Two months after Oregon legalization, pot saturation sends profits up in smoke

After the state’s legalization of recreational cannabis, over-saturation and shaky business plans mean that for some dispensaries business is not booming

Melanie Sevcenko

Saturday 21 November 2015 12.00 GMT

Along North-east Sandy Boulevard in Portland, Oregon, there’s a stretch known as the “Green Mile”. Here, medical marijuana dispensaries are budding. Almost two years ago, when Matt Walstaller opened Pure Green in the area, there was only one competitor. Today there’s close to 10.

In the beginning business was booming, recalled Walstaller. But last autumn, Pure Green’s traffic started to slow.

“Then we looked at the numbers. There was a couple thousand new medical cardholders, but two or three times as many stores as there had been the year before,” said Walstaller.

In Oregon, 76,723 patients are listed as medical marijuana cardholders. Over 12,000 of them are in Portland, where 136 publicly listed medical dispensaries are located – that’s roughly 80 patients per dispensary. Yet the state’s Medical Marijuana Dispensary Program continues to accept applications for new licenses, with more than 200 still pending.

Oversaturation and shaky business plans have led some dispensaries down a path of no return. “I know of some shops that have closed, and I’ve heard of others that have been sold,” said Walstaller.

Since 1 October, when the sale of recreational marijuana was legalized, struggling businesses have found firm footing again. At Pure Green, the amount of customers per day has tripled. Donald Morse, who owns the Human Collective medical dispensary in south-west Portland, also experienced a substantial uptick in business since 1 October.

But as the director of the Oregon Cannabis Business Council, Morse says the number of license holders is consistently going down month to month. “We didn’t need all those dispensaries. A lot of people got into it, but they were not well financed and were hanging on by their fingertips,” said Morse. “The shake-out has begun. Those with sound business practices will survive, those without are going to fail.”

While recreational sales have helped Oregon’s medical dispensaries stay afloat, come 2016, the rules will change.

On 4 January, the Oregon Liquor Control Commission (OLCC) will take over all sales of recreational marijuana and add a 25% sales tax – in a state that has no sales tax. In autumn of next year, OLCC-licensed retail stores will open.

At that time, existing dispensaries can choose between obtaining an OLCC license to sell recreational marijuana or remaining a medical-only dispensary. Businesses are not permitted to hold both licenses.

OLCC spokesman Mark Pettinger said there’s been talk about co-location of medical and recreational marijuana under one roof, “but that would require a ‘fix’ by the Oregon legislature, because there are conflicting statutes regarding regulatory authority”.

In Colorado, the first state along with Washington to legalize recreational marijuana use, medical and retail weed are already “co-locating”. Some shops have even dropped their medical license because the recreational market promises greater profits, said Ean Seeb, co-owner of Denver Relief dispensary. Five years ago, Seeb recalls close to 900 medical dispensaries in Colorado. Today there’s half that amount.

Marijuana revenues continue to climb every month in Colorado. According to August sales data from the state department of revenue, recreational marijuana accrued $59.2m, with medical marijuana following behind at $41.4m.

In Washington, medical dispensaries too are heading into the recreational market, and Oregon is likely to follow suit.

Pure Green will be one of them. Walstaller, though an advocate for patients rights, says he couldn’t afford not to acquire an OLCC retail license. “We couldn’t stay in business that way.”

If the state does not allow the medical and recreational markets to merge, Donald Morse believes that “95% of dispensaries in Oregon will go opting for recreational sales. There won’t be enough to service the needs of the patients, and those patients will be forced into retail stores.”

In the retail shops, medical marijuana patients will be subject to taxation.

To remedy this, Donald Morse and the Oregon Cannabis Business Council are introducing a bill into the legislature’s short session in February. If passed, patients will receive tax-exempt status, whether they shop at a retail or medical dispensary.

“We don’t charge tax on anyone else seeking medicine,” said Morse. “We have to find a way to marry these two systems in a way that’s not going to screw over the patients.”

The medical marijuana card still has its benefits. It allows patients to have six plants instead of the recreational four, along with 24 ounces of dried flower, compared to the eight ounces allotted to regular consumers in their homes.

The supply to patients could also be at risk as the recreational market takes off. Anthony Taylor of Compassionate Oregon, an organization that protects the rights of medical marijuana patients, is concerned that small family farms could be exhausted from the retail demand.

However, he’s certain that some medical dispensaries will dodge the dangling carrot of the retail revenue and let their client base carry them.

“They believe in the compassionate use of therapeutic cannabis and they think the recreational market is a distinctly different market,” said Taylor. “Some of them really believe in holding the line and dealing exclusively with patients.”

While that could prove true, Donald Morse feels the winds of change.

“I think it’s entirely possible that the medical system as we know it today is pretty much obsolete within a year,” said Morse. “Legally it will still be there, but market forces will create a situation where people will say, why bother with this?”

Two months after Oregon legalization, pot saturation sends profits up in smoke