Regulation Woes or Wins? How Oregon is a case study for regulatory benefits

Jamie Schau

February 5, 2018

The Oregon legislature, Oregon Liquor Control Commission (OLCC) and Oregon Health Authority (OHA) have slowly begun to impose additional regulations on medical and recreational cannabis retailers and producers around the state, which owners and investors must be attentive to in order to remain in compliance with state law. As a result, Oregon’s canna-businesses have expressed concern over the number of regulatory hurdles they face (new and old), such as the obligation to share information about anyone with a financial stake in the business - from landlords to owners’ spouses - and the requirement for investors to be fingerprinted.

 

The establishment of, and updates to, government standards and oversight can certainly present challenges, but increased regulation does not always need to strike fear into the hearts of those invested in the industry. As is the case in Oregon, though they may be costly or onerous at first, many of the limits imposed by state or local government will ultimately lead to a more sustainable, healthy and thriving cannabis industry.  

 

Burdensome taxation or industry staying power?

Timber was, and still is, a major source of revenue in Oregon. However, this is less and less the case with an increasing amount of property in rural areas being devoted to growing cannabis rather than wood. To recuperate revenue lost due to the contraction of the timber industry, Oregon is considering levying an additional tax on cannabis growers in these regions. No one in this industry (or any industry, for that matter) is interested in hearing the word “tax” when it comes to their investments. But on the flip side of the coin, increased taxation will raise revenue for the state, and when the state is more dependent on canna-businesses for tax revenue, the industry will most certainly have more staying power and leverage among lawmakers. Over time, this will also help to normalize the industry in the eyes of the government as well as voters. Though increased taxes are seldom a welcome change – especially on top of the various other state and local taxes, licensing and other fees cannabis businesses must pay – their collection will ultimately lead to very welcome and positive changes for the industry.

 

Licensing limits

The OLCC has not been tasked with limiting the number of cannabis licenses issued in Oregon, and is currently accepting applications from producers, retailers, labs, etc. on an ongoing basis and without a cap. With the granting of so many licenses, competition has skyrocketed, driving the market to cannibalize itself and disadvantaging many who have been unable to successfully navigate it under these circumstances.

On the retail side, this makes both entrepreneurs and investors feel disillusioned and discouraged, as many businesses invest a great deal only to be unable to find their niche in a flooded market. For growers, it may become impossible to profit as the vast amount of product available drives prices below production costs. Given the disadvantages of market gluts, it is ultimately in the best interest of the industry for a government entity to keep competition in check by limiting the number of licenses granted.

Today, in Oregon and other legal cannabis states around the U.S., canna-businesses and investors are paving the way toward what will eventually become a functional and well-regulated market. Regulatory measures, while often onerous and not always effective or successful in their aims, are a necessary component of this process – and will ultimately help drive the cannabis industry’s formalization and acceptance.