Oregon marijuana firms are having fun with a booming market fueled by a pandemic. Shoppers keep away from unlawful suppliers

Oregon recreational marijuana companies are experiencing the best market conditions in years. Due to the COVID-19 pandemic, demand exceeds supply by far and more consumers are foregoing the illegal market in favor of illegal retailers.

However, the question that remains is whether the trend will continue once the pandemic subsides and state regulators offer cannabis entrepreneurs additional production licenses.

According to a recent supply and demand report by the Oregon Liquor Control Commission (OLCC), cannabis production has increased 78% since 2019, while the amount of cannabis sold has increased 150%.

The marijuana regulator report also shows that the nationwide market is splitting into two separate, well-defined games for cultivators:

  • Some growers target the top shelves of retailers to sell their flowers in hopes of getting a higher price.
  • Others sell directly to the extraction market, which tends to offer producers a lower price.

Both have their advantages and disadvantages.

In addition to the price differences, they both present different levels of risk, including the fact that a buyer cannot be found for prime flowers or that the price has to be kept too low by sending the material for extraction.

Another key point from the report: the amount of cannabis harvested in 2020 increased 37% from 2019, and the OLCC could issue up to 100 more grower licenses by April.

Several growers said the additional licenses were not a problem.

They also said that anyone entering the Oregon cannabis market should be prepared for stiff competition as the incumbent breeders have already entered their production costs and formed strong buyer networks.

Will the demand last?

Industry insiders believe the increased demand will reflect new consumers entering the market and people turning to marijuana as a substitute for products like alcohol and opioids and even sleeping pills during the pandemic.

But whether this will continue once the pandemic has subsided is an open question.

Jesce Horton, chairman of the board of Portland-based cannabis grower Lowd, said the 150% sales increase is unlikely to continue at this pace, but he expects the trend of first-time marketers to convert to the market will continue.

“More people are coming from the illegal market,” he said. “You see the abundance of new products, the excellent quality and the benefits of a tested product.”

Casey Houlihan, executive director of the Portland-based Oregon Retailers of Cannabis Association, said the marijuana retail sector saw “pretty tremendous growth” in 2020 – an increase in total sales of 38%.

He agreed that some consumers would switch from the illegal market to the legal side.

“And once we bring these consumers in from illegal markets, they tend to stay in legal markets,” Houlihan said.

He added that the OLCC’s decision to allow retailers to offer new services such as roadside collection and online sales helped make the licensing program more attractive to consumers.

Meghan Miller, director of the cultivation and cannabis community at Chalice Farms in Portland, said her company increased flower production with the expectation that the surge in demand would not be temporary.

“I don’t think this will go away,” she said.

In addition to converts from the illegal market, cannabis is attracting more people from a health and wellness perspective, according to Miller.

“People really use flowers as medicine,” she added.

Shane McKee, a Portland-based producer and owner of Shango Premium Cannabis, said the OLCC’s numbers reflect what he sees in his business.

“We sell from every harvest,” he added.

Retailers even called his company to look for products.

“Which tells me it’s close,” McKee said.

Double micro-markets

As the market matures, two types of business models have emerged for cultivators.

Growers can either target the upscale flower market or sell directly to processors.

Horton agreed with the report’s findings, saying that production volume coupled with increased demand for processed cannabis products is driving growers to sell directly to processors.

“You go to a pharmacy and most of the products are not flowers,” he said.

Processors need this supply of cannabis for manufacture to fuel innovation and growth in the sector.

This is in addition to the stiff competition that growers face selling flowers to retailers regardless of how the flower is grown.

“It’s difficult to produce flowers that are top-notch whether you work indoors or outdoors,” said Horton.

Miller agreed that Oregon’s cannabis growing sector requires a high level of skill to be successful.

“The competition on the flower shelves is very strong,” she added.

McKee believes the separation between the two markets will be a growing trend as more outdoor cultivators target the extraction market.

For one thing, the indoor growers aren’t producing enough trim to meet the needs of the processors, he said.

According to McKee, outdoor growers whose production costs are low see a “very viable” opportunity to sell directly to processing.

Further licenses are pending

The OLCC is still working on a backlog of production license applications that could increase the number of new growth permits by 100 before April 2021.

Despite the overproduction that flooded the cannabis market in the past and pushed prices to record lows for growers a few years ago, Horton said he is not worried about new entrants.

This goes back to the competitive nature of the cultivation sector.

“We’re seeing the market shake things up,” said Horton. “The cream of the harvest will rise. The best cultivators will still do very well. “

McKee agreed, saying that Oregon growers have to be good at what they do to be successful.

“Some of them will survive and some will not,” he added. “There were times when (the market) was terribly saturated and there were times when it was good for the growers. It’s still a tough game. “

Bart Schaneman can be reached at [email protected]

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