Two neighboring West Coast states with legal marijuana laws are struggling with supply and demand. While California, just one month into its legal retail system, is having a difficult time keeping up with demand, Oregon is having the opposite problem: there is too much supply. What’s going on here? And what does it all mean?
Supply-and-demand problems are common in states that have just turned on the “Open For Marijuana Business” sign. New markets need time for the supply chain to develop, and often discover hiccups early in the process. This is what California is going through for the most part. But another factor is that many growers did not register with the state, and are hiding in the shadows of the gray and black markets.
Most experts claim that until California gets a handle on the legal market, the black market will continue to grow. Meanwhile in Oregon, the oversupply is also helping the black market thrive. US Attorney Billy Williams told Newsweek that Oregon’s marijuana industry has a “massive” overproduction problem.
Oregon produces nearly three times more cannabis than can be consumed in the state, former Oregon State University Professor Seth Crawford told the Associated Press. “Make no mistake about it, we are going to do something about it,” Williams warned.
The state’s excess marijuana clearly is not being thrown away—it is going somewhere. Law enforcement officials are concerned that Oregon growers may become illegal exporters to non-legal states, keeping the illicit market alive. Williams said that 16 states have reported cannabis seizures coming from Oregon and that Oregon postal agents had recovered 2,644 pounds of marijuana in outbound parcels during 2017.
“This lucrative supply attracts cartels and other criminal networks into Oregon and in turn brings money laundering, violence, and environmental degradation,” Williams said.
Most cannabis insiders believe that as long as there is a demand in states refusing to adjust prohibition laws, the supply will find its way there. “It is simple economics,” said one Oregon grower who did not wish to be identified. “It’s a simple plant to grow, so there will always be ample supply. Anybody who understands economics will agree that supply will meet demand.”
Another problem, also an economic certainty, is that as legal prices plummet, growers seek to find more profitable revenue streams. If the black market becomes that much more lucrative than the legal market, some growers will follow the money. “Grumblings within the industry suggest this is happening,” reported the Oregon Office of Economic Analysis.
The OOEA report concludes:
Conditions today are great for consumers, but potentially worrisome for some businesses. It will be interesting to watch how the market and industry continues to evolve. Our office’s forecast expects sales to continue to increase due to both new customers as usage increases and social acceptance of marijuana rises over time, and due to black market conversion. It’s the latter that is the most worrisome from a long-run perspective of industry viability. This is why enforcement and compliance are key issues being addressed by policymakers and industry professionals today.