Week in Review: Cannabis legalization in North America, MJ clubs whacked & Oregon flood

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By John Schroyer

Canada and Mexico signal they’ll move ahead with cannabis legalization, marijuana clubs hit local pushback, and entrepreneurs flood Oregon with applications to operate in the state’s new recreational cannabis market.

Here’s a closer look at several notable developments in the marijuana industry over the past week.

The cannabis continent?

The leaders of Mexico and Canada this week unfurled plans to move forward with new marijuana markets. The upshot: The vast majority of North America could have some form of legal cannabis within a few years.

Canada and Mexico announced their intentions during a special session of the United Nations focusing on the fight against drugs.

Making a major pivot, Mexican President Enrique Pena Nieto said he now supports calls to legalize medical marijuana in his country. The next day Canadian Health Minister Jane Philpott revealed her nation will introduce a bill to legalize recreational marijuana in about a year.

If both come to fruition – and at the moment there’s no real reason to doubt they won’t – the business opportunities in those countries for U.S. companies could be huge. Much will depend, of course, on how policymakers in Canada and Mexico write their new cannabis laws and regulations.

There’s already some corporate cannabis crossover between the United States and Canada – think of Privateer Holdings’ ownership of Canadian medical marijuana producer Tilray, for example. And plenty of companies in the southern U.S. would leap at the opportunity to enter a new Mexican market, even as consultants or in some other supporting role.

The possibilities are mind-boggling, especially if the U.S. Congress took action to help craft a new international cannabis trade. That could set up an immense new market for cannabis products stretching from Alaska to Cancun – and perhaps beyond, if other Latin American nations follow Mexico, ChileColombiaJamaicaUruguay on marijuana reforms.

Not now

It was another bad week for owners of marijuana clubs. These membership organizations face persistent trouble – if not outright defeat – at a time when almost every other segment of the cannabis industry marches forward.

The Washington DC City Council slapped a permanent ban on consumption lounges this past week. And news from Alaska revealed a number of startup clubs there have closed their doors or are in limbo amid confusion among local officials over whether they’re legal.

Last month, the city council in Colorado Springs banned clubs.

The bottom line: Clubs are a business model whose time has yet to come, said California-based industry consultant Avis Bulbulyan.

“Initially, when you get marijuana regulations without a functioning program, people set it up as a club. That’s what’s happening in Spain right now. Spain is where California was” 15 years ago, Bulbulyan said.

A big problem for cannabis clubs is that cities and states are learning how to close the regulatory loopholes that entrepreneurs often take advantage of to launch them.

But wannabe club owners shouldn’t abandon hope. Clubs could become a booming success, assuming the industry gains more mainstream acceptance and Congress loosens federal anti-marijuana laws.

“Once (marijuana) gets rescheduled, it’s going to be no different from a cigar lounge,” Bulbulyan predicted.

“Once that happens, then it becomes a legitimate business,” he added. “It’s like those motels that are 4/20 friendly.”

A glut in Oregon? 

In Oregon, applications continue to pile up for recreational marijuana licenses.

As of April 21, the Oregon Liquor Control Commission counted 890 recreational marijuana business license applications, including 614 for cultivation, 155 for retail, 71 for infused product manufacturing, and 44 for wholesalers. That’s a bump of 37 applications in less than a week.

The agency expects to begin issuing rec permits by the end of the month.

Oregon doesn’t have license caps for recreational businesses. And every applicant will get a license unless deemed ineligible.

The 890 figure probably doesn’t even include all the medical cannabis businesses that currently operate. They won’t be required to have a rec license for several more months, noted Casey Houlihan of the Oregon Retailers of Cannabis Association.

Houlihan expects more than 90% of the existing medical businesses will apply for rec licenses. Many of them simply haven’t gotten around to it.

If that trend continues, Oregon could be on its way to becoming one of the most saturated marijuana markets in the country, largely because of the state’s low barriers to entry.

“You really have to take into account that half of the state isn’t open up to this,” Oregon consultant Liz Fitch added, noting that dozens of counties and municipalities have enacted bans on marijuana businesses.

How the market will evolve is an open question.

Fitch reckons a wave of consolidation will occur, with mergers and companies teaming up to survive and remain competitive. She also said a boom in the number of cultivators could lead to a supply glut and then a price crash.

But Houlihan expects business will pretty much continue as usual, because he believes the rec market will be comprised largely of existing MMJ businesses that will transfer to the new regulatory system.

But that means there may not be much room left for new companies angling to get a foothold in Oregon, though that’s hard to to know for certain, Houlihan said.

“I’m sure we’ll see some shifts occur, but I don’t see a massive wave disrupting everything that we’ve built here. I think that would be overstating it,” Houlihan said.

John Schroyer can be reached at johns@mjbizdaily.com