EXCLUSIVE: Univ. of Oregon Prof. Benjamin Hansen talks interstate commerce as Oregon’s cannabis problems come close to crossing the line
By Meg Ellis and Brandon A. Dorfman
Jan 08, 2019
It turns out; it is possible to have too much of a good thing. Three years after the implementation of Oregon’s recreational cannabis law, growers are experiencing a surplus in their supplies.
Oregon is currently sitting on 1.3 million pounds of pot, and it will continue to sit in the Beaver State unless laws surrounding exportation change. Unfortunately, the state’s supply is exceeding local demand and both state and federal law prohibit Oregon from selling their cannabis across state lines.
With regulations restricting interstate cannabis commerce, sellers and legislators alike are attempting to address the situation.
Oregon’s exporting future is haunted by political past
Although legalized in 2014, the state’s recreational cannabis program did not go into full effect until 2016. During these three years, Oregon managed to make tens of millions of dollars in marijuana taxation revenue.
“Oregon has been growing cannabis for generations. Since 1998, we’ve had a thriving above-ground medical marijuana industry,” Adam Smith, the founder and Director of the small business association Craft Cannabis Alliance, told Rolling Stone. “After all that time, we had thousands of mostly small artisan growers, both medical and illicit.”
Unlike other states that legalized recreational marijuana, Oregon hasn’t placed a cap on the number of licenses available for cannabis businesses.
“When the state legalized [recreational] cannabis, it did something very wise and very Oregon - we legalized the industry we had,” Smith told Rolling Stone.
Initially, the legal supply of cannabis was low and consumer demand was high., The cannabis business was booming. Unfortunately, before the legalization of recreational cannabis, Oregon had something of a national reputation as a reputable source of black market cannabis.
The CTS tracks both medical marijuana and marijuana grown for recreational purposes from seed-to-sale. Per state law, all OLCC recreational marijuana licensees and their employers must use the CTS.
This track and trace system publicized the state’s surplus of pot product, revealing that Oregon had three times the amount of weed that in-state consumers could reasonably consume.
“What we didn’t fully think through when we legalized the industry we had is the fact that it was also primarily an export industry. So suddenly you had one of the best and most prolific growing regions in the world was hemmed into a market of less than 4 million people,” Smith concluded.
Blazing the pot political trail
If Canada has taught U.S. growers anything, it is that there is an intercontinental demand for quality cannabis. With the entire West Coast entrenched in the legal marijuana market, one has to wonder, why can’t Ore. share with its neighbors?
Smith agrees, stating: “There are plenty of markets that would be thrilled to have world-class cannabis, but [federal] prohibition keeps us from sending into those markets.”
State Sen. Floyd Prozanski is working with the cannabis industry to resurrect a previously failed bill that would allow growers to ship cannabis to other states, so long as certain provisions are met by those states.
Senate Bill 1042, introduced in the 2017 legislative session, would have allowed the interstate transfer of cannabis products with neighboring states Washington and California provided that the cannabis products met all of Oregon’s testing, packaging, and labeling rules. Additionally, the OLCC required that cannabis sold across state lines be taxed at an out-of-state transaction rate of 17 percent.
While the bill failed to pass when initially introduced, a lot has changed since then, such as the volume of unsold marijuana and the loss of potential revenue.
In an exclusive interview with PotNetwork via email, Professor Benjamin Hansen, the W.E. Miner Professor of Economics at the University of Oregon noted that, in general, economists find that there are gains to be made from trade. Hansen, who is also a Research Affiliate at the University of Chicago Crime Lab researches health, education, and labor topics and focuses extensively on alcohol and marijuana policies as well as labor economics. He’s written on the interstate trafficking and taxation of recreational marijuana, among other topics.
“We would expect in the long run, trade would allow for lower priced and higher quality marijuana,” said Hansen. “Whether we want low priced and high-quality marijuana depends on the utility gain from marijuana vs. the externalities of marijuana consumption and whether it is a substitute for drugs like alcohol with their own externalities.”
“There's a fair bit of evidence it is a substitute,” he continued.
Across the globe, however, cannabis producers are learning that as legalization efforts succeed, the price of flower drops. Asked if legal cannabis was now a commodity not worth the premium prices it sold for on the black market — regardless of whether or not interstate commerce or federal legalization were approved — Hansen offered up some research to address the matter.
“Legalization has consistently resulted in price drops in all states with legalization,” Hansen stated initially. “Stores and growers have turned to branding in attempts to maintain profits, which for me is a clear sign marijuana is a commodity whose costs are falling as firms discover and innovate the best ways to produce it.”
However, he continued: “Entry matters though. There's recent research suggesting a lack of local competition results in high prices.”
Interstate commerce could be the answer
If Sen. Prozanski successfully guides the proposed bill through the legislative session, it could help Oregon with its plethora of pot product.
“We’re looking at hundreds of millions of dollars of local capital that is at imminent risk,” Smith said. “It matters that we understand that this is not an oversupply problem, it’s a political problem, a market access problem, and a prohibition problem.”
However, as with all things, it’s not a perfect solution to Oregon’s oversupply problem. As Hansen told PotNetwork, interstate commerce could be a short-term solution and a long-term problem.
“In the short run, growers in [Oregon] might sell their excess weed in [California]. In the long run, farmers in the central valley of [California] might produce the best and cheapest marijuana, driving all other growers out of business,” said Hansen. “The economics of trade suggest that free trade results [in] the gains from trade [being] larger than the losses, but losses can and still do happen.”
He continued: “We've seen evidence that there are losers from trade based on the United States' increased trading with China in the last few decades. There will be winners with inter-state trade for marijuana, and losers.”