Oregon Medical Marijuana: The Wholesale Conundrum

UnknownThe Oregon medical marijuana market has always been a nebulous place, at least from a regulatory perspective. For many years, the Oregon Health Authority (OHA) recognized only patients, their caregivers and growers. Everything was based on cards and plant counts, and though no one was supposed to make money, many people did. In 2013, dispensaries were added, and this year medical marijuana processors—who had existed for a long time underground—finally showed up in the rules. Today, lots of people are wholesaling medical marijuana in anticipation of moving into the retail market. The OHA rules don’t contemplate this, either.

In all of its iterations since 1998, the Oregon Medical Marijuana Act has been oriented toward protecting patients and their caregivers from criminal liability here in Oregon, and from federal action to the extent possible. Those are commendable goals, but the program has never made sense from a commercial perspective. Thus, OHA has found itself in the unenviable position of struggling to write rules around legislation that creates a marketplace while ignoring the market itself, and we corporate cannabis lawyers have struggled to advise our clients on how to navigate a very strange, quasi-commercial space.

Ultimately, Oregon medical marijuana is a very large market; and it is inevitable that when markets expand, brokers appear. Brokers seek profit by expanding large- and mid-sized arteries from small commercial veins. When a broker actually aggregates and distributes product in addition to making connections, that broker is commonly called a “wholesaler” or maybe a “distributor.” Though no rules exist for medical cannabis wholesalers in Oregon, the state has cannabis wholesalers aplenty. In fact, seldom does a week go by where a “medical marijuana wholesaler” does not call us for advice.

To their credit, the wholesalers we consult with are nearly always looking for ways to comply with OHA rules. And that makes sense — today, after 18 years of light OHA regulation, the rules have expanded quickly such that registration and reporting are key emphases. Everything is finally, theoretically tracked so that a grower, for example, can transfer to one of three registered program participants: patient, processor or dispensary. Those are the rules; but unfortunately, there is no place to report transfers to or from “distributors” or “wholesalers.”

The Oregon Liquor Control Commission (OLCC), conversely, does have a “wholesaler” license for its burgeoning retail market. Following our appointment to the OLCC Rules Advisory Sub-Committee on Wholesale, we have helped quite a few would-be wholesalers apply for OLCC licensure. For better or worse, many of these applicants gained a foothold in the medical market and will transition into retail along with their grower, processor and dispensary clients. Nobody intended for it to be that way, but it makes perfect sense.

Given the state of today’s OHA rules, we do not advise anyone to participate in the OHA program as a “wholesaler.” This is our advice even though the risk of non-compliance seems to fall disproportionately to medical wholesaler clients—growers, processors and dispensaries—who are far more likely to trip on reporting requirements when it comes to product transfers. For its part, OHA has been candid about having just seven inspectors, that its inspections are mostly complaint driven, and ultimately, that its position on the wholesaler phenomenon has been mostly to cover its ears.

In a couple of years, when the OHA and OLCC programs inevitably merge, all of this will be moot. For now, though, if you wish to handle large amounts of cannabis in Oregon, or deal with someone who does, it is important to understand the rules– including where coverage stops.