International Cannabis Business Conference

Dissecting Oregon's Marijuana Regulation Initiative

New Approach Oregon excitedly annouces that marijuana legalization will be on the November ballot.

Oregon voters will decide on marijuana legalization this November. The initiative, known as Measure 91, would set up a legal, regulated system for adult-use marijuana. The successful measures in Washington and Colorado in 2012 were used as the basis for this new law, though there are a number of differences.

For example, though the organization backing the initiative is called New Approach Oregon (NAO), the measure is very different from Washington's I-502 - which was sponsored by New Approach Washington. The name similarity was intentional; however, the organizations are not related.

First and most notably, there is no DUID per se provision in the NAO law. Many readers will recall that I-502's DUID law, a 5 ng limit on blood THC content, was highly contentious. Though Colorado's Amendment 64 had no such DUID provision, the state legislature had made several attempts prior to A-64's passage to enact a DUID law, and they managed to pass a watered-down DUID law shortly after A-64 was approved. Arguably, many voters may not have been paying attention that closely to the legislature's moves. On the other hand, opponents as well as the authors of the measure certainly were, and arguments about driving under the influence of drugs were simply mooted by the legislature's moves: a DUID provision was going to be enacted if A-64 passed so putting it in the measure itself was unnecessary.

There are other differences between the NAO measure and the two successful initiatives from 2012. In particular, home cultivation would be legal under NAO, though only four mature plants, and that's four plants per household, not per person. Home cultivation is banned under Washington's law, while Colorado allows residents to cultivate up to six mature plants per person. Denver has enacted a stricter limit, and allows only up to a dozen mature plants per household of two or more adults. Still, the NAO proposal is much more conservative than  Colorado's law.

The successful legalization measures in Washington and Colorado in 2012 were used as the basis for New Aproach Oregon's proposed law, though there are a number of differences.

The home cultivation rule is important in Colorado because, though communities have the ability to zone, restrict and otherwise ban marijuana adult-use retail facilities, they can't outright ban private at-home cultivation for personal use. This is a larger problem in Washington (which also allowed communities to restrict or ban adult-use marijuana businesses), where home cultivation is forbidden under law. There are large swaths of Washington in which there's no legal availability as a result.

This point leads us to another important distinction between the Oregon measure and those two earlier ones: the Oregon law allows communities to ban retail facilities outright only if the city or county approves such a ban through a local initiative. The law does, on the other hand, allow adoption of “reasonable time, place and manner regulations of the nuisance aspects of establishments that sell marijuana to consumers if the city or county makes specific findings that the establishment would cause adverse effects to occur.”

Oregon is already learning the hard lesson about local bans because its dispensary law was enacted without such a provision. As of May 1, 131 cities and 25 (out of 36) counties in Oregon had enacted moratoriums.

A problem that Oregon could run into, similar to Colorado, is the conflict between the adult-use market and the already-established medical market.

There's no question that the roll-out of legal marijuana in Colorado was made easier by the existence of that state's legally regulated dispensary system. Compare that to Washington, where relatively few adult-use outlets have been able to open so far and they've been running out of marijuana because of the high demand. In that sense, Oregon is more similar to Colorado, because a legal regulated dispensary system has been in place in Oregon for months. A couple of years ago, Oregon would have been in the situation more similar to Washington's. Oregon's law setting up a regulated dispensary system was only passed in 2013, yet the state has had dispensaries since at least 2010. Getting rid of that medical market will prove to be difficult. Why would anyone want to? That's simple: Money.

The state's medical dispensary system has a $4,000 annual fee for dispensary owners, and no sales or excise taxes or other fees. The NAO measure sets one flat tax at the production end of $35 per ounce the for flowers or buds, $10 per ounce for leaves and $5 per immature plant. Licensing fees are small change: $1,000 annually for licenses to produce, wholesale or sell at retail, plus a nonrefundable $250 processing fee. That's it. Oregon has no sales tax. There are no limits on horizontal or vertical integration of operations for the adult-use market, which means one person or company can control several different licenses at all levels.

