Oregon lifts the three-year pause on new cannabis licenses

After a three-year pause, the Oregon Liquor and Cannabis Commission is once again processing applications from people who want to process or sell cannabis. Mark Pettinger is the OLCC’s director of communications and education. He joins us to talk about what this means for the legal marijuana system in Oregon.

The following transcript was created by a computer and edited by a volunteer.

Dave Miller: This is Think Out Loud on OPB, I’m Dave Miller. In May of 2018, the state announced a temporary pause in processing new applications for cannabis business licenses. That pause lasted for more than three years, but it is finally over. The Oregon Liquor and Cannabis Commission is now processing applications that came in since June of 2018 in the order in which they were received. Meanwhile, applications for legal grow operations are still on hold. Mark Pettinger is the Director of Communications and Education for the OLCC. He joins us with more details. Welcome back to Think Out Loud.

Mark Pettinger: Dave, Glad to be back with you.

Miller: Why did the OLCC put a pause on new applications in 2018?

Pettinger: Well, we were overwhelmed. We were a startup within a state agency, tasked with getting a cannabis regulatory system set up, and the work was so much that we couldn’t process applications quickly and efficiently. And so we put the pause in place so we could reorder the way we do things, take a look back at how we’d been processing applications since the first license was issued back in April of 2016. And that gave us some time to catch up, to design some new processes, and to do a better job of more effectively getting those licenses issued.

Miller: I want to hear about the way the process changed, but I’m curious, you didn’t announce the pause overnight. You told folks they had two weeks, the first two weeks of June of 2018, to get their applications into a queue. What happened when you made that announcement?

Pettinger: Well, I guess it was a bit like the Oklahoma Sooner land rush. We got about 1000 applications within that two week period.

Miller: Didn’t that just make the problem worse?

Pettinger: Well, it did in some instances. But when you look at all of this in totality, it’s been a good learning experience to make us better regulators. But let me go back to when you first asked, which was did it make it worse? Yeah, it added to the stack of the pile of applications we had. But many of those applications were not really put in with earnest. They were placeholders or strawman applications. People wanted to make sure that the window wasn’t going to be permanently shut.

During the time period from when the pause took effect until now, we’ve been able to winnow out a lot of those applications, because a lot of those folks were not entirely interested in moving forward for a lot of different reasons, and it did have the effect of kind of clogging the system even further. And so we’ve been able to eliminate a lot of those folks who are just sort of looky-loos, and actually spend time on the applications that were bona fide, if you will.

Miller: Were there folks who applied there who were sincere, not looky-loos, but who had to wait for one or two or three years to actually get their business license approved and get their business underway?

Pettinger: Yes, there were.

Miller: It’s hard. I can imagine some people who sincerely wanted to get into this business, they couldn’t wait one or two or three years and had to move on with their lives.

Pettinger: That was the case. And in fact, our licensing system didn’t allow us to make changes. So for instance, to give an example, someone might have put in for a lease on a particular piece of property and because the time had gone by for so long that they could no longer get the lease on that specific piece of property, but they found a new location. Well, our licensing system was so difficult and so challenging that we didn’t have an easy way, if they had already submitted an application for that first desired location to suddenly shift it to this new location that they were looking at.

So there are a lot of complications. We have tried over the course of time to institute a lot of process improvement and to make these changes. Because remember, if you go back, our charge initially was to stand up a licensing system for adult use cannabis. And a lot of the things that have come to us were challenges that we hadn’t initially contemplated.

Miler: How is the approval process different now than when it started?

Pettinger: Well, I think the old saying about first you crawl, then you walk, then you run. I think we have to build up a fair amount of experience and knowledge on our licensing staff, just as the industry had to develop its experience. And so initially, there was a lot of duplicative processes, checking of applications by two or more individuals or sets of eyes. That is a step that we’ve eliminated. We’ve tried to remove those extraneous steps.

We’ve actually put the onus on licensees to be responsible. It’s up to them to make sure that the security requirements for their licensed cannabis business are in place. It’s up to them to understand the rules. And there are some things that we just don’t need to take a look at. So for instance, if there’s an LLC or a partnership of some kind, we don’t need to know the details of that particular set up. What we do need to know is who are the people that need to be on the license? And early on, we would get contracts from people with all this stuff in there that we had to sort and sift through. Well, we don’t need that information really. That’s just between the parties that are in the business. What we need to know is who’s on the license. And so that’s one of the things that we’ve articulated to the industry to try and streamline the process.

Miller: So that’s the back end, the invisible end to people who are not in the industry, of how that’s changed in the last couple years. But how do you think the industry itself has changed in the last three years, or even just in the almost two years of the pandemic?

