Oregon Case Study: Might CA Benefit from Interim Cannabis Legislation?

Recreational cannabis legalization in California takes effect as early as January 1, 2018. Meanwhile, state and local governments are working to create a regulatory framework for this new market. What lessons might California learn from other states that have made a similar transition?

OREGON’S EXPERIENCE: THE “EARLY START” PROGRAM

One example is Oregon. Under its “Early Start” program, Oregon allowed existing medical dispensaries to serve recreational customers while the state worked on implementing recreational cannabis regulations. The Early Start program demonstrated how interim legislation can (1) ease the transition process, (2) provide protection for adults seeking legal cannabis, and (3) prioritize licensing for businesses that already comply with local regulations.

Early Start began in October 1, 2015, and ended on January 1, 2017. The program helped address the lag time involved in legalization: after the state decided to legalize recreational cannabis, almost 15 months elapsed before Oregon began issuing cultivation, distribution, and retail licenses. When the program ended, there were still fewer than 100 licensed recreational retailers, demonstrating how long it can take to create a regulated marketplace from scratch.

The program proved to be successful for raising tax revenue and providing safe access for adults seeking cannabis. During the first 2 months of 2016, Oregon collected almost $7 million in tax revenues from the Early Start program, more than the state projected for the entire program.

WHY MIGHT Recreational Cannabis Legalization In CALIFORNIA BENEFIT FROM A SIMILAR APPROACH?

One motivation for the Early Start program was the risk that there would be an initial shortage of licensed cultivators to supply new retailers, many of whom undertook large investment to be early market entrants. It remains to be seen whether California, where retail sales may begin in less than 9 months, will take a proactive approach like Oregon’s to ensure adequate supply right out of the gate.

The concept is not lost on Sacramento. As assemblyman Rob Bonta (D-Oakland) explained shortly after Proposition 64 passed,

“If it’s legal to use but there is nowhere to buy, then I think we could consider a special, conditional, time-restrained license that could be operative for a short period of time while we bridge into the new regime that Proposition 64 envisions. That is definitely possible.”

This sentiment echoes the approach some local governments are considering with regard to the local challenges that recreational cannabis legalization in California presents. The City of San Diego, for example, recently decided it will allow licensed medical dispensaries to sell recreational cannabis.

Interim legislation would also protect adults seeking legal cannabis. Paradoxically, while Proposition 64 legalized adult use and possession, it provided no immediate retail option for adults to obtain cannabis. Allowing medical dispensaries to serve recreational consumers could provide safe access to cannabis and provide an option other than the black market while they await the legal retail market.

Conundrum: Interim Legislation Like Oregon’s Would Both Promote and Undercut Significant Industry Needs

On the one hand, an interim approach to recreational cannabis legalization in California would  align with certain industry interests. California has had medical dispensaries for over two decades, and many of them are considering entering the recreational cannabis market. Such dispensaries are likely to be more compliance-minded than their black market counterparts, and allowing them to service the recreational market in the meantime would help them absorb the cost of licensing and regulatory compliance. This interim approach might be preferable to the status quo, under which adults not eligible for medical cannabis have no option for procuring cannabis other than the black market.

On the other hand, interim legislation like Oregon’s would in essence be a marriage, if only temporary, between the recreational and medical cannabis markets. As we have written about previously, the U.S. Department of Justice currently does not enforce the Controlled Substances Act against state-legal medical cannabis activity. The same cannot be said for recreational cannabis activity, and we still do not have any clear indication of the Trump administration’s plans in this regard. If the administration takes an aggressive stance against recreational cannabis, it would be a significant risk for medical dispensaries to cater to recreational consumers under any interim legislation.

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