Friday, September 29, 2017

Marijuana industry

Update on Marijuana in Southern Oregon

Let's assume for a moment that this is the early years of an important new industry.   Oregon is at an inflection point and things could go in very different directions.

One direction is legalization and industrialization.  If California production comes on line with thousand-acre fields, then the US could be flooded with good-enough industrial marijuana.  The price would settle around "cheap", i.e. beer.  There would be room in the marketplace for "craft marijuana" but this would be niche marketing of niche volumes.  The business would industrialize and become a commodity.   

Southern Oregon is awash with rumors that big tobacco companies are buying up big farms here.   There is hope that, even in an industrialized marijuana situation, southern Oregon marijuana would be in demand.    Why Southern Oregon?    Same reason as Napa wines or Kentucky bluegrass.  Apparently we have ideal climate for marijuana grown outdoors.  But there are limits to southern Oregon niche marketing. People who smoke marijuana tell me that the gold standard for quality is marijuana grown indoors, under lights and controlled circumstances.   They are essentially laboratories manufacturing THC in hydroponic factories.   Because of the artificial light and technology that marijuana is not the cheapest, but it can be the best.   

Another direction is regulation-to-death.  It would be a one-two punch of federal illegality plus the State of Oregon trying to get control of the industry, both for monitoring volumes and to attempt to collect taxes.  There is already a complicated set of rules for Medical Marijuana growers and an even tighter set of rules for Recreational Growers.  There are a million pitfalls and opportunities to have a crop seized.  Regulations in Oregon could drive the small-scale entrepreneurs out of the business and leave it being produced only by well capitalized industrial farms, organized around lawyers and compliance officers.   The industry would look more like the insurance or investment brokerage business: a few national firms controlling the vast majority of the business.

This would not end local production but it would end the open, active industry of local entrepreneurs growing on one acre parcels, the current arrangement.  The risk of confiscations and land seizures would be too great under a legal and enforcement program intended to "bring marijuana under control."  Do-it-yourself very small scale production would remain, though.  Production would move from open (but fenced) fields back into bedrooms and disguised back yards and private grows sites--in short the system that persisted for decades before Oregon legalized it.   Only now, people have gotten very good at growing spectacularly powerful marijuana.  The knowledge gained would not disappear. Marijuana would have two tracks: legal and taxed, and underground and untaxed.

Status quo.   In this situation there would remain three basic routes to marijuana production.  Highly regulated Recreational Grows, with close monitoring of production and distribution.  Less regulated Medical Grows, in which marijuana is grown in small parcels on behalf of patients who have been issued a marijuana card, a record that they have been prescribed marijuana to treat some condition.  And Personal Use grows, which allow four plants per residence.   Market participants inform me that there is more marijuana grown under these three programs than is plausibly used within the boundaries of Oregon.  Some of it presumably travels out of state, where prices are higher.  

A backyard grower sent me this early harvest photo.
Oregon marijuana may find its way there, although I know of no market participant with direct knowledge of out of state pricing, so I will report on rumors and assumptions.  Some presumably gets sold to people who deliver it to places where marijuana is illegal.

I have heard that some has been attempted to be shipped by UPS, where it is intercepted by drug-sniffing dogs.  I have direct knowledge here.  My own packages of 20 pound boxes of vine ripe melons, which I have attempted to ship by UPS, were routinely interrupted, opened, and destroyed by federal agents suspicious that my odoriferous melon packages were attempts to ship marijuana.   Agents of UPS or the DEA stop my perfectly legal packages of 8 perfect melons, arranged to arrive in perfect condition in 24 hours, and they send them to a processing place in Troutdale, Oregon.  There they open my packages of melons, presumably out them open expecting to find marijuana, and then send me notice that my packages of melons "got over-ripe and were destroyed."   They do not offer compensation or any other explanation.   I put conspicuous notices on the outside of the package telling the DEA that the package contained melons and only melons and that if they opened them please to repack them carefully and send them on their way.   My notice and request was ignored.  One in five packages that I sent was opened and destroyed.)

Presumably Oregon marijuana shipped out of state illegally is competing with and displacing marijuana from Mexico, sold in states where marijuana was still illegal.   The status quo situation creates state pricing arbitrage, cheaper in Oregon than in Texas or Alabama, and therefore there is profit potential captured by people doing the transportation.

