Oregon has too much marijuana, and in June, Gov. Kate Brown signed a bill into law that would permit the state to enter agreements to ship cannabis elsewhere in the United States.

 

Not long after, U.S. Sen. Ron Wyden and U.S. Rep. Earl Blumenauer, both from Oregon, introduced congressional legislation to allow states, including Oregon, to export cannabis to other state-legal marijuana markets.

 

Is this really the remedy oversup-plied markets should be calling for?

 

A Toll on Small Business

 

Looked at shallowly, this plan seems to make sense. Oregon’s cannabis growers, like their neighbors to the south in California’s Emerald Triangle and those to the north in Washington state, are some of the best in the business.

 

The tough competition in Oregon, with little to no barrier to entry to the market and rock-bottom wholesale prices, has forced these growers to become extremely efficient while maintaining high levels of quality.

 

So the growers have produced more stellar marijuana than a state of just over 4 million people  can consume. Surely, the good people of, say, Nevada would rather pay less for sustainably grown outdoor cannabis from the Pacific Northwest than spend top dollar for plants grown in an air-conditioned room under lights in the desert.

 

But it’s not that simple.

 

We often hear that the U.S. cannabis industry should be careful when the calls for federal legalization get too loud.

 

Naysayers warn that national legalization would open the doors for massive waves of consolidation, and the state-by-state framework of markets—which currently work in favor of independent, smaller businesses—would cease to exist.

 

There may be some truth to the consolidation point, but if you look a little deeper (in particular, consider the way state governments operate), I’d argue that the likelihood of a free market where cannabis from Oregon can be trucked to customers in Nevada is quite low.

 

State Governments and Alcohol

States like to function as their own economies. Consider the reluctant states that approved some form of legal marijuana for the monetary benefits and the job creation. I suspect lawmakers in the conservative parts of the United States didn’t get on board with legalization, even if it’s just a limited medical market, because they wanted to see Oregon marijuana growers get rich.

 

They approved cannabis laws in part because they saw the tax revenue and new industry it created, the benefits to education and infrastructure. They saw the money.

 

Here’s another consideration: The marijuana industry likes to compare itself to the alcohol space. So let’s take that comparison to how states regu-late spirits, wine and beer—including how alcohol is sold and distributed.

 

The alcohol distribution system has three tiers: producers, distributors and retailers. Producers sell to distributors; distributors can sell only to retailers, and retailers sell to consumers.

 

Some states control the entire distribution supply chain, while others control part of it. This happened because states wanted the tax money from alcohol sales.

 

Yes, smaller breweries don’t have to sell to distributors in some states, so positioning your marijuana company as a smaller, artisanal business could be advantageous if the U.S. follows this path.

 

But how many marijuana business executives are really hoping to stay small forever? That’s not the American way.

 

The King of Bud?

 

If we’re really honest, I’m guessing the majority of cannabis companies out there would prefer to become the Budweiser of marijuana—sold every-where and one of the most recogniza-ble brands on the planet—and not the local craft beer that’s only well known in one town or region. Never mind their high-minded claims of quality and good intentions. But, in order to achieve that, companies will have to play by the rules that states create.

 

Another hurdle: Oregon cannabis companies can’t export to businesses in other states unless they are other licensed marijuana companies.

 

How will states be able to ensure the products they’re importing meet their own strict standards

and regulations? How will that be enforced? And will the added expense for resources be worth it?

 

My sense right now is that small cannabis business owners don’t need to fear federal legalization and a total end to prohibition any time soon.

 

States will try their best to protect their existing industries.

 

Likewise, Oregon growers probably won’t be able to sell to the entire U.S. cannabis market—at least not in the short term.

 

As of now, according to my sources, the wholesale prices for flower in Oregon (and Colorado and Washington state) are creeping back up to prices not seen since 2016,  so maybe Oregon’s growers won’t be as desperate to offload their wholesale product.

 

Maybe, if prices keep going up, selling to other states won’t even be necessary.

 

Wouldn’t that be nice?