Pettinger: Well, it’s moved a lot faster than alcohol did after prohibition was up, right? This is a creative industry. There’s a lot of entrepreneurship, they’ve moved very fast. They’re building brands, they’re building name recognition, and there’s been a lot of consolidation, merger and acquisition activity in the market in the five years that we’ve been up and going. It’s moving very fast. And as you know, government doesn’t always move as fast just because of the way it is structured. We’ve done a pretty good job at pivoting, at switching gears as quickly as possible to adjust to the entrepreneurial spirit of the industry.

But sometimes, we just don’t have the personnel or the tools on hand, and we have to go to the legislature to get that approval. Now, if we were a startup, we could just go out for different rounds of financing and get that money in the agency, and do the work, and hire the people, and buy the tools. But we have to play by the rules of Oregon state government. And sometimes it takes a little bit longer.

Miller: My understanding is that while you’re now accepting new applications for retailers or for processors, grower applications are still on hold. That’s right?

Pettinger: That’s correct. Until January of next year.

Miller: So this gets to the question of how much marijuana is being produced legally in this state? You know, OLCC, you’re not exactly the right people to talk to about the illegal side, which we’ve devoted some time to over the years and certainly in the last couple months as well. But the sense I get is that there is a ton of legal marijuana. Is there too much for Oregonians to legally buy?

Pettinger: Well, we faced that issue a couple of years ago, in terms of was there too much supply in the system? We address that sort of theoretical supply. It sort of depends on consumption by consumers, but it also depends on how that marijuana stock is saved. In some instances it remains as flower, but in other instances it’s turned into value added product, whether it’s tinctures or edibles. Those products have longer shelf life than flower does. So at this point, as you probably have noted, the sales of cannabis haven’t haven’t gone on any kind of sharp decline. Even before the pandemic, cannabis sales were trending upwards. So it seems at least to this point that Oregon consumers are using the supply that’s out there.

Now, we’ve also positioned the state through legislation that the governor signed a couple of years ago to be able to enter into compact agreements with other states whenever federal law changes and allows for legal interstate commerce to take place. And I think a lot of people who are in the industry are still kind of positioning themselves for when that day will come. We do have many multistate operators, that is people who have licenses in Oregon, California, Washington, Colorado and other states who are positioning themselves for what they hope will be a national market.

Miller: Are they pushing out mom and top mom and pop operations? We looked at the pretty active thread in anticipation of our conversation on Reddit and one user named musicluvvah wrote “The mom & pop operations struggle compared to the multi-state operators with deep pockets. We’ll see more small brands go under or get bought by big brands.” Do you agree that that’s likely going forward?

Pettinger: Well, we’re not deliberate market makers. So it would be speculation on our part to forecast what the market is going to look like. But understand this too: if you go back to the days of post Measure 91 legislation, there were changes that were allowed to to allow capital to flow into the state that had otherwise been restricted. It was going to be very limited capital for people to start up businesses within Oregon. So, the industry lobbied and the legislature listened. And so that freed up the investment of capital from outside of the state. And any time there’s capital that’s being invested in any business from outside an area, those folks have a financial stake. So it deliberately suggests that there is ownership or control to some extent by folks who are outside the boundaries of Oregon, but are operating a subsidiary or some other holding company within the state.

Now, those folks also employ Oregonians right? Because in order to be able to work in this industry legally, you have to have a marijuana worker permit, and you have to be an Oregon resident. So for now this industry is employing a lot of Oregonians. The question of the ownership over the course of time, that’s going to be left to the course of time.

Miller: Let me run one more question that came from this really fascinating reddit thread by you. Iggy Newman wrote “Are most dispensaries profitable? I live within walking distance of four, and they appear to be slim on customers. We’ve hit oversaturation in my area. Are profit margins such that you don’t need to sell a lot to keep the lights on, or are most money pits?”

Pettinger: Well, I’m not in the retail marijuana business Dave.

Miller: No, but you’re in the business of licensing them, and I imagine more about the business than a layperson.

Pettinger: Well, let’s put it this way. We regulate our license the spectrum of businesses from production to retail, but we don’t control the decision about how many retailers are in a particular area, that’s actually left to local governments. And initially, some local governments across the state were hesitant about allowing any legal marijuana businesses in their communities, until it turned out that 3% tax on top of the 17% tax turned out to be pretty good for the income stream of those particular local governments. And so, we don’t control what a local jurisdiction does, that falls under the time, place, and manner rules of what an area is zoned for. So if a particular city wants to have as many marijuana dispensaries or retailers on a particular block that is allowable, that’s really up to them and to the citizens of that community. We are focused on the production and the processing and the wholesaling further upstream.

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