The busy harvest season is still ahead.  Harvest has been going on beginning earlier this summer for marijuana grown outdoors.   Growers can create an early harvest by growing plants in a location that has a removable opaque cover, a "light deprivation" system.   When the daylight hours are shortened the plants trigger flowering and buds in preparation for winter.   In Oregon, at the 42nd parallel, this would not normally happen until August, creating a crop harvestable in late October.   If a grower grows the plant in a greenhouse or outdoor location with arrangement for pulling an opaque tarp over the plants, the grower can create early twilight and darkness earlier in the year meaning plants will flower, bud, and be ready for harvest early.  This allows some growers to "beat the market" and have product for sale prior to the natural period in southern Oregon, where the harvest normally would take place in October.  I am informed by several market participants that prices are higher in August than in the busy October harvest season.

Planting, maintenance, grooming, harvest, drying.  Marijuana production is a labor intensive crop.  Market participants inform me that to be salable marijuana must be essentially perfect:  well formed buds, clean of leaves, consistent THC content, harvested at the optimal time, organic production, organic and people-safe insect control.   This means the plants require grooming throughout their grow period, with leaves removed by hand from the interior of the plants, time consuming fertilization and insect control and inspection for mold or other imperfections.   

This has made farm and orchard labor more expensive in the area, and it has also created a market for labor-saving devices, including de-leafers and bud trimmers.  Grow shops sell these devices with prices ranging from $800 for some models of leaf simmers to $10,000 for some models of bud trimming. Traditionally drying of the crop is done by turning the entire plant, or individual branches from the plant, upside down to hang on racks, in de-humidifying and temperature controlled rooms with constantly moving air.   This has meant that warehouse space, previously under-used and low rent, has become valuable--a boon to warehouse owners but an inconvenience to those who had become accustomed to inexpensive and readily available warehouse space.

Note to readers:  I do not use either alcohol, marijuana, or tobacco.  I consider all of these dangerous drugs.  But because I don't use alcohol my perspective on psychoactive drugs is unusual.   In my circle of acquaintances most people drink alcohol and consider it socially acceptable and high status.  They discern differences between varieties of wine grapes and quality of wines.  They discern differences between Johnny Walker Red and Johnny Walker Black.    Meanwhile, they consider marijuana mildly disreputable.

I have a different view.  I consider them both dangerous and essentially the same.  Therefore, I judge marijuana by the same standards I judge alcohol.  Both are dangerous, both should be controlled, both have the potential to destroy lives and endanger others. 

I recognize that a great many people consider alcohol acceptable and marijuana disreputable.   I consider that inconsistent and hypocritical.  I have experience in the long past with both drugs and consider alcohol more dangerous than marijuana.   But of the three drugs, tobacco cigarettes kill the most people.   If any of the three should be a schedule one narcotic, it should be nicotine. 


  1. I offer two historical perspectives.

    1) The Whiskey Rebellion - Where the production of distilled alcohol was regulated and heavily taxed. Folks who distilled spirits from leftover produce (fruit and grain) made alcohol. We're familiar with this product as moonshine, a clear, high-proof, quality uncertain liquid. In order to collet taxes the government created an agency referred to as "revenuers" (The forerunner of the ATF). They effectively drove the folks that produced moonshine underground and removed a major source of income from farmers, who had historically made the product for their use and sale to locals. It did not eliminate the availabity of distilled spirits but is greatly benefited the large distilleries.

    2) The California Gold Rush - Where the discovery of gold at Sutters Mill set off a stampede of fortune hunters rushing to California to strike it rush. A historical look back at this time saw the productive claims bought out or seized by big money interest and mining companies. Very few prospectors made any money from their efforts. Those that did were the shopkeepers and transportation companies that catered to the prospectors needs; and, of course the big mining companies and big moneyed backers.

    I realize these examples only slightly touch on the problems facing marijuana growers. That is: Distilled spirits were commonly consumed in the US and the gold rush example is narrowly applicable in that gold was found in very specific locations. In one case the government regulated distilleries to the point where the small producer couldn't compete; and, large companies and monied interests bought the claims and land where the most gold could be readily found. In both cases law enforcement was used to drive out the competition.

  2. Both are good analogies. The ancillary services are doing well (think Levi's), the back yard 'Mom and Pop' operations will be driven out. Most dispensaries won't buy from medical grows. The County is hostile to small grows on Rural Residential land while encouraging the large scale recreational grows.
    The ship has already sailed ...


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