Right here we’re on the finish of 2020 (thank goodness!), which implies it’s time for the fifth annual “State of the State” submit on Oregon hashish. The yr 2020 was outstanding for the Oregon hashish trade, largely resulting from 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 yr, and look forward to 2021.
Oregon handed the $1 billion gross sales mark
This occurred someday in late November, based on 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% enhance over 2017.
There are probably a mess of things driving the outsized 2020 enhance. 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 many others. 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 be contributing, like common state inhabitants development. However total, plainly individuals merely love hashish in Oregon.
It’s nonetheless a really aggressive surroundings
Simply because retail gross sales are excessive, doesn’t imply everyone seems to be crushing it. There are so many operators. At this time, Oregon is as much as 719 licensed retailers (versus 664 a yr in the past; an 8% enhance), with 200 extra within the pipeline. In the event you estimate a median 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 obtained 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 at the moment final yr). Numbers for processors, wholesalers and labs even have remained comparatively static. I count on that to vary 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 comply with. That’s considerably typical for the top of the yr, when: 1) dispensaries are likely to demand and maintain much less stock for tax concerns associated to Inside Income Code § 280E, and a couple 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 might have the last word impact of nudging costs up a bit heading into 2021.
The secondary license market will change
Shopping for and promoting Oregon hashish companies could be an train in persistence. For the previous couple of years, we’ve seen the regulatory approval timeline float between 5 and 9 months, which is an eternity for patrons and sellers. Not too long ago, with streamlined licensing, we’ve seen changes-in-ownership are available as rapidly 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, patrons will probably be much less keen to pay a premium to sellers for the license curiosity itself in 2021.
Manufacturing is totally different, in fact. Senate Bill 218 continues to be in impact, which implies that OLCC doesn’t settle for new purposes for marijuana manufacturing licenses. The one strategy to obtain one among these licenses is to discover a keen vendor, and we don’t count on to see a lot change within the $125K to $175K these sellers typically demand. I’d wish to be fallacious right here.
General, we’re nonetheless working lots of Oregon hashish M&A offers (together with with real estate), and I’ll have an interest to see if that years-long development continues in 2021. My guess is that it’s going to, even when the main target is extra on manufacturers and non-“license” property.
We noticed some large modifications in 2020. The primary space of motion pertains to OLCC rule modifications. Except for all the 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 doubtless 3) the “fix it or ticket” strategy to sure rule violations.
I’d wish to say that is the top of program tweaks and refinement, however truthfully it appears like we will probably be writing about new OLCC marijuana guidelines 20 years from now. It simply appears to be the character of the beast. There can 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 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 charming 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 “should 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 typically company inspectors (a lot of whom have regulation enforcement backgrounds) have been over-zealous and unfair; and the final course of too heavy-handed. Most companies merely do not need the funds or the wherewithal to combat administrative allegations. So whereas “repair it or ticket” was begin, will probably be attention-grabbing to see what 2021 brings.
Hemp is tough to determine. Final yr 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 continues 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–type of sadly–that our hemp-CBD litigators were busy again this yr.
What’s inflicting this market despair? One large concern is all the leftover biomass from 2019, estimated at 68,000 tons. As a consequence of this glut, we’ve a number of purchasers who harvested solely flower this fall, leaving biomass to rot within the fields. Except for this oversupply concern, there are additionally myriad rising pains related to a brand new trade, together with lack of infrastructure, lack of patrons at each stage, and lack of information 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 current 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 consider that the ODA is in any other case invested in seeing native trade succeed. However extra federal housekeeping is vital, on every little thing from controlled substance definitions to regulation of CBD in food and beverages.
In our view, U.S. hemp will probably be an unlimited trade at some point, on par with corn and soybeans. The international hemp trade will probably be greater nonetheless, and Oregon will probably 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: