The Black Market, the Cole Memo, Patients and Plant Counts


by John Sajo

After the dramatic hearings on implementing Measure 91 this week I think marijuana advocates need to clarify our positions on some key issues. There is much discussion about eliminating the black market as one of the goals of Measure 91. Breaking the black market down a little bit will help analyse how to reduce it. There are many different aspects of the black market but they are not equally dangerous.

The black market is any sales of marijuana outside the legal, regulated system. After July 1, when legalization takes effect, there will be many ways marijuana can be transferred between adults that will be legal but outside the regulated market. Any adult will legally be able to give any other adult up to an ounce of marijuana. Anyone holding a medical marijuana card can already legally give any other cardholder up to 24 ounces of marijuana. Thousands of pounds of marijuana will be exchanged legally between adults outside of the regulated market.

An adult selling anyone marijuana anywhere other than in a medical dispensary or rec store will be illegal. Anyone selling marijuana to a minor will be illegal. These transactions constitute the in-state black market. They can range from a friend or neighbor exchanging cash for marijuana at home to someone buying marijuana from a stranger on the street. There have been established criminal networks distributing marijuana illegally for decades.

The out-of-state black market is noteworthy because the Cole memo requires states to maintain a robust regulatory structure to prevent it. Oregon has a long history of exporting marijuana. In 1986, Oregon marijuana legalization activists campaigned with a brochure headlined “Oregon’s Billion Dollar Crop” that was based on NORML’s estimate of the value of Oregon’s marijuana crop that year. Marijuana seized in other states has been linked to OMMP gardens in many cases but this must be considered in the context of an underground market that was estimated at a billion dollars thirteen years before the OMMA even existed. The percentage of Oregon marijuana exports related to the OMMP is unclear.

Many marijuana grows linked to Mexican cartels have been busted on public lands in Oregon. The largest seizure a few years ago was over 100,000 plants. Presumably most of this marijuana is exported from Oregon through existing criminal networks. There is also a substantial amount of marijuana “hidden in plain sight” in basements, warehouses and outdoors that is cultivated by Oregonians illegally and shipped out of state. Many out of state marijuana seizures are linked to Oregonians with no ties to the OMMP.

After July, marijuana will illegally “leak” out of Oregon through many different channels. Marijuana will be shipped through the mail and through private carriers. People will drive marijuana out of state in their cars. People will fly to other states with marijuana in their luggage. Millions of cars and millions of airline passengers leave Oregon every year. To put the challenge of stopping leakage in perspective note that Colorado sold 140,000 pounds of marijuana in 2014. If Oregon produces a similar amount it would only take a half dozen semi trucks to carry the entire state’s production. Smugglers are no doubt becoming more sophisticated and shipping more shatter. A million dollars worth of shatter could easily fit in one car. Stopping leakage from Oregon to other states should be recognized as an unattainable goal in a free society.

SB 936, HB 3400, other legislative proposals and the OLCC have all proposed “seed-to-sale tracking” of small medical marijuana gardens as part of a robust regulatory structure to satisfy the Cole memo. I support tracking of large commercial marijuana farms, but tracking of small patient gardens is an unwarranted government intrusion into the private lives of patients and people trying to help them. Worse yet, those two bills would effectively cancel the safe access to medical marijuana for 13,000-23,000 of the 70,000 registered patients by prohibiting patient coops larger than either 4 or 8 patients. Some people support those provisions because they believe it is necessary to satisfy the Cole memo. Other people support those provisions because they believe that patients can be coerced into shopping at regulated dispensaries or recreational marijuana stores. Both ideas are completely wrong.

The Cole memo does not specify exactly what is required to continue federal tolerance of Oregon’s legalization law. It does not mention tracking. Oregon has allowed patients and growers to sell untracked marijuana to dispensaries for over a year and the federal government has shown no interest in shutting this down. Washington has a chaotic medical marijuana market with no tracking and the federal government has not acted to shut that down. In December, Congress passed a budget rider that forbids the U.S. Justice Department from spending money pursuing activity legal under a state medical marijuana law and the significance of this is currently being litigated.

The idea that patients can be shifted over to either medical dispensaries or to adult use stores ignores the painful reality of these patients’ lives. In 2014, 44% of OMMP patients qualified for reduced fees due to their low income. These patients have virtually no disposable income. If SB 936 prohibits them from being part of a coop garden, they won’t be able to shop at a dispensary instead. They will have to find a grower that doesn’t already have patients, depend on charity from others, or go without.

