Interview: Addressing Oregon’s Cannabis Surplus Problems

By Kyle Swartz

March 11, 2019

Oregon’s legal cannabis industry made headlines last month with reports of overproduction, coupled with understaffing issues for inspectors and testing labs. Altogether it seemed like a cautionary tale for other state governments in the initial steps of legalization pot, or considering it.

We recently spoke with Mark Pettinger, the Oregon Liquor Control Commission’s (OLCC) spokesman for recreational marijuana. As part of a broader interview, we asked about what happened with the overproduction and staffing shortages. His responses are below.

We also spoke with Pettinger on additional topics like cannabis education, working with fellow state regulators, and public safety, which will all be part of an upcoming feature story on the state of regulated cannabis in 2019. Be sure to keep an eye out for that.

Cannabis Regulator: How did the Oregon cannabis surplus occur?

Mark Pettinger: We completed a supply-and-demand study that we submitted several months ago, and it outlined a theoretical 6.5-year surplus of cannabis in the legal system, given consumption patterns of Oregonians. Theoretical doesn’t account for fluctuations in future commodities or demand.

In terms of overall supply, that’s not 6.5 years of just flower — but of everything. The assumption is that value-added-goods like extracts and edibles have a longer shelf life.

CR: Are there concerns that some of the surplus might end up on the black market?

MP: There is a significant amount of supply, but it is accounted for and contained within our cannabis tracking system. It’s all in our system. Now, there might be the possibility, or the temptation, for diversion of some of that surplus into the black market. I’m not saying it couldn’t happen, but if one of our licensees reports they have 200 pounds of flower that’s missing, that licensee becomes accountable.

CR: How does the surplus affect the overall legal Oregon cannabis market?

MP: One of the interesting aspects of supply-and-demand curves is that as prices come down, so does consumption go up. So the state continues to see an increase in sales tax revenue.

One of the challenges now is figuring out what is the shelf life of the value-added-goods. How long until it degrades? And we do know of instances where producers have destroyed their products because the prices were not where they wanted them to be. That’s obviously not where we want to be.

But it’s no different than any other commodity market. Maybe producers don’t want to plant as much. Which is to say that this market is still finding its balance. That’s one thing that folks tend to overlook. The legal cannabis market is like any other business. Not everybody who enters this business is going to succeed. People are going to fail out of the system. You know that old statistic: about 20% of businesses fail in the first year, 40% in the second, and so on. Why would the cannabis industry be any different? There will be market equilibrium. That will come about.

CR: How can Oregon respond to the surplus?

MP: One possibility is for our legislature to step in and ask us to take some action. Unlike in other states, we cannot put a cap on licenses or canopies on an individual manner. We need to apply those measures universally to our entire market. And that’s problematic.

As you likely know, we do have a de facto moratorium on licenses right now. But that’s more of a pause than anything else. We’ve told new applicants that we’ve set them aside in the virtual pile, and that we cannot get to them right away. We have years’ worth of applications.

CR: What about the reports that Oregon’s testing labs are understaffed and not operating efficiently?

MP: That’s a responsibility that our agency does not have. There’s a number of other sister agencies involved. We license labs and the Oregon Health Authority (OHA) certifies them. Both of our agencies have agreed upon a budget proposal that will create a position for dedicated oversight of the labs.

Liquor control commissions in other states have more authority over labs and setting the standards. In Oregon that’s more the OHA’s responsibility. They’ve got the scientists. Right now, we’re focused on creating that position of oversight, in collaboration with the OHA.

CR: Are there staffing shortages in your office regarding cannabis control?

MP: Yes, we have asked for more, starting with an additional eight inspectors.

One challenge is that we have not had the full compliment of inspectors onboard. There’s been turnover. It’s like any startup business. Right now it’s more about trying to get people onboard. That’s taken a fair amount of time, because first we needed to develop the standards and processes for inspectors.

As we’ve developed that, the inspecting process has become better, more efficient. Remember, it’s a completely new process, so it’s probably going to go slow at first. It’s not something that’s already codified. On the alcohol side, they have had their process for 80 years. They’ve been able to develop and change and tweak it. We’re still building the process for ourselves.

CR: Hindsight is 20-20, and some states had to take the plunge into legal cannabis before others could follow suit. Oregon was a trailblazer, so what advice do you have now for other states considering recreational pot?

MP: Allow for more time to build it out because it will take more time then you think. Focus on building a strong foundation and framework. You won’t get it done overnight. Consult with other states and industry members for advice. There’s vastly more knowledge now in the industry then there was just five-to-six years ago.

You have to be nimble because this is not as codified as the alcohol industry. Changes are going to come.

For instance, in this industry there is a lot of pent-up entrepreneurialism from years of the industry operating under the radar. These people are pushing and doing stuff not necessarily to break the law, but to bring out new products for consumers, and sometimes these entrepreneurs are out front before the regulators can catch up.

And be actively engaged with your general public and the voters to know exactly what they want.

Kyle Swartz is editor of Cannabis Regulator. Reach him at kswartz@epgmediallc.com or on Twitter @kswartzz or Instagram @cheers_magazine. Read his recent piece Legal Cannabis Makes (Minor) Headway in Washington D.C.

Leave a Reply

Your email address will not be published. Required fields are marked *