Oregon is more similar to Colorado, because a legal regulated dispensary system has been in place in Oregon for months. A couple of years ago, Oregon would have been in the situation more similar to Washington's.

NAO estimates that 40% of those currently using marijuana illegally - 108,948 Oregonians - will take advantage of the new legal adult-use market if the measure passes. They further estimate those consumers will purchase about 6.75 ounces per year, yielding a total of 965,762 ounces. Tourists are projected to account for another 439,521 ounces per year.

A big problem with these estimates is that they rely on the federal government's annual National Survey on Drug Use and Health, which notoriously under-reports both prevalence and quantity used. To that extent, though the numbers may not be accurate, they could actually represent an *under*-estimate of both demand and potential revenue.

Still, how do the numbers work out for patients? As an economic analysis NAO recently released points out, patients have to pay an annual fee of $200 to the state of Oregon to register and get their medical cards, which allow them to shop at dispensaries. In the analysis by ECONorthwest, the tax is estimated to add $28 to the cost of each ounce compared with the medical side based on estimated consumption of both flowers and leaves.

Presuming that the 6.75 ounces average which consumers are expected to purchase each year applied to patients, then these folks would only pay an additional $189 per year by turning to the adult-use market. One problem with that assumption is that top-shelf medical cannabis is tightly trimmed – no leaves, flowers only. If you use the $35 per ounce which will be assessed on flowers, the total rises to $236 a year. That might sound like a bargain for patients who pay the state $200 a year to register and get their medical card, but not if you look more closely at the numbers.

While 6.75 ounces per year may seem like a lot to some people (though I'm guessing not to readers of this blog), it's much less than many patients use per year. I've worked with patients in Oregon for the past several years. Most of the patients I know have made arrangements with their growers to receive one ounce of bud every other week in exchange for allowing their grower to sell the excess of the crop to dispensaries in the state. That's 26 ounces a year, and from time to time they still run out. The cost would be $910 per year per patient in taxes - $910 per year they won't have to spend if they remain in the medical market. That registration fee is starting to look pretty cheap.

Some patients don't have to spend extra money to go to a “pot doc” to get their recommendations because they have good primary care physicians who don't work for Kaiser or the VA. If patients receive federal Supplemental Security Income (SSI) payments, their actual annual fee to the state is only $20. There's an additional $50 fee to register a grower, but only if patients register someone else as their grower. If the patient is also the grower - and there's no requirement that a person actually do any planting - then that extra $50 is waived. The state allows other discounts for medical card registrations. It's not only those receiving SSI who get a break; people on Medicaid only have to pay $50, plus the possible $50 grower registration fee, and those on Supplemental Nutrition Assistance Program (SNAP, or food stamps) pay $60, plus the grower fee, if it's required.

The medical program in Oregon is given specific protections in the initiative, which will prove important. Some authorities complain that the medical system is a sham and anyone can get a card. They're mostly wrong. While there's a limited number of conditions which let a person qualify, as of this month the state reports a registry of  64,838 patients. The most prevalent condition is severe pain. PTSD was only added to the list of conditions early in 2014.

A lot of these patients are heavy users. The most obvious concern then is that the state may try to undercut the medical program somehow in order to gain more revenue through the adult-use side. Only time will tell if the state will respect the intent of the NAO measure's language. They may do so, or they could argue that financial exigencies require the state to generate more revenue.

The NAO campaign will have to get used to their numbers being scrutinized and seeing their claims fall short. The quite reputable Politifacts news organization has already examined some claims made by NAO, and found one of them false, and another mostly false and misleading.

But in the end, will that matter? The tide has definitely turned, and the global economic collapse over the last decade or so has led this country and many others to consider ideas they would have eschewed in the past. We'll find out in November in Oregon if this trend will continue.

Doug McVay

Doug McVay

Writer and KBOO radio host based in Portland, Ore. He's also editor of DrugWarFacts.org.