Oregon’s Cannabis Commission: Industry at Its Weakest Since 2016

The Oregon Liquor and Cannabis Commission (OLCC) released its 2023 Recreational Marijuana Supply and Demand Legislative Report on Feb. 1, finding the state’s cannabis supply again surpassed demand for another year. The commission said the imbalance has put Oregon’s recreational marijuana market in “arguably the weakest economic position it has been in since the inception of the program in 2016.”

Oregon’s recreational marijuana industry—a market that has seen a see-saw pattern of oversupply and market correction—began with large annual increases in consumer demand. But growth has waned and a production cycle that responds to market signals on a lag has resulted in surplus stockpiles of inventory.

Following the banner sales year of 2020, OLCC producers entered 2021 optimistic about the future of the market and made their planting decisions accordingly. However, the fading of demand as 2021 progressed, exacerbated by a record outdoor harvest in October 2021, set off a slide in prices that put the entirety of the supply chain under pressure in 2022. The overabundance of supply throughout 2021 and 2022 resulted in historically low wholesale and retail prices for both flower and concentrate/extract products.

Declining prices, in combination with a tempering in the growth of quantities purchased, resulted in the first-ever decrease in annual sales — from $1.2 billion in 2021 to $994 million in 2022. The OLCC estimates that market demand was 52% of supply in 2021 and 63% in 2022. The declining wholesale and retail prices for marijuana are due to large stocks of flower inventory leftover from previous years, which is likely to continue to put downward pressure on prices.

The power of flower is fading

Market dynamics on the demand side also point to a turbulent 2023. Overall, consumer demand since has been at lower rate than prior years. Moreover, the distribution of demand is shifting away from flower – both as an intermediate and final product.  This comes at a time when consumers are shifting towards other product types (particularly edibles) and away from usable marijuana. These factors all point in the same direction: fewer outlets for flower and lower prices for licensees.

Oregon’s recreational marijuana market has proven resilient, but until the federal legal landscape changes, two fundamental facts remain unchanged: In-state supply is boundless, while in-state demand can only grow so much. Oregon’s extremely competitive marketplace features low prices for consumers that have positioned the state’s legal market to compete successfully with the illicit market. The corollary, however, is that these low consumer prices force businesses to operate under low margins and extreme pressure. The narrowness of those margins, and the ability for Oregon cannabis businesses to operate under them, remains to be seen as we enter 2023.