4 Barriers to Entry in Oregon Rec. Marijuana Market

at 2015.04.18
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oregon-get-pot-right-panelists-header-image-cropFrom left to right: Len Reed – Oregonian associate editor; William Simpson – president and founder, Chalice farms; Sen. Ginny Burdick (D-Portland) – co-chair of Legislature’s Joint Committee on Implementing Measure 91; Sen. Ted Ferrioli (R-John Day) – member of Legislature’s Joint Committee on Implementing Measure 91. 

Oregon is currently one of four states to have legalized the manufacture, possession, sale and use of marijuana for recreational purposes. Though business opportunities will soon abound, measure 91, Oregon’s framework for legalization is still loosely defined making the business landscape uncertain at best.

Here are four points we see as the largest uncertainties and pending legal definitions that create barriers to entry for businesses looking to become established in this sector.

1. Pending administrative definition. The Oregon Liquor Control Commission is tasked with administering and interpreting the framework for legalization. The well-written 38-page document leaves plenty of room for interpretation and specifies several dates by which the OLCC is required to implement various sections of the law.

While the freedoms granted by measure 91 are slated to begin July 1, 2015, there will likely not be a “seed to sale” tracking system, as required for in-state sale, implemented for at least a year.

Some important dates contained in the legislation:

  • January 1, 2016 – OLCC deadline to have forms, rules and regulations in place necessary to implement the framework.
  • January 4, 2016 – OLCC shall begin taking applications for the licensing of persons to produce, process and sell marijuana within the state.
  • January 1, 2017 – OLCC deadline to have conducted research into the effects of marijuana on a persons ability to drive. The OLCC is then required to present this research to the Oregon Legislative Assembly.

2. Potential residency requirement. There will likely be an Oregon residency requirement to become licensed as a producer, processor or seller.

“We will most likely have a pretty strong residency requirement. There are Federal regulations that limit somewhat the state’s ability to favor Oregon businesses. But there will likely be a temporary residency requirement of four years that may change as the market unfolds,” said Sen. Ginny Burdick (D-Portland), co-chair of Legislature’s Joint Committee on Implementing Measure 91, speaking on a panel of legislators and business people at the Oregonian’s recent “Get Pot Right” town hall style meeting.

It’s difficult to say when exactly this requirement will be defined. It has also been speculated that the future requirement could be met by employing management that resides in Oregon or by an Oregonian co-owner.

OLCC_head-image-crop_cropSteven Marks – executive director of the Oregon Liquor Control Commission, charged with regulating the distribution and sale of recreational marijuana.

3. Federal Cole Memorandum. Issued August 29, 2013 by Deputy Attorney General James M. Cole, outlines the current federal stance on enforcement of marijuana related crimes as defined by the federal Controlled Substances act which lists marijuana as a schedule 1 controlled substance, the same as methamphetamine and heroin.

The Cole memorandum states clearly “Even in jurisdictions with strong and effective regulatory systems, evidence that particular conduct threatens federal priorities will subject that person or entity to federal enforcement action, based on the circumstances.”

Until marijuana is delisted as a schedule 1 controlled substance, the federal stance will continue to hinder the recreational marijuana market. This may change as more states continue to legalize marijuana and a working system becomes more established. The next president who takes office after President Obama’s last term ends could also influence federal stance.

4. Market capitalization. There is currently an absolute prohibition against marijuana dollars entering the federal banking system, making it nearly impossible for banks to lend money to pot start-ups.

Oregon based MBank recently announced it would no longer service loans to some 70 marijuana related businesses. While they have not formally announced this as a result of federal policy. It is highly likely that this policy change was a result of federal audits and investigation into the bank.

What are your predictions for the recreational marijuana business landscape in Oregon?

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