Oregon’s mature cannabis market appears to be slimming down in a correction from the fat-and-happy trends of late 2020 and early 2021.
In August 2022, the state’s adult-use cannabis flower prices hit an all-time low at retail and remained near an all-time low at wholesale, displaying no indications for a meaningful comeback anytime soon.
The median retail price for dried flower was $118 per ounce last month, a 27% decrease from the $161 per ounce that was commanded during COVID-19 pandemic peaks in September 2020, according to data from the Oregon Liquor and Cannabis Commission (OLCC).
And Oregon’s median price for dried cannabis flower sent from an adult-use wholesaler (non-producer) to an adult-use retailer was $493 per pound last month, representing a 62% decrease from the $1,299-per-pound pandemic peak in September 2020.
“One thing that I’d point out is that producers in Oregon can self-distribute,” OLCC Director of Analytics and Research TJ Sheehy told Cannabis Business Times earlier this year, shortly after state officials implemented a licensing moratorium in April. “So, the wholesaler to retailer would not capture that self-distribution, which, if you look at producers, that’s at a higher price point when they’re going to retailers.”
Adding self-distribution into the mix, Oregon’s median wholesale price of dried flower sent from non-producers and producers to adult-use retailers was $696 per pound in August, representing a 53% decrease from the $1,470-per-pound median price in September 2020. While Sheehy said that price point is more representative of the overall wholesale market, the same general downward trend remains.
Without a precise spot price offered by government officials in Oregon, a “general trend line” is how Sheehy pegged the wholesale numbers offered on OLCC’s state database. (Market price benchmarks are published by private analytic entities in many states, including Oregon.)
“The one cautionary note I’d put on the wholesale numbers is our tax system is not based on wholesale prices, and not all licensees put the wholesale numbers in,” he said. “And it’s not something we at the state really enforce or have a reason to enforce because our tax system is not based on it.”
Retail figures are self-reported through Oregon’s seed-to-sale tracking system with prices more accurately recorded because of the state’s tax structure, Sheehy said. Although they’re not required, licensees still report wholesale prices because there are memorandums of understanding with financial institutions in the state, he said.
“They get data out of the system, including wholesale prices for customers that they bank,” Sheehy said. “So, there are some eyes watching the data, and that sort of gets licensees to use it and use it accurately. But we’re not like other states that have their tax system based on wholesale price.”
The industry’s falling prices have also taken a toll on overall sales figures, with licensed retailers recording $633.8 million in adult-use sales from January through August 2022. That’s more than a 15% decrease from the same eight-month period in 2021.
The recent price and sales erosion in Oregon’s market—which launched commercial adult-use sales in October 2015—comes despite government officials implementing a new licensing moratorium in April 2022 to combat a “crowded marketplace.”
“We had a low-barriers-to-entry model for licensing in Oregon, and so we’re not in the business of vetting people’s business plans or vetting whether or not they’re breaking even,” Sheehy said. “If you want a license and you qualify for a license up until the moratorium bill that just passed, you got one. So, operators are able to make their own business decisions given the business climate. And just like a restaurant, not every restaurant succeeds.”
OLCC officials did recommend to state lawmakers earlier this year to extend a moratorium on new producer licenses because of the risk that oversupply creates as it relates to out-of-state diversion, Sheehy said. The original moratorium was enacted in June 2019 in an effort to curb cannabis production during a previous market downturn but expired in January 2022.
Not only did the 2022 Oregon Legislature indefinitely extend the moratorium on producer licenses through passage of House Bill 4016, which Gov. Kate Brown signed into law in April, but the legislation ended up including a moratorium on retail, processor and wholesaler licenses as well. Only laboratory licenses and researcher certificates are exempt from the moratorium.
Curbing illicit grows that emerged in 2021 in Southern Oregon was also a consideration made by state lawmakers while considering the new moratorium, to help ensure “illicit production isn’t using the legal system as a cover,” Sheehy said.
So, what’s been the attributing factor(s) to the recent price decreases and sales dips that have spurred layoffs or forced some operators to go under on the heels of pandemic-related market growth?
“Really, this is a story of supply exceeding demand, just like any other free market where you see prices going up or down,” Sheehy said. “Supply is likely still going to exceed demand. Really, the moratorium served to sort of stanch the bleeding to a degree in terms of more people coming in, especially on the production side.”
According OLCC’s most recent biennial report on supply and demand released in February 2021 (in the middle of upward price trends from the pandemic), the state had experienced a 78% increase in production while the amount of cannabis sold increased by 150% since the previous 2019 reporting period. That comparatively larger increase in consumption helped boost demand from 50% of total annual supply to 65%.
While Oregon had achieved more sustainable price levels for producers by early 2020, aggregate supply still continued to exceed annual demand, despite the historic level of sales in the months following COVID-19.
“The growth trajectory of cannabis demand in 2021 and beyond is highly uncertain,” OLCC officials wrote in the 2021 report. “If not for COVID, growth in demand in 2020 would have almost certainly been flatter. If consumers return to the patterns of consumption they exhibited pre-COVID, demand will almost certainly decline or flatten in 2021.”
Since that report was published, Oregon’s prices in fact have returned to pre-pandemic lows: The $118 per ounce for dried cannabis flower at adult-use retailers in August matches a previous all-time low from April 2019. And the $696-per-pound wholesale figure from August nears an all-time low of $649 per pound from April 2019.
In October 2016, a year after Oregon first got up and running with its commercial adult-use market, dried flower commanded $298 per ounce at retail and $1,784 per pound at wholesale.
In terms of supply, Oregon’s licensed cultivators harvested more than 5.5 million pounds of cannabis (wet weight) in October 2021, which represented a 38.5% increase from the roughly 4 million pounds of cannabis harvested in October 2020, according to OLCC harvest data.
“That’s the big story, with Oregon being basically one of the best places to grow marijuana in the world, and with that supply having to stay in the box of Oregon, supply is exceeding demand,” Sheehy said.
If one day federal legalization opens the door to interstate commerce, a possible correction may help solve the supply issues currently holding back mature markets with favorable growing conditions for premium cannabis.
Meanwhile, newer markets will continue to be the primary driver of year-over-years sales growth in the U.S. cannabis industry until at least 2026, according to BDSA’s most recent five-year market forecast.