory is gone, they have nowhere to restock on concentrates, extracts, edibles and topicals (other than the one licensed processor).
This created a serious Catch-22. Retailers need processors to supply products, so dispensaries don’t want to switch over until some processors have moved over. Processors need dispensaries to sell their products, so they don’t want to go rec until they know they have some stores to work with.
So here we stand. Everyone wants to go, but nobody wants to go first. In the meantime, the Oregon Cannabis Association has been working to organize a group of members—about 20 dispensaries and another 20-30 processors—to transition simultaneously, in the hope that this will push us to a tipping point and the rest of the industry will follow.
As my wife Meghan has been saying, “If we all have to jump off of this cliff, we might as well hold hands and jump together.”
Next time, I’ll talk about the new rules for the OHA medical system, including the lab testing situation—another area of concern with potentially dire consequences for the industry.