West Coast cannabis producers are discovering there can be too much of a good thing. Growers in this region have long dominated the market, as West Coast states provide ideal growing conditions and have longer legalization histories that have allowed producers more time to develop sophisticated operations.
Unfortunately for growers in West Coast states, various legal and economic factors have contributed to an environment in which supply is through the roof while demand is down. To reverse this dangerous trend for cannabis producers, cannabis producers across the U.S. are pushing for interstate trade.
The problem with producers pinning their hopes on interstate trade is complicated, especially since marijuana remains a Schedule I controlled substance under federal law. So, what’s the solution to this supply surplus, and can small businesses in the cannabis industry survive until then?
What’s the Problem?
A vast supply, excellent growing conditions, and years of cultivation know-how made the West Coast a marijuana paradise. However, one unintended consequence of becoming a haven for cannabis producers has been local oversupply. Many cannabis suppliers and small businesses along the West Coast cannot pay their bills, going under one by one as demand plummets. In Washington state, a recent email was sent out to legal cannabis growers, notifying them that yet another colleague was going out of business. Liquidation sales are more frequent than ever as many companies try to recoup anything they can during this widespread downturn in the market.
From California to Canada, the problem is profound. Producers and retailers say they are at rock bottom, nearly unable to stay afloat. Many producers complain there are no profit margins as businesses fail left and right. MedMen, a California marijuana powerhouse, reportedly has millions in unpaid bills. Canadian company Curaleaf says they have shuttered most of their cultivation operations along the West Coast, including operations in California, Oregon, and Colorado. In Colorado alone, cannabis prices have dropped by nearly 51% over the last two years.
Although the oversupply of the cannabis market primarily impacts legalized states along the West Coast, other states are also feeling the pinch. Recently, cannabis prices tanked in Michigan, leading to a considerable surplus. One estimate reveals Michigan may have enough cultivation capacity to supply three times as much marijuana as the state’s consumers can purchase, not including the supply available on the enduring black market. Even as legalization spreads, producers, suppliers, and businesses nationwide find challenges staying in business. In Michigan, the sales slump is so pronounced industry officials are asking the state for a moratorium on cultivation licenses.
Is Interstate Trade to Move Cannabis Surplus the Solution?
With so many states in the U.S. facing similar cannabis supply problems, is interstate trade the solution? Many cannabis producers and cultivators think so. Earlier in the year, the Oregon Liquor and Cannabis Commission estimated that cannabis businesses in the state were sitting on nearly three million pounds of unused marijuana and 75,000 pounds of unused concentrated and extracts. Previous commission director, Steve Marks, compared cannabis to corn. He notes that if Iowa could only sell its corn to Iowans, they would be in the same boat as Oregon is with cannabis.
One potential benefit to opening interstate trade for cannabis cultivators is getting rid of surplus supply in Western states while giving states that just recently legalized cannabis a leg up on business. It takes time to establish and cultivate marijuana suitable for retail sale. States that have only recently legalized recreational plant sales could jump-start their markets by importing cannabis from other states. Additionally, consumers could potentially explore new and unique strains of cannabis grown in other parts of the country that might not be available to them locally.
Consumers are the one group reaping the benefits of cheap cannabis due to the oversupply problems. In Oregon, a pound of cannabis once sold for $3,000 wholesale. Today, the same pound could go for as little as $100 or $150. However, as the problem festers and businesses close their doors, consumers could struggle to find surviving retail locations in their communities.
Hurdles to Interstate Cannabis Trade
Unfortunately, marijuana remains a Schedule I controlled substance under federal law, making interstate trade illegal. Most cannabis cultivators and businesses have little hope that a fractured Congress will take measures to help their struggling companies anytime soon. Several attempts to pass marijuana banking reform, like the SAFE Banking Act, have failed, and the newly controlled Republican House seems unmotivated to move cannabis legislation forward.
Without the intervention of Congress, how can interstate cannabis trade become a reality? Some in the industry hope President Joe Biden’s administration can clear the way in some capacity. Technically, President Biden could allow states that have legalized cannabis to trade amongst themselves, helping to reduce oversupply and provide quality marijuana crops to other areas of the country with legalized marijuana laws on the books.
Attorney General Merrick Garland recently said the Justice Department would soon announce a new marijuana policy. Although details are sparse, the new policy could stipulate that the federal government may not interfere with state efforts to regulate marijuana if states meet specific law enforcement priorities. However, some drug policy experts claim the new policy would never go as far as to permit interstate commerce of cannabis.
At least lawmakers in Washington state are hopeful that change could be on the horizon. State legislators recently passed a trigger bill authorizing the governor to engage in interstate cannabis trade agreements if the federal government permits it. Similar trigger laws have already been passed in Oregon and California. With trigger laws in place, these states could begin interstate trade partnerships almost immediately if the federal government decides to permit it.
In the meantime, cannabis cultivators and businesses might need to find creative ways to utilize their oversupply of cannabis to remain viable in an oversaturated market. For now, marijuana businesses wait with bated breath to see whether policy changes can turn the industry around before more suppliers and retailers find themselves closing shop.
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