State of the Yerba
The Oregon cannabis market is going through major regulatory and market transitions as the recreational program gets under way and the medical market becomes obsolete. Many of these changes have already become reality while others may not be apparent to the average cannabis consumer. We at Yerba Buena will keep you up to date on the ‘State of the Yerba’ as we see it.
While consumers over the age of 21 have been permitted to purchase cannabis without a medical marijuana card for nearly a year via early recreational sales, everything changed October 1st. Canna-business owners and consumers are beginning to see the impacts of these changes.
One of the confusing aspects of the cannabis industry is the complex untangling of the medical and recreational markets. Since the temporary early recreational sales began on October 1st 2015, consumers 21 and over have been legally allowed to purchase (medical) cannabis products as recreational, which thus far, have been regulated by the Oregon Health Authority (OHA). Access to this product by non-patient users has been temporary and simply a means for immediate legal, adult use sales, easing the transition and testing the waters of the recreational market (plus added tax revenue). Meanwhile, the recreational market has been gearing up under the regulatory guidance of the Oregon Liquor Control Commission (OLCC), and operating under a completely different (and much more highly regulated) set of rules.
Beginning October 1st, 2016, the existing medical dispensaries who have applied to become recreational retailers must either carry product that is compliant with the new testing, packaging and labeling laws, or label those products as not compliant with these new requirements. They have until January 1st, 2017 to obtain a recreational license if they wish to continue to sell product to non-cardholding patients.
But wait, has that much changed? I still go in to my corner dispensary and see all the cannabis products I’m used to seeing!
That’s because your local dispensary may not have activated their license and is still selling medical product that may have been purchased prior to October 1st (it will be labeled as not passing current testing regulation). Or they are recreationally licensed and selling leftover inventory of medical product that they were permitted to bring into their recreational inventory upon licensing (a one-time chance). Most recreational retailers purchased as much medical inventory as possible before activating their licenses to allow more time for additional vendors to enter the market. Once they run out of this product, they must find OLCC licensed producers and processors to purchase and sell their product. Medical dispensaries can continue to sell medical product that has passed the new testing and labeling regulations to recreational users until January 1st, 2017. After January 1st, dispensaries can either remain medical, and only serve medical patients, or acquire an OLCC issued recreational retailer license and purchase all their products from recreationally licensed suppliers.
Can recreational retailers sell to medical patients? Yes, and card-holding medical patients are not required to pay the recreational sales tax.
So, is the market going all recreational? For the most part, yes. For one thing, the adult use market is much larger than the medical market. And the medical market will become even smaller as cards expire because, for most, the no-tax benefit and larger purchase limits won’t be enough to make the cost of obtaining a medical card worth the expense (around $300). The medical market in Oregon is likely to all but disappear. Before we get there, it’s going to be a bit of a transition. Here are a couple of reasons why:
1. Dispensaries & the Recreational Market
Acquiring an OLCC license is no small (or cheap) task. Beyond the effort to become compliant and completing a mountain of paperwork, dispensaries are hesitant to switch to recreational because everyone is waiting for everyone else to flip. That’s right, there is a catch 22 going on right now with recreational licenses, because the first round of dispensaries to flip to recreational will be at a market disadvantage. The main reason is that once they cross over the line from medical to recreational, they won’t have the same suppliers and product pool available to offer their customers. There are very few producers and processors who are licensed and operating. Those who are, typically have a very different and limited product selection as they ramp up their businesses.
Part of the difficulty is the time-consuming and expensive process of becoming compliant and accumulating the required documents to apply for a license. The other part is that the OLCC has a lot of work on their hands, resulting in a relatively lengthy timeline to receive a license once the application has been submitted. Thus, there aren’t very many businesses making infused products in the recreational industry. Why would a medical dispensary want to switch to recreational if they won’t have nearly the selection of concentrates and edibles that their competitor down the street offers? Flipping your medical dispensary to recreational is akin to your selection going from Fred Meyer to a local neighborhood cooperative grocery, at least temporarily.
To the cannabis consumer, it may seem odd that some dispensaries suddenly have fewer or different products than before, while other dispensaries seem the same as they ever were. But, that will all change leading up to and starting January 1st, the deadline for dispensaries to obtain and activate a recreational license and begin selling only OLCC licensed products.
2. New products, New players, New prices
Once this limbo period has ended on January 1st, non-medical card holding consumers will only be able to purchase cannabis from OLCC licensed dispensaries with OLCC licensed products. Currently, the number of producers and processors becoming licensed is much lower than the industry anticipated. That means there will be fewer products in the industry overall. So, enjoy your variety now!
This won’t last forever, but the transition to OLCC regulation has caused a reset on the industry, and many are having to start over in a sense. Some producers, processors, and dispensaries won’t survive because of the stringent compliance regulations, expensive testing requirements, and additional taxes. Products and packaging must be re-imagined due to quality assurance, testing, and child protective rules, and some products won’t be profitable anymore. Small batch processors and edibles manufacturers will likely find that the cost of pesticide and potency testing so high that they are unable to enter the market.
One product category you are sure to see spike in price is extracts. Because of the newly revised testing standards, testing prices for extract processors drastically increased. Process validation, a way to avoid repetitive testing by proving that your extraction process is consistent and uniform enough to achieve similar results every time, can reach up to $20,000 per product! This is not a small chunk of change, especially for a small business. Not to mention the cost to test each individual product is significantly higher (more than double) than before the new pesticide testing requirements. This will certainly trickle down to the shelf price for consumers.
Another issue for extractors is the unknown product that they often receive. Even if flower passes its pesticide testing, once that product has been concentrated, the extract itself might fail. Concentrating the THC of a product is not the only thing that gets concentrated, the pesticide residuals concentrate as well, meaning that even if those levels were below detectable when it was flower, once it is concentrated it may exceed allowable levels. There is no way for an extractor to know if the product will pass testing until they extract it and test it. If it were to fail, they have wasted the time and materials required to extract the product, and they must go through a rigorous de-contamination process to clean their equipment. The extractors place enormous trust in the growers they source their product from and bear the burden of risk if the product fails testing.
3. Goodbye 32% THC. Hello 22%.
One thing consumers tend to look for is high potency in their flower and cannabis products, which is generally clearly labeled on shelves and package labels.
“32% THC! Let’s get hella baked bruh.”
But one thing you may not realize is that testing under the OHA has been very, very lenient. It’s hard to say exactly how certain labs seem to arrive at those impressive numbers more often than others, but it’s sure not going to be that way anymore. The same product that was tested under OHA is now testing 4 to 8 percentage points lower. The good news is, it’s still the same weed!! We will all just have to get used to this across-the-board lowering of the percentage values we’re used to seeing. Welcome to higher accuracy, regulated instrument calibration, and more confidently pesticide free test results!
This is all just part of the roll out of legalization. As a brand-new market and industry is born, we need to maintain reasonable and realistic expectations of how these transitions will happen, and know that they will not be instant or seamless. With Oregon being one of the few states to pioneer this type of legislation, there are bound to be some bumps along the way. A bit of patience is necessary, and luckily, our OLCC rule makers have shown interest and receptivity to feedback. They have made many last-minute adaptations and show a clear interest in creating the best possible system for long-term success of the industry.
Rest assured, Yerba Buena will continue to post updates in our State-of-the-Yerba articles, and we are thrilled to be able to provide retailers and consumers with high quality Clean Green Certified flower and ongoing education and information about cannabis policy as the market expands in the state of Oregon.
© 2017 Yerba Buena