To Discuss Oversupply, We Must Discuss Export

This week, US Attorney for the District of Oregon, Billy Williams ratcheted up the threatening language towards both state officials and the cannabis industry in response to the Oregon-Idaho High Intensity Drug Trafficking Area (HIDTA) 2018 Marijuana Insight Report.
 
“The recent HIDTA Insight Report on marijuana production, distribution, and consumption in Oregon confirms what we already know—it is out of control,” said Williams.  “To date, we’ve seen insufficient progress from our state officials.”
 
Leaving aside the fact that Williams’ full statement conflates problems caused by the unregulated market with the licensed market, the statement ignores the two most important points that we must acknowledge if we are going to address – in any meaningful way - the very real and interrelated problems of the oversupply of cannabis in Oregon’s legal market, and the flow of Oregon cannabis into non-legal states.

  1. Even at the height of prohibition, when local police worked closely – for years – with federal law enforcement up and down the west coast exhaustively focused on eradicating the cannabis trade, there were never enough resources to stop or even slow the flow of cannabis from Oregon and California into illicit markets.
  2. Under the current zombie federal prohibition, which keeps cannabis producing states from exporting product, while mandating that each new legal state (medical or adult use) create its own (redundant) production industry, the oversupply problem – on the west coast and nationally - is set to get far worse, not better.


Oregon’s oversupply – and its capacity to efficiently and expertly produce many times the cannabis its own legal market can consume - is only a problem because we have artificial walls prohibiting its sale into states that would happily buy it.   Once we understand Oregon as a natural producer state, one capable of supplying world-class products to states where it is far less efficient to grow cannabis at scale, what we have is not a problem, but a bounty. And if you think that things are bountiful on the west coast now, just wait until California's industry is up and running.
 
And the only way to talk seriously about ending diversion from the legal market (a relatively minor issue) and reducing the amount of unlicensed production on the west coast (a much larger issue, by volume) is to discuss the path to export for licensed product. 
 
There are powerful economic reasons to allow natural producer states to transfer product to legal and soon-to-be-legal states. 
 
But beyond economics, even if you care only about the law enforcement issues, the one thing that is likely to make a dent in the problem is to allow producer states to sell their products into other legal, regulated markets.
 
Right now in Oregon there is virtually no legal market for a whole lot of world-class product.   This not only leads to diversion, but is also a powerful disincentive for growers to get licensed in the first place. 
 
Over the next year or two it is likely that multiple states, including New York, New Jersey, and Michigan, will legalize cannabis for adult use. Those three states alone are home to 40 million people, or ten times the size of Oregon’s current legal market. 
 
Last month, New York State’s health department released a report advocating legalization. In response, Governor Andrew Cuomo said that the question is not “whether” New York would or should legalize, but only how they would do so. 
 
“Now you have to answer specifics,” Mr. Cuomo told reporters. “…to me, the devil’s in the details. And to come up with a full program, that’s what we have to answer.”
 
Under our current understanding of how states can operate vis-a-vis the federal prohibition, New York and every other state that wants to legalize would need to create its own fully-formed production industry. How do we think that will impact the oversupply problem?
 
Of course you CAN grow cannabis at scale in states like New York, New Jersey, and Michigan.  You can grow oranges there too, if you are willing to spend enough money to do it.  But cannabis can be grown at far lower cost, more sustainably, and frankly far better – both indoor and out - on the west coast. And this doesn’t even take into account the millions of person-hours already expended in those states on creating and setting up agricultural, testing, tracking, security, packaging and labeling regulations and oversight.  And note too that as soon as federal prohibition officially ends, whether that be in three years, of five years, or ten years, and cheaper, sustainable, world-class west coast cannabis can move freely into other legal states, those production industries will instantly become largely non-competitive.
 
Alternatively, states like New York, or even Oklahoma, which is considering a medical program, could simply regulate wholesale and retail, tax them fully to realize desired revenue, and instantly have a cannabis market featuring the best products in the world.
 
Mr. Williams, as the representative of federal law enforcement here in Oregon, is not the bad guy.  But he can be part of the solution.  He is just one player in a far larger conversation that needs to happen.  That conversation must bring us to a place where licensed transfers between willing, legal states are a reality and are, at the very least, tolerated by the federal government.
 
The open secret here is that once we have two legal states willing to officially approve transfers in a way that insures the security and full accountability of the product on both sides, it is highly unlikely that any US Attorney will expend limited resources to try to prosecute the transaction.
 
With an obvious oversupply problem that is likely to get much worse, and a powerful disincentive to licensing in producer states, we cannot afford to wait for the federal government to end prohibition before we can export. Every advance that we have made in cannabis policy over the past two decades has happened from the ground up, with the federal government tolerating, rather than explicitly allowing, changes happening at the state level. Waiting years for de-scheduling while California gets up and running, new states legalize, and the oversupply problem worsens will only exacerbate the problems that the both state and federal governments are looking to solve.  
 
There is no serious conversation to be had about oversupply, the flow of cannabis into non-legal states, or the “out of control” nature of illicit cannabis markets emanating from the west coast without discussing licensed transfers between legal states. 
 
The west coast has been exporting cannabis nationwide for longer than the government has been unsuccessfully trying to stop them.  The question today is not whether we can suddenly staunch that eastward flow (HINT: we still can’t.) Rather, it is whether the bulk of that cannabis will go into regulated markets in which safe, tracked, and tested product is sold to legal adults or verified patients, or into unregulated markets where anything goes and no one checks ID's.
 
Unless your only goal is to maintain the fiction of a prohibition that is no longer operative in large and growing swaths of the country, the answer is obvious.