Beth Nakamura

Oregon’s regulated cannabis industry is so overstocked with product that it could meet consumer demand for the next six and a half years, according to the state’s analysis of the market.

That was one of the conclusions in the Oregon Liquor Control Commission’s recent analysis of cannabis supply and demand. The report, based on data from three years of production and more than two years of legal sales, was submitted to lawmakers last week.

The document is intended to provide a snapshot of market trends and an examination of how Oregon marijuana policy, such as unlimited producer licenses and low licensing fees, play out in the maturing industry.

It comes on the heels of an unsparing audit of the agency and the Oregon Health Authority’s efforts to regulate recreational and medical marijuana. Among auditors’ findings: the state has not done enough to address black market diversion and hasn’t kept up with mandatory inspections.

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Andrew Selsky/AP

The Liquor Control Commission, which regulates recreational marijuana from production to sale, acknowledged in its own analysis oversupply and a proliferation of producer licenses that shows no signs of letting up.

Key takeaways:

Supply far exceeds demand in Oregon. Between July 2017 and June 2018, demand represented 50 percent of supply, with the rest of the supply stuck in inventory.

Licensed producers harvested more than 2,000 metric tons -- about 4.4 million pounds -- of unprocessed marijuana last year. If the state approves all pending producer licenses, Oregon would be on track to turn out an estimated 4,000 metric tons of cannabis.

Regulated stores supply only a little more than half of the marijuana consumed in the state. About 45 percent of consumption comes from other means, including legal home grows, medical marijuana growers and to the illegal market. (Oregon has a home-grow provision that allows anyone 21 or older to have up to four plants per household.)

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Beth Nakamura

Marijuana is cheap in Oregon. Oversupply has driven down the cost of marijuana. Prices have dropped from more than $10 per gram in 2016 to less than $5 last year.

Sales continue to grow. Increasingly popular products like extracts, concentrates, tinctures and infused edibles had their strongest sales to date in December.

Medical marijuana patients are shopping at regulated stores. The number of patients has dwindled in the era of recreational marijuana. The state's analysis concludes that stores are a "significant source" of marijuana for patients, with monthly sales to patients holding steady at about $5 million.

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Andrew Selsky/AP

Consumers love extracts and concentrates. Sales of the products rose from $12.5 million in 2017 to $17.5 million the following year -- an increase of 40 percent.

The report makes clear that even with a glut in marijuana, interest in recreational licenses has not subsided. When the state last year announced it would suspend processing applications, the agency was flooded with another 600 submissions in the two weeks before the cutoff.

While regulators acknowledged that lawmakers may need to take steps to address overproduction, they cautioned against “wholesale change” to licensing or to the market itself.

“Supply exceeding demand in and of itself is not an indicator of illegal activity that warrants drastic policy action but may instead be an indication of speculative bets and pending market corrections,” the report states.

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Beth Nakamura

The report notes that licenses “in good standing” have become valuable and can attract capital from outside investors eyeing future expansion of the industry if federal policy eventually permits interstate trade.

“In this way, businesses in Oregon’s recreational marijuana markets are in some ways analogous to technology start-ups,” the report notes, adding that investors are willing to take risks now in exchange for big gains in the future.

The report says lawmakers have a range of options, from allowing the market to continue without any policy adjustments to making tweaks like raising licensing fees and reducing the amount producers can grow. Lawmakers could also adopt more sweeping changes like imposing a cap or moratorium on licenses.

Oregon took a different approach to regulating marijuana than states like Colorado, which doesn’t cap producer licenses but ties production limits to demand.

Beau Whitney, an economist who reviewed the state’s analysis, said there’s “no short-term fix” for the state’s surplus. He said the state can reduce how much producers can grow or impose a moratorium, but those options won’t do much to address the “excessive inventory in the short term.”

Whitney, vice president of New Frontier Data, a company that analyzes cannabis market data, said a bill that would allow Oregon cannabis companies to export out of state could help with the glut. That bill is in the Legislature this session, but it has numerous potential complications, such as the federal prohibition on marijuana.

“We are just going to have to live with excess supply in the short and medium terms,” Whitney said. “There is just no other solution. I think the Legislature will try to intervene and try to do something, but how that manifests I am not quite sure. It’s still too early to tell.”

-- Noelle Crombie

503-276-7184

ncrombie@oregonian.com

@noellecrombie

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