One of the first things you learn in Economics 101 is the law of supply and demand. “The law of demand says that at higher prices, buyers will demand less of an economic good. The law of supply says that at higher prices, sellers will supply more of an economic good.” The marijuana industry seems to have forgotten these laws.
The Tribune reports that the Oregon market is “glutted” with legal weed. So much so, that if growers didn’t grow any more, it would still take almost 6 years at current market demand to use it up.
Even though marijuana is legal in Oregon, under federal law, weed is an illegal substance. This means it can’t be transported across state lines. BI reports that the surplus is over 1 million pounds.
Prices have plummeted since October 2016 when pot was selling for more than $10 per gram. Last December, the price was barely $5 per gram.
In an ideal world, production would slow down to allow demand to catch up, but today’s economy is anything but ideal. It’s hard to simply stop growing a consumable item when it’s your livelihood. Smaller mom-and-pop growers have invested heavily in the business.
Another issue is that weed growers don’t have federal bankruptcy protection. Banks have avoided the industry. Not producing pot for one season could have catastrophic and cascading effects.
What is Oregon doing about their surplus?
Legislators passed two new bills that should help. State Senate Bill 582 is the groundwork for interstate exporting. SB 218 gives the Oregon Liquor Control Board more discretion over new licenses issued to growers. Opponents of the new legislation are concerned that growers who don’t get a license will turn toward the illegal market.
Some believe that Oregon should have the opportunity to access legal markets in other states.
Oregon has great conditions for growing marijuana, while it’s more difficult to cultivate in Nevada’s desert conditions, or in Florida’s overpopulated and overgrown tropical climate. Generally, the U.S. Justice Department doesn’t interfere with state-legal marijuana provided it isn’t transported (“smuggled”) into other states.
It’s unlikely that Trump or Congress will legalize marijuana. Marijuana growers risk state licensure by crossing state lines without changes to federal law.
It’s a dire situation for smaller growers in Oregon’s cannabis market. Other states, (Oklahoma, I’m talking to you,) should be watching.
Issuing so many licenses to grow and sell marijuana without considering the basic tenets of economics led to this situation. It’s just another case of short-term politics not looking toward the long-term effects.
