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The C Word: Consolidation

Don't be surprised to see craft growers consumed by corporations



Although no one asked, I have some predictions for the cannabis landscape in Oregon, having nothing to do with the corrupt, race-baiting shitholes ruining this country.

July will mark three years since Oregon passed Measure 91, our Adult Use, aka Recreational Use, program. It's been great for adults who, prior to Measure 91, didn't have access to clean cannabis and canna-products. It's raised millions in taxes and fees to fund important programs and services, created thousands of jobs, and offered those seeking an alternative to opioids and other Big Pharma medications some great choices.

(A downside? Although assured otherwise, it's gutted the Oregon Medical Marijuana Program, which has moved many growers to abandon the program, and, in turn, their patients.)

But aside from that, everything is great, right?

Um, no.

Perhaps you've noticed a price drop for flower at your friendly neighborhood dispensary. Grams that were $12 to $14 are now $9 or $10, or even lower. It's a boon to your wallet, but may not bode well for the future. After talking to a number of licensed growers and dispensary owners recently, I'm hearing a widespread concern that we're looking at some painful changes in 2018.

That price drop isn't coming from a place of benevolence. Rather, the market has become flooded. Like, Tennessee Valley Authority-type flooded (Google it, Yankee). A dispensary owner recently shared that they'd picked up 1 pound of some beautiful light-deprivation flower for the absurd price of $600. That's a wholesale price of $37.50 per ounce.

Local indoor, flower-producing friends are struggling, preparing a large harvest of a new crop, while much of their last sits languishing, awaiting buyers. A price cut hasn't helped their efforts, nor have newly licensed producers entering the scene every week.

So, we're just about at that point where we see an emergence of the C word: Consolidation.

Craft cannabis, like craft fill-in-the-blank, is great. But as with any commodity, it's not always terribly profitable. And we have come to a point where cannabis is now a commodity—like copper, pork bellies or soybeans. As any economist will tell you, commodities become more profitable when they're consolidated to reduce production, marketing and distribution costs (Example: Walmart).

Another dispensary owner, vertically integrated as they are, shared that they recently took a meeting with a Canadian company shopping the Oregon cannabis industry with fervor.

"They told me a farm had approached them and said 'name your price,'" said the owner. "They have millions to invest, and they are arriving to scoop up anyone looking to sell. And maybe a few who aren't."

Being bought out is every tech startup company's dream, and more power to those in the cannabis industry who seek to achieve that dream. But as a consumer, how welcome would it have been if, during Oregon's microbrew startup days, the regulatory and legal system was so stacked against it that craft breweries were forced to sell themselves to Coors, Budweiser or Corona? There's no 280(E) equivalent for the alcohol industry, and beer makers don't have to worry that tasting their products on site could mean losing their license. (Because cannabis is far more dangerous than alcohol, so... [That was a joke.])

To what degree would the things that make those beers special remain in place after a takeover—hostile or not? There are exceptions to this, of course, and anyone who has struggled owning a small business (or was involved with someone who has) can attest to the benefits of having access to a larger team, more capital, vertically integrated systems and so on.

But not everyone wants to be eaten up by a larger fish, and the road of business history is littered with the wreckage of consolidation efforts that didn't work out so swell. Small businesses are what drive our economy, and it would be great if the deck were not so firmly stacked against the cannabis industry so as to allow smaller operators to flourish.

So don't be surprised if your favorite craft grower soon becomes a part of CannaCo, Inc, a Division of Lockheed Martin.

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