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Could Inter-state Trade Help the Marijuana Industry’s Too Much Pot Problem?

by Sophia Chen
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Washington State recently sent out an email to legal cannabis growers saying that one of their fellow workers had gone out of business. In the email was a list which included LED grow lights costing $500 each, and rotary evaporators for making hash oil costing $10,000.

In Oregon, across the Columbia River, there is trouble in the marijuana industry. Many licensed growers are shipping their products to customers outside of the state just to keep money coming in. The weed shop MedMen has lots of bills they haven’t paid off yet, while Curaleaf has closed many cannabis farms across California, Oregon and Colorado.

Producers, who have a lot of experience growing marijuana along the West Coast, are facing very tough economic times. There is so much supply (of Marijuana), especially due to good growing conditions but since it is still banned under federal law, none of this surplus can be moved outside state borders. This has resulted in prices going down and producers not doing as well financially.

Jeremy Moberg, owner of CannaSol Farms in Washington, said that he’s really struggling since the state taxes his farm with a 37% tax rate which takes away nearly all of his profits. No one expects Congress to do anything to help like legalizing marijuana, helping out with deducting expenses or providing access to bank loans/credit. Things remain difficult for Jeremy and other growers.

Some people are hoping that Biden’s administration will make it so marijuana can be shared among states who have allowed the drug. This way, places with great weather and access to cheap energy, like on the west coast of the US, can provide marijuana to other states too.

Recently, Attorney General Merrick Garland told the Senate that soon the Justice Department will have a new plan about marijuana. It mostly describes that if states are dealing with marijuana legally, the federal government won’t disturb them. However, it would not allow trade of marijuana between different states.

Last week, politicians from Washington State gave the “go-ahead” to create a plan that would allow their state to join other states (Oregon and California) in buying and selling marijuana with each other. Twenty-one states have already allowed people over eighteen years old to use marijuana for fun. Missouri has just started these sales, Maryland should begin by July, and New Mexico made over $300 million from its program in one year.

In 2012, Washington and Colorado were the first two states to approve recreational marijuana. The laws they made affect how their businesses do today, and if companies can sell outside of their own state.

In Washington, certain regulations were placed in order to satisfy the Justice Department and these rules still apply; including limiting growing facilities and disallowing investment from other states.

Smaller growers have benefited from limits placed on them. However, it could hold them back when they want to compete in the bigger market of states like Oregon and California which do not have as many restrictions. The large growers in Oregon were able to make a lot of money due to their size that gave them an advantage. But even though this happened there is still too much cannabis being produced meaning the entire country is dealing with a supply issue.

In February, a special organization called the Oregon Liquor and Cannabis Commission reported that shops that sold weed had too much of it. In total, there were 3 million pounds (1.36 million kilograms) of weed, plus an extra 75,000 pounds (34,000 kilograms) of concentrates and extracts.

At the time, the commission’s leader Steve Marks said that Oregonians had bought up all they needed, and federal problems were causing an “existential crisis” for shop owners dealing with weed.

TJ Sheehy, an analyst with the Commission, compared Oregon’s legal cannabis industry to Iowa’s corn industry. He said it’s as if there was a wall around Iowa that only allowed Iowans to grow corn for sale inside that state.

Oregon and Washington have given permission to lots of people to grow cannabis. This was done so that the legal market could produce enough cannabis to compete with the black market, like reducing prices. Oregon, which has a much smaller population than Washington, has more licensed growers.

The result has been great for cannabis-lovers because there’s now an oversupply!

In Oregon, when legal cannabis sales started, a pound of it would have been worth $3000. But now, as Isaac Foster from Portland Cannabis Market mentions, its price goes for about $100-$150.

On the flip side, in Washington where you have to pay higher taxes on buying cannabis, it is still cheaper than illegal options. The taxation amount brings half a billion dollars annually for the health and state activities there.

Three-quarters or more of people in Washington, Oregon and Colorado who use cannabis said they bought their marijuana products from stores that sell them legally in 2021. That’s according to the International Cannabis Policy Study which is located at the University of Waterloo in Canada. The problem is that it’s very easy for these legal outlets to give away products too cheaply which makes it hard for the industry to keep going.

Moberg works at CannaSol Farms and he has around seven workers now, which is a lot less than the thirty people he used to have in 2014 and 2015 during when the weed industry started up. Because of this, it’s creating some problems like having three shipping containers full of weed with only 75% of what was produced last season being sold, as well as 1,000 pounds (453.6 kilograms) still unsold from the year before that. As a result, his income for last year dropped about by half.

East Fork Cultivars, one of the first businesses in Oregon to get a license for growing marijuana, has a lot of it stached away, according to co-founder Nathan Howard.

He said they need to sell most of it if they want the lights to stay on. It’s a miracle that they are still up and running.

Even though growers are stressed out right now, if the government allows businesses in other states to buy from East Fork Cultivars, everything should be alright.

Paul Rosenbaum had a meeting with producers in southern Oregon. He told them to hang in there because eventually, the government is going to make it legal across all 50 states. He said that southern Oregon has become well-known for marijuana and it’s like the Bordeaux of France.

Legal growers in the cannabis industry would rather supply the legal market, so they do not risk their businesses or go to jail. Some of them were able to survive by finding other ways to secretly bring their product from one market to another or even out of the state. Tanner Mariani of Portland Cannabis Market said that these growers had two choices – either find creative solutions or cease operations.

In some places, like Oregon, drug cartels have started up farms that they pretend are legal. In 2018, California- the biggest producer of marijuana in America and the fourth-biggest economy in the world- allowed adults to buy it legally. This was seen as a step forward for legalizing it across the country.

Two-thirds of the California towns don’t allow people to use marijuana, so that prevents someone from making money by selling it legally. This has led to a lot of job losses and financial troubles, as well as low prices for marijuana being sold on the market. Because of this, some growers are illegal pushing their product in order to make more money.

An investigation conducted by a cannabis investor, Aaron Edelheit found out that after the start of 2022, California’s legal market had lost almost 25% of its farming area. As a result, many producers had to close down and wholesale prices started to go back up.

One of the state’s earliest licensees, Erik Hultstrom hoped for success in this “green rush economy” and began growing special kinds of marijuana inside an enclosed warehouse near Los Angeles.

Five years later, he sold the license to his business with hopes of finding a big company that will sell his products under the name “Hultstrom”. However, he said that it’s difficult to find businesses that are making money. Gregory Meguerian, who is an owner of a store in Los Angeles, gave up on a project he was working on and believes that sometimes you just have to accept defeat.

Although some people think the cannabis industry could be facing a big collapse, others believe it is normal. Rob Sechrist from Pelorus Equity Group said when one company fails, others gain since they are taking over their market share. For example, Nabis will open a huge warehouse near Fresno this month.

Doc & Yeti Urban Farms is an indoor grower in Tumwater, Washington. Thirteen people work there and they make around 1,200 pounds of flower every year. They sell it to their regular customers and they stay in business because those customers like their products. Joseph DuPuis (co-founder) wants Washington to be ready for a national market so his team can do even better.

“Sticking it out during a stormy time gives you a chance to get through it and make it in this market,” said DuPuis. People from different places, like Salem, Oregon; Los Angeles; Denver; and Portland, Oregon added to this report.

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