The Oregon Liquor Control Commission at the end of January issued a study claiming there’s enough marijuana to supply the state’s recreational market for 6.5 years.
The “2019 Recreational Marijuana Supply and Demand Legislative Report” stated the finding was in theory and stems from over-production.
Brandon Krenzler and Erin Purchase argued just how theoretical the finding is. They own and operate Kind Leaf, one of the three retail marijuana stores in Pendleton, and employ about 30 people. They said the the market is far from collapsing, and much of the surplus is stuff that will not sell.
“No one is going to smoke 6-year-old weed,” Krenzler said. “There’s a lot of unwanted product.”
Unlike whiskey, pot does not get better with aging. He said Kind Leaf won’t buy marijuana that’s older than nine months. The OLCC’s 41-page reported repeated the 6.5-year supply five times while making only one mention about waste:
“Almost certainly some amount of the existing inventory in the recreational system will never be sold,” according to the report. “It may become too stale to be sold or is of insufficient quality to compete in the current market environment. In fact, anecdotally some of it may already be waste that has not yet been disposed of.”
Krenzler considered that more likely than anecdotal. He said Kind Leaf has at times stored as much as 30 pounds of waste — “stems, seeds, moldy flower that cannot be utilized in any shape or form” — before hauling it to the dump, and farms produce hundreds of pounds more.
Purchase said Kind Leaf removes its waste amounts from the online inventory. Krenzler added there is little to ensure other businesses do the same. They also explained the marijuana tracking system is complex and relies on people to verify information.
Krenzler said he can spend hours on the online database Metrc checking product identification codes. The marijuana starts with a code at the farm, and that code gets a revision at the processor, and another change at the lab. Each change in the code reflects each step to the store. But the tracking does not always line up, he said, and a product could get an incorrect label from the lab, for example. When he finds that, he said, he rejects the product because customers should be getting what they are paying for.
Purchase added there have been instances when an employee sold a product but created an error in Metrc that reports the marijuana remained on the shelf and thus part of the state’s overall inventory. They said Kind Leaf has an employee who spends upward of 20 hours a week just checking for those kinds of mistakes.
Oregon has overproduction in the market to be sure, Krenzler said. Growers tend to believe they make the best stuff, so they make a lot of it. But their best is not always up to the quality of all retail operations. Kind Leaf on average carries about 145 strains of marijuana, and on Thursday had about 56,000 grams in stock. Some of that includes marijuana the store will sell for all of $2.50 per gram, the lowest quality the store carries. Krenzler said when the quality is too low, it’s not worth the effort to put it on the shelf.
“A farmer will come and bring us 10 or 20 pounds, and we’ll say no, we reject it,” he said.
All that useless pot stays on the books. And in some cases, Krenzler said, operators are pushing product into the black market.
“They need to go out of business,” he said.
That could happen faster, he contended, if local governments could not prohibit marijuana businesses, because the black market is thriving in those communities. Kind Leaf opened with a built-in customer base of locals who were growing and using marijuana, and the black market could not compete with what the store provided — a safe, comfortable place for customers to shop. Kind Leaf even has customers take selfies in front of the store’s big “Farmer’s Market” wall of marijuana. No one takes their picture with a dope dealer.
“I believe if we were to open a dispensary in every single sizable community, we would see the overabundance that is claimed in Metrc dwindle rapidly,” Krenzler said.
The abundance has driven down marijuana prices, as the OLCC reported, but that also comes with a business upside.
“As the retailers are lowering the price, we see more consumers buying more product,” he said, and the state’s tax revenue is increasing due to those sales.
The glut is not keeping folks from from applying for licenses to operate marijuana businesses. The report stated OLCC, as of Jan. 25, licensed 1,114 recreational producers and 607 recreational retailers, double the state’s initial estimates of total licenses by 2019. Another 1,117 producer applications and 336 retailer applications were pending review or approval.
Steps at the federal level also would benefit the legal market.
Oregon, Washington and 31 other states, plus Guam, Puerto Rico and the District of Columbia, have some form of legal marijuana. Some studies peg the nationwide market at almost $8 billion a year with revenue exceeding $22 billion in less than four years. The federal government continues to outlaw marijuana, making it a cash-only business.
The American Bankers Association wants that to change. The lobbying group holds the position “the time has come for Congress and the regulatory agencies to provide greater legal clarity to banks operating in states where marijuana has been legalized for medical or adult use. Those banks, including institutions that have no interest in directly banking marijuana-related businesses, face rising legal and regulatory risks as the marijuana industry grows.”
The Federal Deposit Insurance Corporation insures more than 5,400 banks and savings institutions, while the National Credit Union Administration oversees 5,500 credit unions. The Treasury Department’s Financial Crime Enforcement Network reported 375 banks and 111 credit unions nationwide provided banking services to marijuana-related businesses at the end of September 2018. The year before the number stood at 401 institutions.
The American political newspaper and website The Hill ran an opinion piece last weekend arguing Congress must change federal banking policy so the burgeoning growing numbers of “state-compliant businesses, and those millions of Americans who patronize them, are no longer subject to policies that needlessly place them in harm’s way.”
Oregon’s U.S. Sens. Ron Wyden and Jeff Merkley, both Democrats, joined the new effort to reintroducing legislation to end the federal prohibition on marijuana. And U.S. Rep. Greg Walden, the conservative Republican from Hood River, during his recent visit to Pendleton said he recognizes something needs to change when it comes to the cash-only business of marijuana. He recalled a plumber who was nervous taking thousands of dollars to the bank after a job on a marijuana farm. Krenzler said he can relate. He said he has to carry loads of cash on trips to Salem to pay Kind Leaf’s taxes.
Krenzler said the real takeaway is the legal marijuana market in Oregon is in the process of stabilizing, and that’s going to play out for a while. The prohibition on alcohol ended in 1933, but it was not long before you could buy a beer at a major league baseball game.
“I’m not advocating for smoking at a baseball game,” he stressed, “but the public perception will relax.”