Oregon Lawmakers to Consider Interstate Cannabis Export

With the help of its coastal location and unique climate, Oregon has successfully established itself as an important exporter in both the domestic and international food and drink industries: Oregon’s wine exports outpace the national average thanks to the pinot noir wines produced in the Willamette Valley; and the state’s beer industry exports over 1 million barrels of Oregon craft beer each year.

Curiously, when you look through a list of the state’s goods production figures and corresponding exports, you will come across one notable absence: cannabis.

The state of Oregon legalized cannabis for recreational use by ballot measure in 2014, with the first recreational cannabis sales occurring in late-2015. In response to recreational sales beginning, and various incentives offered by the state for producers to leave the black market, the state’s production of cannabis skyrocketed. Unfortunately, this rise in production dramatically outstripped demand. Now, according to recent estimates, Oregon’s cultivators are producing around three times more cannabis than the state is consuming.

In other industries, excess product would commonly be exported to other states or international countries who are unable to meet local demand for a product using their domestic production power. However, under Oregon law, this sort of export system is still prohibited in the case of cannabis and cannabis products. This inability to export cannabis means that, for the time being, the Oregon marketplace is trapped in a scenario where cannabis supply will continue to outpace demand for product, unless a change is made by state legislators.

As the Oregon legislature prepares to get its 2019 legislative session underway on January 22, preparations are underway to create a bill that could provide a solution to the oversupply crisis, by legalizing a form of cannabis exports.

The craft cannabis alliance proposal

The proposal currently being considered is under development by the Craft Cannabis Alliance, a well-known trade association for the cannabis industry, in conjunction with a number of Oregon’s politicians. In essence, the proposal would allow the state to export excess cannabis product to nearby states with similar cannabis usage laws.

Currently, the draft language of the proposal appears to suggest allowing the transfer of cannabis through adjacent states which consent to be involved in the process, but the shipping of cannabis by air or other means would remain prohibited. Theoretically, this would mean that if a state with no real history of cannabis cultivation was to legalize cannabis, and a chain of states reaching from of Oregon to the state in question gave consent, Oregon could supply that location with some of its surplus cannabis product to fill the demand. The exported cannabis would need to meet all Oregon’s testing, packaging, and labelling standards, and a 17% tax would be imposed on all out-of-state transactions.

A bill similar to this proposal, Senate Bill 1042, was proposed in the 2017 legislative session but never made it past the Senate. The bill would have given the state governor authorization to approve cross-jurisdictional cannabis trade.

"I thought back then it may be a bit cart before the horse," explains Senator Ginny Burdick (D-Portland), to Katu News. "We were still working on setting up our own legal market, but now I think is the right time.”

According to Senator Floyd Prozanski (D-Eugene), some parts of Bill 1042 could be included with some parts of the Craft Cannabis Alliance proposal to create a bill to be presented to Oregon’s legislature later in 2019.

Oregon’s cannabis pricing crisis

Finding a solution to the state’s overproduction of cannabis will be a key priority for the state moving forward. The overproduction crisis has actually led to more cannabis finding its way into the black market, and has sent retail cannabis prices into freefall, with prices declining by as much as 50% in 2018 compared to when the market opened in 2015.

These low prices might be stimulating some amount of sales growth as consumers take advantage of the cheaper pricing, but cannabis businesses in the state are feeling the pressure. The falling prices and diminishing returns are regularly named as a major catalyst for local cannabis growers to sell their business, or controlling shares in the business, to more wealthy out-of-state investors.

Prior to 2016, Oregon cannabis businesses were restricted by a residency requirement that needed cannabis businesses in the state to be at least 51% owned by an Oregon resident. When the residency requirement was removed, it was originally celebrated as a promising way for new and expanding cannabis companies to secure much-needed investment. However, as time has passed and as cannabis supply has ballooned, out-of-state investments from wealthy businesspeople have become increasingly controversial.

"The root of the entire thing was the allowance of outside money into Oregon," said Myron Chadowitz, owner of the Eugene-based farm Cannassentials, speaking to the Willamette Week. "Anyone could get the money they needed. Unlimited money and unlimited licenses, you're going to get unlimited flower and crash the market."

The Oregon Liquor Control Commission has reportedly said that it has no authority to cap the number of licenses that are granted to cannabis cultivators, meaning that the overproduction issue is unlikely to be fixed by imposing controls on the number of licensed suppliers. The creation and passing of an export bill could provide an effective alternate route to fixing the oversupply problem.

Practicalities of inter-state commerce

In theory, allowing cannabis exports looks like it could well be a very effective solution to Oregon’s problem. However, there are a couple of notable obstacles to the plan, the first of which being the opt-in nature of the deal made with neighboring states.

Anti-cannabis campaigners in the state are not convinced that any neighboring states would be willing to allow cannabis to be imported into their jurisdiction, even if cannabis is legal there.

"I can't imagine any state would agree to do this with Oregon," said Kevin Sabet, President of the anti-cannabis group Smart Approaches to Marijuana, in an interview with the Statesman Journal. "It looks like a desperate attempt to tackle the out of control black market production that has happened in Oregon since legalization. The state should be focusing on how to reduce overall demand and supply."

A second, and arguably more pressing, obstacle to the plan is cannabis’ continued classification as a Schedule 1 controlled substance at the federal level. Interstate commerce is subject to federal law, meaning that the import and export of cannabis across state borders is considered federally illegal at present.

Those involved in creating the export proposal recognize this, saying that passing state-level legislation will send a message to the federal government that states do want interstate trade to be made legal. With the Commissioner of the Food and Drug Administration previously hinting that federal cannabis reform is somewhat of an “inevitability”, and in light of the recent de-scheduling of hemp-derived products, it may not be such a wild strategy to put pressure on federal organizations in this way by showing that some states are willing and ready to begin cannabis trade.

“The long game is interstate commerce,” explained Matt Walstatter, the owner of Oregon’s Pure Green dispensary, also to Katu News. “The more that our state government is behind us and supporting us and advocating for this kind of thing, I think the sooner that we can get that federal movement.”