Oregon marijuana cultivators have been suffering through another wholesale price slump as supply outstrips demand, a now-familiar pattern for the state’s mature adult-use market.
Median wholesale prices were hovering near $600 per pound on March 1, down from a peak of more than $1,800 in 2017, according to Oregon Liquor and Cannabis Commission (OLCC) data.
Interstate cannabis commerce could solve the problem by unleashing Oregon’s production glut on the rest of the U.S., but – barring wild success in a pending lawsuit or a legislative miracle in Washington DC – the possibility of legally shipping marijuana out of Oregon and across state lines looks remote.
Prices could rise again as cultivators cut back or go out of business and production dwindles.
Meanwhile, proposed legislation would effectively extend a moratorium on new cannabis business licenses by tying future licenses to Oregon’s population.
“It’s not going to put anybody out of business,” said Mike Getlin, public affairs coordinator with Portland-based cultivator Nectar Markets and board chair of the Cannabis Industry Alliance of Oregon, who was involved in creating the legislation.
“We can’t kill licenses. … But we can set goalposts out there to which hopefully, over time, the natural attrition of the industry leads to a more balanced relationship between supply and demand.”
Cycle of oversupply
Oregon’s legal marijuana industry has faced slumping wholesale prices before, with the median wholesale price of a pound of cannabis falling to $649 in April 2019, according to OLCC data.
Prices recovered from that low through 2020 as demand increased, some growers closed, some limited production and others pivoted to hemp.
Licensed growers “entered 2021 exuberant and optimistic about the future of the market,” the OLCC noted in a recent legislative report on cannabis supply and demand.
But demand dropped off through 2021, the regulator wrote, and a bumper outdoor crop that autumn “set off a slide in prices that put the entirety of the supply chain under pressure in 2022.”
In short, Oregon simply has “too many growers and not enough consumers,” said Will Perry, CEO of cultivator Magic Hour Cannabis in Boring, Oregon.
Perry said he knows other cultivators who have had to choose between selling a pound of marijuana at a steep discount or laying off an employee.
“People are having to make those tough decisions all the time,” he said.
“And, more often than not, they’re just reducing the price per pound.”
The OLCC report estimated demand was only 63% of supply in 2022.
Meanwhile, the median wholesale price of marijuana hit a record low of $550 per pound in December 2022, before recovering slightly to $599 this past February and March.
That's a 25% decline from the year before and a 54% decline from February 2021, when the median wholesale price of a pound was $1,299.
Obie Strickler, CEO of Medford-based cultivator Grown Rogue, observed that actual wholesale pricing varies widely depending on the method of production.
For example, he said, citing prices as low as $150 per pound, 2021 "was a really, really bad year for outdoor."
Strickler said Oregon's margin-squeezing low prices make controlling the cost of production "super critical" for Grown Rogue.
He described how Grown Rogue weathers the peaks and troughs of Oregon's supply-and-demand cycle.
"We ride less profitability during the low-pricing environments, which we're in right now," Strickler said.
"And then as we come out of those, we make more cash, we'd look to expand, we're able to use that free cash flow for furthering our market share and looking at other opportunities in front of us."
Magic Hour's Perry is coping with Oregon's low prices by launching a cultivation venture in New Jersey's fledgling adult-use market.
"They have a huge undersupply issue," Perry explained.
"It's really just, honestly, the opposite of what's going on in Oregon."
The OLCC's supply-demand report says a decrease in Oregon's 2022 cannabis harvest heralds "a self-correction of the market that improves its position heading into 2023."
But any such correction "is not painless - it represents scores of cannabis businesses scaling back their ambition, often laying off employees or going out of business entirely," the regulator wrote.
Getlin of Nectar Markets questioned whether "the Oregon industry, in its current form, is capable of achieving price and production balance."
Cannabis demand in Oregon is "hemmed in by state borders," he said.
(Neighboring states California, Nevada and Washington all have their own adult-use markets, limiting the opportunity for Oregon to capture cross-border shoppers, although marijuana remains fully illegal in Idaho.)
Despite that constrained demand, Getlin argued, Oregon's marijuana "supply is determined by national speculative investments in cannabis."
"So what happens is, large investors will go and invest huge amounts of money in production wherever they can get a license," he said.
As Oregon cultivators fail, Getlin believes out-of-state speculators will buy those licenses "so that they can hang them like Christmas-tree ornaments on their next-round investment prospectus."
"And fail again," he continued, "and dump all that product back onto the Oregon market at artificially low, below-production-cost prices - again - and create another one of these bust cycles.
"And that's exactly what we saw happen in (2017-18), last time we had one of these big crashes."
Without a major reduction in Oregon's total licensed cultivation capacity, Getlin added, "you're going to continue to see this cycle occur again and again, unfortunately."
Oregon's moratorium on new marijuana licensing is in place until March 2024.
In a recent report on that moratorium, the OLCC reported 1,404 active producer licenses as of March 14.
After the moratorium was extended in 2022, the OLCC said it inactivated 501 producer license applications, "(highlighting) the continued desire to enter the regulated market."
Pending legislation would keep licensing constrained after the moratorium expires.
House Bill 2515, now in committee hearings, would prevent the OLCC from accepting new cannabis production, processor, wholesaler and retail license applications unless the ratio of existing licenses to Oregonians reaches certain thresholds.
For example, new production licenses couldn't be issued unless "there is not more than one active license per 7,500 residents" 21 and older.
Meanwhile, Grown Rogue's Strickler sees "strong indicators" that prices will increase once again.
"We're confident they'll go up; (by) how much, we don't know," he said.
However, price stabilization could start the cycle all over again.
Nectar's Getlin noted cannabis production licenses are currently for sale for $25,000 to $50,000.
"But as soon as there's any hope of more normalized pricing, two things happen," he said.
"One, those licenses all get bought up by new players that invest a bunch of money and grow a bunch of pot.
"And, also, existing cultivators who planted a small portion of their square footage, or potentially didn't plant at all the previous year, will throw some cuts in the ground because they think prices are on the rise."
Solomon Israel can be reached at email@example.com.