Right here we’re on the finish of 2020 (thank goodness!), which implies it’s time for the fifth annual “State of the State” put up on Oregon hashish. The 12 months 2020 was exceptional for the Oregon hashish trade, largely attributable to COVID and its results, together with document gross sales on the THC facet. However there have been additionally key regulatory modifications, raging wildfires and different unexpected developments to recall as we take inventory on a tumultuous 12 months, and stay up for 2021.

Oregon handed the $1 billion gross sales mark

This occurred someday in late November, in keeping with knowledge offered by the Oregon Liquor Management Fee (OLCC), which was extensively picked up within the press. To place that quantity in perspective, 2019 gross sales by means of the identical interval have been $726 million, which places the state at a 40% achieve year-over-year. And it’s not like Oregon was coming off a sluggish stretch, both: 2019 noticed retail gross sales rise 24.1% over 2108; and 2018 noticed a 29.1% improve over 2017.

There are doubtless a mess of things driving the outsized 2020 improve. The massive one might be COVID and its associated results, together with federal stimulus checks, enhanced unemployment advantages, do business from home, extra free time, and so on. One other issue may very well be good points made by the regulated market on the expense of the unregulated market. Smaller, macroeconomic components may additionally be contributing, like normal state inhabitants development. However total, plainly individuals merely love hashish in Oregon.

It’s nonetheless a really aggressive atmosphere

Simply because retail gross sales are excessive, doesn’t imply everyone seems to be crushing it. There are so many operators. Right now, Oregon is as much as 719 licensed retailers (versus 664 a 12 months in the past; an 8% improve), with 200 extra within the pipeline. In case you estimate a mean of 700 retailers energetic all through 2020, you wind up at $1.1 billion in gross sales, or $1.57 million in common annual gross sales per retailer. That’s fairly good, however you’ve clearly bought low shops and excessive shops. We’ve seen plenty of both.

Hashish manufacturing stays excessive however comparatively static with 1,177 licensees (there have been 1,152 right now final 12 months). Numbers for processors, wholesalers and labs even have remained comparatively static. I count on that to alter considerably in 2021– in tandem with OLCC’s new streamlined licensing course of, the company lately shook unfastened an avalanche of inchoate and stalled purposes, going again to the notorious 2018 pause on software acceptance.

Associated to all of this, wholesale costs are once more trending downward and retail pricing tends to observe. That’s considerably typical for the top of the 12 months, when: 1) dispensaries are inclined to demand and maintain much less stock for tax concerns associated to Inside Income Code § 280E, and a pair of) a crush of outside flower makes its means by means of the availability chain. There’s additionally a wild card at play in 2020– the impact of the Oregon wildfires. These horrible fires have been devastating to many farms, however may have the final word impact of nudging costs up a bit heading into 2021.

The secondary license market will change

Shopping for and promoting Oregon hashish companies might be an train in persistence. For the previous few years, we’ve seen the regulatory approval timeline float between 5 and 9 months, which is an eternity for consumers and sellers. Lately, with streamlined licensing, we’ve seen changes-in-ownership are available in as shortly as two months, and we count on to see new license purposes processed on an accelerated timeframe too. Our prediction is that for each class of license outdoors of manufacturing, consumers shall be much less prepared to pay a premium to sellers for the license curiosity itself in 2021.

Manufacturing is completely different, after all. Senate Bill 218 remains to be in impact, which implies that OLCC doesn’t settle for new purposes for marijuana manufacturing licenses. The one option to obtain one among these licenses is to discover a prepared vendor, and we don’t count on to see a lot change within the $125K to $175K these sellers usually demand. I’d wish to be fallacious right here.

Total, we’re nonetheless working a whole lot of Oregon hashish M&A offers (together with with real estate), and I’ll have an interest to see if that years-long pattern continues in 2021. My guess is that it’s going to, even when the main focus is extra on manufacturers and non-“license” belongings.

Regulatory Dynamics

We noticed some huge modifications in 2020. The primary space of motion pertains to OLCC rule modifications. Apart from the entire COVID- and wildfire-related modifications, key modifications listed here are: 1) the soon-to-be everlasting guidelines on streamlined licensing; 2) the lately enacted ban on certain vape additives, coupled with new ingredient disclosure necessities; and possibly 3) the “fix it or ticket” method to sure rule violations.

I’d wish to say that is the top of program tweaks and refinement, however truthfully it appears like we shall be writing about new OLCC marijuana guidelines 20 years from now. It simply appears to be the character of the beast. There will even be oblique native results as extra states come on-line and federal prohibition ends in some unspecified time in the future. Extra instantly, the Oregon legislature may additionally get again into hashish coverage right here in few months, beginning with a tough have a look at a $100 million social equity bill.

The second, extra fascinating regulatory dynamic at play in 2020 has been an trade groundswell advocating for enforcement reform. The Oregon Hashish Affiliation has proven sturdy management right here, arguing that licensed hashish companies “need to be handled like companies to be regulated, not criminals to be caught.” As a regulation agency that represents many licensees in revocation proceedings, we agree that too usually company inspectors (a lot of whom have regulation enforcement backgrounds) have been over-zealous and unfair; and the overall course of too heavy-handed. Most companies merely would not have the funds or the wherewithal to combat administrative allegations. So whereas “repair it or ticket” was an excellent begin, it is going to be attention-grabbing to see what 2021 brings.

Hemp

Hemp is tough to determine. Final 12 months was brutal: seed costs dropped from $1.00 to $0.10, principally in a single day. And although far much less Oregon hemp was planted in each 2019 and 2020 than initially permitted annually, biomass pricing remains to be at $2.50 or less per pound, versus $40 or $45 simply two years in the past. The state of affairs in Oregon is comparable to what’s occurring throughout the nation. This implies–form of sadly–that our hemp-CBD litigators were busy again this 12 months.

What’s inflicting this market despair? One huge concern is the entire leftover biomass from 2019, estimated at 68,000 tons. Resulting from this glut, we’ve a number of shoppers who harvested solely flower this fall, leaving biomass to rot within the fields. Apart from this oversupply concern, there are additionally myriad rising pains related to a brand new trade, together with lack of infrastructure, lack of consumers at each degree, and lack of understanding by rookie farmers. Underpinning all of this, the ongoing policy morass arising from 2018 Farm Invoice confusion has been brutal.

Oregon in all probability isn’t doing itself any favors with its total THC testing regime, or with its latest limitations on import and export of hemp and hemp merchandise. We do like that the Oregon Division of Agriculture (ODA) lately withdrew its hemp plan submitted to the U.S. Division of Agriculture, and we imagine that the ODA is in any other case invested in seeing native trade succeed. However extra federal housekeeping is important, on all the pieces from controlled substance definitions to regulation of CBD in food and beverages.

In our view, U.S. hemp shall be an infinite trade someday, on par with corn and soybeans. The international hemp trade shall be greater nonetheless, and Oregon shall be a key participant in all of this. However we aren’t there but.

__

For earlier posts on this collection, take a look at the next: