Oregon Cannabis: State of the State

Oregon cannabisLast week, I spoke on an Oregon Business Magazine panel regarding the state of the Oregon cannabis industry. The event drew a diverse group of industry entrepreneurs, investors, consultants and observers, despite its 7:30 a.m. start. The panel also covered an array of topics, from state and federal regulation, to product branding and marketing, to growth opportunity areas, to outside investment. Here is a recap of each.

How are state and federal regulations impacting the growth of the Oregon marijuana market?

At the state level, Oregon is as good as it gets for a cannabis market today. Paradoxically, it is also over-regulated. The Oregon Liquor Control Commission (OLCC) oversees the recreational program and the Oregon Health Authority (OHA) runs the medical show. Oregon could do without two state agencies governing the comings and goings of one little plant, a point we have been driving home on this blog for a while. Nowadays, it seems like OHA is just going through the motions, perhaps with the idea that the legislature will combine the two programs in 2017. Here’s hoping.

Administrative structure aside, Oregon is a welcoming cannabis theater. It was the first state to do away with residency requirements for pot business ownership, and it is the easiest state in which to acquire a recreational marijuana license. There are no limits on the number of licenses awarded in any category or overall, and no requirement that applicants be especially well capitalized or vertically integrated. If you want to run a cannabis business in Oregon, you probably can.

At the federal level, Oregon cannabis business owners have the same problems as pot ventures in other states: oppressive federal taxation, limited banking options, limited branding protection, and a lack of access to bankruptcy courts. Let’s hope that, given the number of new pot states about to come online, we find some banking and tax relief on the horizon.

How do you brand product and beat the competition?

This is a great question. From a legal and compliance perspective, it is important to remember that cannabis merchants generally cannot acquire federal trademarks. That does not mean, however, that a cannabis business should not refine, promote and try to protect its brand. State trademark is still an option in Oregon, and licensing is a key industry concept. From the initial stages of product branding, industry players should realize that all design elements will need to conform to state packaging and labeling requirements, if the product will transfer to consumers. Advertising rules are also important.

What products and markets will see the most growth?

Consensus among the panel was that the boomer generation would continue to expand rapidly as a consumer base, and products such as edibles and topicals–and anything that needn’t be smoked–would be key drivers. From our perspective, ancillary industry players, like our many clients who function as service providers, platform builders, and cannatech operators, will continue to carve market share out of thin air.

How are outsiders and big business shaping the market?

Notwithstanding anchor tenants like Nike and Intel, Oregon has always been a small business state. That trend will continue with cannabis. The licensing system is designed to promote cannabis start-ups and to foster competition, and the fears of market entry and dominance by Big Pharma and Big Tobacco have yet to materialize. Although the cannabis industry did see interest this year from giant companies in sectors from tech to hydroponics, these companies position themselves as service providers and they do not touch the plant, in Oregon or elsewhere.

Most of the direct outside investment in Oregon’s cannabis industry we handle comes from accredited investors, although our clients include established operators making Oregon plays from Washington, Colorado, California, Canada and elsewhere. At the end of the day, however, market share in cannabis is nationally diffuse, and the flow of money into Oregon appears to have had its desired effect: it has provided local entrepreneurs with capital and expertise to spark operations. As the state continues to tweak its programs to favor entrepreneurs, Oregon is having its moment in cannabis.