Audit: Marijuana-Rich Oregon Must Prep for US Legalization

SALEM, Ore. (AP) — Oregon should prepare for the U.S. government eventually legalizing marijuana and position the state, with its huge stockpiles of the drug, as a national leader in the industry, state auditors said Friday.

Oregon, long known for its potent marijuana, would be competing with other pot-producing states — particularly California, which also has a vast oversupply — for the export market if marijuana is ever legalized nationally.

“Now is the time for Oregon to prepare its system for a future when cannabis is legal nationally,” said Oregon Deputy Secretary of State Cheryl Myers, whose office conducted the audit.

National legalization

In a news conference Friday, Oregon Audits Director Kip Memmott noted with a bit of envy that Canada legalized marijuana and is “a lot more proactive in looking at the benefits financially.”

Oregon can lead the way in the United States in how pot is regulated, while also offering its high-end strains of marijuana, Memmott said.

“We have kind of a signature commodity, along with ... our timber and all the other great things that Oregon produces here. And there’s a real opportunity,” Memmott said.

A total of 21 states and Washington, D.C., have legalized recreational use of marijuana, but activists see little chance of the current Congress moving toward national legalization. Still, there’s hope the Biden administration will allow pot commerce among states that have legalized it.

The legislatures of Oregon and California have already authorized their governors to enter into interstate cannabis trade agreements if the feds allow it. Lawmakers in Washington state followed suit this month, with the measure waiting for Gov. Jay Inslee’s signature.

Setting high standards

Oregon's auditors reminded the Oregon Liquor and Cannabis Commission to follow its own strategic plan to position the state as a national leader by increasing the number of speaking engagements at national conferences, holding more statewide meetings and championing a nationwide framework for cannabis regulation.

OLCC Executive Director Craig Prins wrote in response that his agency is keen on moving quickly if, and when, interstate marijuana commerce is permitted.

Prins said he expects that “only the highest quality products from well-regulated systems, that have recognized testing, packaging, labeling, and traceability standards, will be allowed for sale into other states.”

Oregon has been prioritizing these standards, aimed at protecting consumers, for years, Prins said.

Interstate market

Secretary of State Shemia Fagan recused herself from the audit because she is a paid consultant of an affiliate of marijuana retail chain La Mota, said spokesman Ben Morris.

La Mota’s co-owner has hosted fundraisers for top Democratic Oregon politicians, including Fagan, while the co-owner, her partner and their business allegedly owe $1.7 million in unpaid bills and more in state and federal taxes, according to Willamette Week, a Portland newspaper.

Morris denied Fagan’s outside work represented a conflict of interest and said Oregon Government Ethics Commission guidelines specifically allow public officials to maintain private employment.

The state audit suggested that Oregon marijuana regulators should have looser rules. For example, it questioned the OLCC's requirement that marijuana businesses keep their stash behind steel doors and have 24-hour video surveillance systems.

“A steel door cannot prevent someone from purchasing cannabis legally in Oregon and taking that cannabis out of the state,” the auditors said.

It’s an open secret that some licensed growers have funneled product to the out-of-state black market to stay afloat, because the oversupply — there is 3 million pounds (1.36 million kilograms) of unused cannabis in Oregon's supply chain — has driven wholesale and retail prices to record lows. In addition, officials in Oregon have been cracking down on illegal marijuana farms, financed by foreign criminal cartels, in the lush, forested valleys of southern Oregon.

The auditors noted that federal authorities have been hands-off on states that legalize marijuana since the “Cole Memorandum,” written by a U.S. deputy attorney general, came out in 2013. The memorandum said federal intervention wouldn't be necessary as long as marijuana in those states was not trafficked to other states or distributed to minors, among other conditions.

Bags of marijuana buds fill shelves in the showroom of the Portland Cannabis Market in Portland, Ore., on March 31, 2023. Oregon, which has huge stockpiles of marijuana, should prepare for the U.S. government eventually legalizing the drug and position the state as a national leader in the industry, state auditors said Friday, April 28, 2023. (AP Photo/Eric Risberg)

It was rescinded in January 2018 by U.S. Attorney General Jeff Sessions. But four months later, Oregon's then-U.S. attorney issued five priorities that closely mirrored the Cole Memorandum.

The Oregon auditors concluded that the risk of federal intervention in the state's regulated system is increasingly unlikely, in part because it hasn't happened yet. They also cited “the changing social and political environments, and increasing number of draft federal bills focused on cannabis reform.”

The auditors said the OLCC should make burdensome marijuana regulations more like those governing distilled spirits, which the agency also regulates.

Additional regulations, lack of banking support, combined with federal tax burdens “increase operating costs, decrease competition and business diversity, and leave many cannabis startups underserved and overlooked,” the auditors said.