Marijuana Monkey Wrench

Everything may have just changed.

Just when the marijuana industry thought it was both safe and scalable, the Justice Department changes the rules.  

Today Jeff Sessions announced he is rescinding the Cole Memorandum, thus authorizing the federal to resume enforcement of marijuana laws.  This changes the risk/reward calculation for an entire industry.

Business Insider: Click Here

 For several years the Oregon marijuana industry had enjoyed high margins.  Oregon had made production and sale legal and had set up elaborate rules for it, with the result that there were significant restraints on the supply.  This meant high margins for producers and sellers.

The federal government called marijuana illegal, but there was a written Justice Department policy--the Cole Memorandum--that said that the federal government would not attempt to enforce federal rules in states like Oregon that had established their own rules.  There were rules that made marijuana impossible to grow at scale, but which made it highly profitable to grow in half-acre registered "medical marijuana" and "recreational marijuana" grow sites.  It then was  sold in the dispensary stores that are visible everywhere.  

Marijuana remained illegal in most of the country.  People with knowledge of the market told me that some of the marijuana grown in southern Oregon was sold in those jurisdictions, where it enjoyed a high reputation for quality.

The Hill: Click Here

That era was ending.

More growers got into the business. Supply increased. I am told the wholesale price of trimmed marijuana flowers fell from some $2,000 a pound in 2015, to $1,500 a pound in 2016, to $800 a pound in 2017, and in some cases lower.  I have heard prices of $500 a pound currently.  Growing marijuana has upfront costs and is labor intensive.  Margins were collapsing.

Worse, California was coming on line, joining Oregon and Washington as states where growing marijuana was legal.  This portended total price collapse, with production by corporate agriculture, and marijuana just another commodity crop, sold just above the cost of production.

 Click: Colorado Republicans Protest

Marijuana is a visible, capital intensive industry.  It is operated by people with financial capital and real estate at risk. Sessions' announcement likely ends the "safe harbor" presumption.   Without the Cole memorandum landowners, growers, processors, dispensaries are a risk of seizure and prosecution.  

The immediate effect could be to take California off line as a producer.  Corporate agriculture could be scared off for this year. Open, registered grow sites in Oregon--sites which have just provided the state the exact location of their operations--may be reluctant to plant for the 2018 season.  

The era of grow sites dotting rural southern Oregon may just have ended.  Marijuana prices might skyrocket, as production moves from open air and greenhouse producers back into the shadows of garages and transient grows in obscure places.

The industry will not disappear, but it could go underground again.  

Republicans have to choose which side of this they are on.   Colorado's Republican Senator Gardner and its Republican House members are protesting, citing the will of Colorado voters, the value of a regulated versus unregulated industry.  Republican members from other marijuana-legal states will be asked to join them.  In Oregon it will be another litmus test and opportunity for Oregon's Congressman Greg Walden.