Oregon Cannabis Ventures into Uncharted Territory With Wholesale Licenses

I was recently selected to sit on the Oregon Liquor Control Commission’s (“OLCC”) Wholesale Technical Advisory Committee. This committee will meet throughout the summer to craft regulations for Oregon’s recreational marijuana program under Measure 91. We have been tasked with developing regulations and licensure requirements for Oregon’s cannabis wholesalers.

Oregon’s stand-alone license concept for marijuana wholesalers is brand new to the world of legal cannabis. Unlike other states, Oregon provides for four separate license types: grower, processor, wholesaler and retailer. Oregon’s Measure 91 expressly allows for vertical integration, meaning that a company may possess a license for more than one spot in the supply chain. In fact, an Oregon company could possess a license for each of the four categories, if it so desires.

Figuring out what to do with Oregon wholesale cannabis will not be a day at the (Oregon) beach.
Figuring out what to do with Oregon wholesale cannabis will not be a day at the (Oregon) beach.

Though no one yet knows exactly how the new rules will read, Oregon-licensed growers and processors can be confident that they will be able to sell to one another and to retailers. This means that, unlike in other industries, Oregon marijuana growers and processors will not necessarily have to go through wholesalers to bring their products to market. Beyond this basic framework, Measure 91 does not go into tremendous detail on how wholesale licensees must operate, giving the OLCC very broad discretion on how it can fashion its licensing structure.

You may be wondering what this means, practically.  We predict that, regardless of the approach taken by OLCC, more license types will ultimately “flatten” the industry, ensuring diversity of business models and low barriers to market entry. Oregon will stand in stark contrast to, for instance, New York and Minnesota, which license massively capitalized, monolithic cannabis companies required to occupy the entire supply chain. These stiff regimes fail to recognize that some companies may want to focus only on growing cannabis, or baking cookies, extracting hash oil, etc., and not fuss with any other aspect of the cannabis production or distribution process. See The Future of Marijuana Licensing: Greater Barriers to Entry? and Comparing Marijuana Licensing Models.

Another practical effect we foresee for Oregon is that its cannabis companies will be able to “right size” their compliance costs, a boon for start-ups in any highly regulated industry. Because Measure 91 allows fragmentation within the industry, compliance risk will naturally be apportioned per category, rather than falling squarely on a single licensee’s shoulders. In other words, Oregon’s fragmented licensing model lets businesses shift compliance risk to other licensees, who will be held independently accountable for their actions.

The OLCC could regulate wholesalers out of the marketplace, as wholesalers are not a necessary part of the supply chain. Moreover, Oregon’s recreational licensees will have to contend with competition from both home grows and from medical dispensaries. Still, wholesalers might be able to bundle some combination of ancillary services such as branding/labeling, packaging, laboratory testing, payment security, and logistics. How these services can be packaged will depend largely on the OLCC’s ultimate regulatory framework. Right now the canvas is blank.

It should be interesting to see how the OLCC ultimately decides to craft its regulations for wholesale licenses, and I am looking forward to advising the State on this process. How would you want to see the OLCC regulate wholesale businesses?

Tyler Anthony, for the Canna Law Blog

Attorney with Harris Moure’s Canna Law Group