Gold Rush! Marijuana is gold. Farm-zoned land is a gold mine.

Hydraulic mining in Jacksonville, Oregon

"There's marijuana in them thar hills."  

Especially hills zoned EFU.

Rural Oregon has been experiencing a version of  the California gold rush of 1849 or the Klondike gold rush of 1896.    Oregon had its own gold rush, beginning in Jacksonville, Oregon in 1851.   For a while Jacksonville was the largest city in the Oregon Territory.   Another rush is going on today: marijuana.

So much has changed in the last few years.

In 1973 Oregon passed a sweeping land use law, known as Senate Bill 100 or more formally as the Land Conservation and Development Act.  It created statewide zoning to achieve multiple goals including the preservation of rural resource lands for agriculture and forests by putting most population growth and development into compact urban areas.  The theory was that cities would be more efficient, green spaces would avoid sprawl, and farm and forest uses would be allowed to flourish without the inevitable conflicts with neighbors complaining about agricultural smells and logging noise.   I was County Commissioner in Jackson County, Oregon back in 1983 when the county completed the rezoning to conform with this law.  It resulted in thousands of people with rural landholdings who protested being told they could no longer divide their land into small parcels for resale as homesites.  They were zoned EFU, Exclusive Farm Use.

On Rural Residential land.  But it's OK on EFU

Almost universally this meant that the land was devalued significantly.   Most rural people hated it.  

And a lot of them hated me.

 No farm use could complete economically with the value of the same land cut into small homesite lots.  In partial compensation EFU land was given a special low tax rate, plus the recognition that farm practices created dust, used pesticides, involved animal smells and EFU landowners were assured they had the right to farm it.  People who lived in or near those areas cannot complain when the farmer next door has a pile of manure near the fence line.   The zoning noted the obvious fact that people in "rural residential" zones, of typically 2 1/2 to 5 acre parcels, had nearby neighbors.   The county would regulate what farm practices could happen there in those Rural Residential zones because neighbor conflicts were inevitable.  But in lands "downzoned" to EFU basically farmers would be allowed and encouraged to farm.

Back in those days people said it wasn't much of a benefit because there was no money in farming anything.

There was a political storm.   Recall petitions were taken out against me.   A previous commissioner was recalled (i.e. voted out of office mid-term) because she attempted to fulfill state law by implementing this zoning.  (I dampened the recall threat against me by some hypocritical grandstanding.  The state announced it was considering putting a large state prison just outside Medford.   I protested.  "Don't you dare stick a state prison with all its problems on us," I said.  TV news people loved the story, the young county commissioner standing in front of the proposed prison site saying "No way!  Salem gets the capital, Eugene and Corvallis get the universities, Portland gets all the money, and you want to give us the prison?  Absolutely not! "   They loved that line and I still remember it.  It was a distraction and it changed the subject from me-as-tyrant destroying rural property values, to me-as-protector of the county from felon escapees and their low-life families.  It was cynical and intellectually dishonest but it worked great and got me through my term.  Trump did not invent changing the subject with a hot news distraction.)

Goldmine.  Now what had been a costly and wealth destroying "downzone" into EFU has now become a goldmine due to the development of vineyards, and the legalization in Oregon of marijuana.   Southern Oregon produces excellent wines.   Southern Oregon vineyard land is affordable by Napa standards.  Prosperous people like the idea of placing large houses on vineyard land, a reprise of the grand orchard houses built during the pear orchard boom a century ago. It was a familiar story then: the sons of  prosperous east coast families come here to own a pear orchard.  They built grand houses, usually painted white, with pillars and the other accouterments of the plantation style.   Today the houses are Tuscan in style, and the money comes from professional life as a physician/businessman or from technology.   As this blog wrote last week, wine has style and status.

Click Here: May 2 post

Marijuana dwarfs wine for its cash opportunities.   

There are at least three legal avenues for landowners to cash in, simply by leasing a tiny piece of their land to a grower.   Of course, the landowner can grow the marijuana him or her self, but there is technical skill in growing excellent marijuana.  It is a specialty crop, made most daunting because the laws surrounding its cultivation are very complex.   One needs licenses and permits.  Plus, landowners with wealth to protect are troubled by the fact that most marijuana is illegal under federal law, so marijuana earnings cannot be banked.  Taxes are owed on it, yet their income may be paid in un-bankable currency.  People with assets to lose want to steer clear.

