Interstate Trade in Cannabis

Friends – two interesting articles to share that make a point on markets.

https://www.marijuanamoment.net/oregon-marijuana-could-be-exported-across-state-lines-under-proposed-bill/

https://www.nytimes.com/2019/01/02/us/buying-legal-weed-in-california.html (behind a paywall)

The NYT article is more general about the state of the cannabis market in California and the struggles of those compliant players against the black market.  It notes the interplay of the giant surplus of raw materials in California playing into downward pricing pressure, the fact that heavy taxation (which the recent 280E decisions sure don’t help) counters that, the supply chain regulations, and the  difficulty in getting consumers to shift their habits to buying legal products (which I still think is inevitable as brand awareness matures and people get more used to knowing exactly what they’re buying, but then again, I’m just a lawyer).  In other words, what else is new in California?

Note the claim by Gavin Newsom from 2016 that 80-90% of California’s product ends up out of state.  Now, that’s an uncited statistic from before the laws really changed in California.  And, it’s coming from a politician.  But, let’s assume for a moment that’s true (I’ve heard similar claims anecdotally, but that’s not saying much) and that’s California is flooding other states with cheap(er) cannabis. 

Turn then to the other article and the news that Oregon is (re)considering allowing legal export of Cannabis products.  Based on what the article says, it’s not clear if the proposed bill has legs, but let’s say it does pass.  Then you’ll have a scenario where Oregon producers export into other legal states, opening up other delicious markets to Oregon brands without the need for cumbersome licensing/production agreements.  Interstate commerce! 

This is generally how markets work in the US.  A state could attempt to block import, but it’s generally quite unlawful for a state to unduly limit the import products from another state (I can’t wait for the 2025 Bar exam questions on the interstate Cannabis trade and the dormant commerce clause (lawyer inside joke)), but then again, Cannabis isn’t a Federally-legal product, so who knows what that Federal court lawsuit would look like. 

However, this could create another markets kerfuffle with larger companies pressuring their state lawmakers to follow suit and allow for export (see, e.g., the 2016 lifting of the ban on US export of oil/gas), opening up legal markets nationally, giving MSOs the ability to quickly scale (if Oregon indeed passes this bill, and I were an MSO, I’d make sure to get licensed in Oregon real fast), putting yet even more pressure on the smaller, local producers who now have to compete with national and regional brands, not just local/statewide brands, consolidating and stratifying the market even further.

Excelsior!

Written by: Marc Hauser