Will Oregon’s Cannabis Industry Go Up in Smoke Due to COVID-19 Fallout?

By Alex Tinker and Danica Hibpshman

As the nation rushes to slow the COVID-19 pandemic, the cannabis industry finds itself caught in the chaos like everyone else. However, there is one additional caveat for cannabis businesses — not one penny of the $2 trillion federal stimulus package will be coming to them directly due to the ongoing conflict between state and federal law over the legality of the product.

What does the future hold?

Like so many business, the cannabis industry faces the question— is there a viable path forward after COVID-19? Currently, Oregon cannabis retailers are among the group of businesses allowed to stay open if social distancing guidelines are observed. The Oregon Liquor Control Commission (OLCC) went one step further, relaxing rules to give retailers the flexibility to make curbside sales and deliveries in the immediate area around their store. So far, the pandemic has been a bit of a boon for cannabis companies as users stock up for what may be an extended period of limited shopping activity. However, the long-term picture may be a different story. Will consumers continue to allocate potentially-reduced discretionary dollars towards cannabis products?

The answer impacts the state of Oregon, as well as the individual businesses and their workers. As of March 30, 2020, the OLCC reported 1,162 licensed recreational producers, 238 processors, 168 wholesalers, and 658 recreational retailers. Some of these businesses employ hundreds of full-time and seasonal workers. As of March 30, 2020 there were almost 54,000 active permits issued to individual cannabis employees. Only time will tell how the pandemic impacts employment in an industry that is now, almost six years post-legalization, a significant piece of Oregon’s overall economy.

It’s possible the industry will weather the storm despite the limited assistance available to it — if demand stays high. Of course, the path for retailers versus the rest of the supply chain may be different. The industry was just beginning to stabilize after a period of severe wholesale price volatility caused by product oversupply. Now sun-grown producers are making plans for a new crop — and the coronavirus will likely be a looming factor in their deliberations for this coming season.

Could COVID-19 be the impetus for the federal legalization of cannabis?

In the aftermath of COVID-19, more states may choose to legalize cannabis to make up for budget shortfall reasons alone. This would likely not impact retailers in our state as new legalizations historically have not cannibalized sales in existing markets. It could potentially benefit suppliers, as it makes sense for new markets to seek out Oregon producers rather than building out their own infrastructure (particularly in areas of the country where growing cannabis is more expensive).

This would require opening interstate commerce throughout the nation, however, and while more states may opt to regulate cannabis in the near future as a way of developing revenue and jobs, COVID-19 may have the opposite impact at the federal level on any movement to end federal prohibition. With the pandemic absorbing the attention of the federal government and the near certainty of that persisting for the foreseeable future, national cannabis reform may be relegated to the backburner.

Fortunately, full federal normalization is not necessary for interstate commerce to begin. With an explicit change in federal enforcement policy, or legislation such as the STATES Act which would relax application of the Controlled Substances Act in regulated states, states could begin to develop the infrastructure and regulations to make interstate commerce occur. Oregon has already enacted legislation to facilitate federally-tolerated interstate trade in cannabis. This type of action by the federal government could greatly help both currently-legalized states and those that may want to legalize for economic benefit – without having to take up the issue of full federal legalization

Could COVID-19 move state regulations forward?

COVID-19 may help Oregon’s cannabis industry tackle another set of challenges. Oregon’s current regulatory framework has largely been in place since 2015, and much of it is outdated, confusing, and inconsistent with business reality. The OLCC appears willing to accommodate the industry in these challenging times – as evidenced by their action permitting curbside sales. There is much more to do, and this crisis needn’t stop the ongoing dialog between the industry and regulators about updating our system to ease business burdens while meeting the state’s public health and safety missions.

Regulators already faced a serious work backlog before the coronavirus hit. Now more than ever, a strong partnership between the cannabis industry and its regulators is critical. Regulatory change is slow even under normal circumstances, and the industry needs to be prepared to continue operating under existing requirements for the time being. This means that cannabis businesses will need to be even more agile and creative than ever, to stay compliant and operational during these challenging times.

A tough road ahead for all industries

At the end of the day, many industries will be facing a difficult economic climate, but cannabis continues to face the added uncertainty of surviving in an environment with an extraordinary number of unique hurdles—not the least of which is its illegal status at the federal level and the resulting lack of access to the $2 trillion stimulus package.

Please contact Alex Tinker, or one of our experienced attorneys if you have any questions about the issues raised above, or if you need general legal support for your cannabis industry business.

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