Marijuana cultivation creates for many landowners a division of labor:  the landowner leases land, period.  The landowner's actions are careful and above board.  The landowner lets the grower deal with the complexities of Oregon law and its un-enforced federal illegality.

A landowner learns that there are three types of marijuana cultivation.  Two involve psycho-active qualities, THC that gets people high and makes it a Schedule A drug under federal law.   There is a third type, the cultivation of hemp/marijuana that is genetically chosen not to have the illegal THC property, which crop is grown for its fully legal medicinal qualities, either sold as dried flowers or processed into oil used medicinally.

Of grow types that THC there are "medical grows" and "recreational grows."  Both pay the landowner something around $20,000 to $60,000 per grow site of less than an acre.   To be eligible as a grow site the land must be a separate parcel or tax lot.   A medical grow typically involves exactly 48 plants.   A grower identifies people who have a "medical card" allowing them to use marijuana for medicinal purposes and then grows the product for them.  The presumption of the law is that the product of the medical grow all goes to those needy users, with any remaining product sold to legal medical dispensaries, at about $1,000 per pound.  Each healthy mature plant might produce 5 pounds of excellent very-high THC product, making each plant worth some $5,000 and each grow site of 48 plants worth about $250,000.  Or much more. This fuels the gold-rush of young grower entrepreneurs and it enables land owners to receive high lease income.  The marijuana produced in "medical" grows is not tracked carefully and there is anecdotal talk that some drifts out into gray markets and is shipped out of state illegally. 

Oregon Marijuana Website regulation site

"Recreational grows" are fully legal under Oregon law and it is extraordinarily regulated and controlled from seed to final sale, with every ounce tracked.  The rules require constant video camera security, which means that grow sites usually need electricity and internet service to the grow site--a condition that contradicts normal patterns on rural EFU land.   Recreational grows involve expensive infrastructure so the grower seeks a longer term lease, typically 5 years.  There are certificates and licenses for the land, for the grower, for the employees, controls over the water sources, the location, the product purity, complex contemporaneous accounting of the growth of the crop and its disposition, and taxation on every bit of it.    The advantage to a recreational grow is that there is a legal market in Oregon for all of it, at least currently.   Again returns of some $250,000 or much, much more, are expected from a 40,000 square foot area "under canopy" site, just under an acre, but other areas beyond that to support the grow, with the result they can grow many more plants than in a medical grow.

In both "medical" and "recreational" grows the crop is typically planted into above-ground pots or in raised beds, in both case using primarily imported and manufactured "growth medium" instead of natural soil.

Its own set of rules

Non-THC grows, intended for the therapeutic, non-psychoactive value of the cannabis oils--called CBD--is the third type of growth.   Landowners are growing a fully legal crop under Oregon and federal law.  The crop is field-grown, i.e. in the ground, generally in spaced rows.  The crop looks like the THC variety but the seeds are carefully chosen for ultra-low THC.  Before harvest the Oregon Department of Agriculture tests the crop to assure that it meets that ultra-low standard, which means that it can continue to be treated as an innocuous normal farm product and not a dangerous drug.   It is sold to distributors who use it for medicinal purposes.

This plant's buds sell for a fluctuating price depending on a new and erratic market, but last year generally between $100-$250 a pound.  Growers of this crop must get it licensed and registered, but are free to grow as much as they want, which means that the supply-demand situation is very uncertain, though restrained by the shortage of ultra-low THC seed stock.  Each plant is expected to grow a pound of flowers, and each acre of field-grown hemp might have 2,000 plants.  Sold at $100/pound each acre might produce $200,000, at $200/pound it would be twice that.   But acreage under cultivation is growing so the supply may outstrip demand, and the sale price may be radically different from last year.  Growers face huge price uncertainty after having high capital costs to plant the crop.  

Some growers may go bust.  Not every gold miner in 1849 went home rich.

In future blog posts I will describe some of the reasons someone might not want to be involved at all:  the smell of mature marijuana, unhappy neighbors, the presence of growers and employees, the security apparatus needed for a crop whose value is so high, the chance of a big price drop, legal issues, and more.  

(Disclaimer notice:   I am not a lawyer, I do not pretend to understand the very complex rules of Oregon or federal law, and I don't have first hand knowledge of the market for marijuana or farm leases.  In short, I have made inquiries and spoken with multiple market participants and am reporting on what I have heard, but readers should treat this as citizen journalism, not legal advice.)