Trying to coerce patients into a market they can’t possibly afford is particularly cruel but the policy of trying to coerce customers into regulated stores is a terrible idea in general.

Tracking is appropriate for the commercial marijuana industry because it will raise quality, improve farmers’ best practices, and promote efficiency. It will allow any contaminated product to be traced back to its source to identify the cause and minimize any adverse public health impact. Tracking will not have a big effect on diminishing black markets. Requiring tracking on small cooperative gardens merely adds a burden on patients and their caregivers. What if a patient growing for other patients fails to report or makes mistakes. Are we going to penalize a struggling sick person for being unable to comply with arbitrary and unnecessary red tape?

The quality of information in a tracking system is suspect. Potentially millions of events and measurements are being tracked. Who is going to audit all that data? When a farmer reports that a plant was destroyed due to mold or bugs, is an inspector going to come check the compost pile? If cameras are required to audit the tracking system in real time, are they going to include night vision sensors to prevent cheaters from picking and diverting flowers in the dark? Can we be confident that hackers will never be able to modify the online data? How will we insure that OLCC employees are not corrupted the old fashioned way with bribes or threats? Tracking may sound good in the abstract but when applied to the real world situation of monitoring growing plants in diverse environments its effectiveness should be balanced against costs.

The only way to diminish the black market is to create a thriving efficient regulated market that significantly undercuts black market prices and offers wider selection, better quality and a safe comfortable environment. The regulated market can produce marijuana much cheaper by allowing growers to cultivate without plant limits. Plant limits raise prices and lower quality. Regulated growers operating openly without arbitrary limits – and without unneeded expensive regulation – will be able to undercut prices of any other source. Outdoor growers in particular can scale up dramatically without much increase in expense. The black market can be defeated by market forces, not by arbitrary rules with lots of unintended consequences.

Support for building an industry of family farms and small businesses is extremely strong. Some have proposed plant limits as a way to protect family farms against giant corporate farms but there are much better ways to do so. A progressive tax or fee structure will allow all farmers to take advantage of the economy of scale by growing large numbers of smaller plants. This is much more efficient and produces better quality harvests much faster.

Oregon can and will greatly diminish the in-state black market. The most important part of this will be much lower prices. The problem with this solution is that it will exacerbate the problem of out of state leakage. As Oregon prices drop, more out of state tourists will be attracted here and some will try to take marijuana home to other states. This highlights the real elephant in the room – federal law. It might be worth pointing out that some of this out of state leakage is desperate medical patients from other states seeking relief in states where their medicine is legal. Last year a Missouri patient traveled to Colorado to see if marijuana would help her. It did. She tried taking some home but was arrested driving through western Kansas, where she died in jail because she was denied access to her prescription drugs. An Oregon patient I know was convicted of a felony for mailing marijuana to herself so she could medicate while visiting family in another state. We might also ask if it isn’t better for Americans in other states to be buying marijuana from Oregon rather than supporting the Mexican drug cartels which represent a clear and present danger to the security of our nation? Oregon must implement Measure 91 to satisfy the Cole memo but there are many ways to do so. We should also be aware that actually succeeding in its goals would have some negative unintended consequences. I suggest that Oregon should also spend time and resources trying to lead the federal government away from a dysfunctional and destructive policy that is unsupported by either the citizens of our country or science.

What are some alternatives to seed to sale tracking to minimize out-of-state leakage? I suggest focus tracking on people and money, not plants and patients. There is a virtual gold rush of out-of-state investors seeking to buy marijuana farms and businesses. The most significant and destructive leakage would be if organized criminal enterprises like Mexican cartels or biker gangs in other states own and control Oregon farms. Regardless of tracking, I believe such organizations would be able to divert large amounts of marijuana into their existing distribution networks. This activity could be minimized by not allowing out-of-state ownership of marijuana businesses and carefully regulating investment in such business. This would prioritize focusing on the most harmful aspects of leakage and would do so with inexpensive effective tactics.

Many of these challenging policy questions will be solved over time. There should be no rush to dismantle programs that are working. All this can be revisited by the 2016 Legislature.

All this background leads me to the following policy proposals for the Legislature:

1) Honor the will of the 56.1% of Oregonians who voted to leave the OMMA alone. Don’t limit patient coops. Don’t track small gardens.
2) Do not allow out of state ownership of marijuana farms.
3) Do not impose plant limits on Measure 91 commercial growers.
4) Impose marijuana taxes and fees progressively to protect family farms and small business
5) Require tracking of large commercial farms to protect public health

I am looking forward to a productive discussion of these ideas.