Friday, June 21, 2024

Why A California-Oregon Cannabis Exchange Is A Bad Idea

We have been writing about the oversupply issue for a while (see here and here). Recently, oversupply has also begun to receive a surge in media coverage (see herehere and here). To be sure, we have a ton of clients who have been affected by depressed cannabis prices lately: These clients include not just farms but processors and retailers who are struggling to move product and cover costs, let alone turn profits. This predictably has resulted in a fair bit of industry consolidation as of late, and we have been buying and selling cannabis businesses nonstop for a while now.

Various approaches have been suggested to deal with the oversupply issue in the regulated Oregon market. These approaches include having the state legislature cap the issuance of licenses, like Washington, or having the Oregon Liquor Control Commission (OLCC) curtail maximum allowed canopy sizes. To date, neither approach has gained any traction. Instead, policymakers are simply watching the market attempt to sort itself out, which means watching a significant number of operators to fail, while others are swept up by out-of-state and even international investment.

So why don’t we think an interstate compact with California is a great idea? There are a few different reasons. The first is that California has plenty of cannabis in its own right: It just needs to recalibrate regulations that are currently seen as too restrictive to allow most small and mid-sized operators to enter the regulated market. The second reason is that California’s adult use program is too new: The state will almost certainly wish to keep and grow its own legal cannabis, rather than import product from Oregon while a black market thrives. But the biggest reason of all may be that an interstate compact, while exotic, is legally and politically hazardous.

For 22 years and over the course of four consecutive administrations, the federal government has taken a general posture of restraint as states have promulgated medical and then recreational cannabis programs. There are a variety of reasons for this, but one is surely the compelling argument that states have under the 10th Amendment of the Constitution to roll out these programs. An interstate compact for the transfer of marijuana, conversely, would be legally indefensible. Not only does the federal Controlled Substances Act, at 21 USC §801, expressly provide that trafficking in “interstate and foreign commerce” justifies federal control of certain substances, but the Supreme Court itself has held that the commerce clause creates grounds for enforcement of prohibition even within state borders.

Moreover, in order to succeed, the interstate compact would almost certainly need to be buttressed by Congressional consent, which is a formal legislative action contemplated by Article I, Section 10, Clause 3 of the Constitution. When Congressional consent is given, an interstate compact literally transforms into federal law. But how would this work if federal law makes the possession and sale of marijuana illegal? And why would Congress grant an inherently problematic consent decree, when it could simply re- or deschedule marijuana? The answer is: It would not. Given this context, any effort by two states to set up a cannabis exchange, if challenged, would go down in flames.

Given the foregoing, and given the increase in Oregon licensees coming online, the local industry is not going to shake its oversupply issue anytime soon. That is why our pragmatic politicians like Congressman Blumenauer are wise to explore paths to establish Oregon as a leading marijuana exporter. For now, though, the focus should be on building and promoting infrastructure within the four corners of the state. This will ensure that Oregon is set up to succeed in a couple of years, when the walls come down nationwide.

Vince Sliwoski is an attorney at Harris Bricken, a law firm with lawyers in Seattle, Portland, Los Angeles, San Francisco, Barcelona, and Beijing. This story was originally published on the Canna Law Blog


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