Oregon’s Cannabis Industry Scrambles to Respond to the Vaping Crisis

We spoke to several experts in the cannabis field and asked them to forecast the fallout of the crisis and the ban.

It is not hyperbole to suggest the vaping crisis is the greatest challenge the nascent cannabis industry has yet had to face.

As reports of severe lung illnesses related to vaping have spread across the country, including two deaths in Oregon, it's been a stark reminder that the federal status of cannabis as a Schedule I drug continues to make the industry susceptible to existential threats, like the parallel black market.

National health agencies are still struggling to identify the cause of the lung ailments, and various studies have pointed to theories inconsistent with each other. But last week, Oregon Gov. Kate Brown implemented a six-month emergency ban on flavored vaping products—more specifically, any product using artificial flavors or terpenes extracted from sources other than cannabis.

It was, for some, a reprieve. But with the Oregon Liquor Control Commission set to spell out the particulars of the ban and how it will be implemented this month, it's hard to forecast what the long-term impact of the ban might be. Those who know the industry best predict different outcomes, but all agree change could ripple throughout the supply chain.

We spoke to several experts in the cannabis field and asked them to forecast the fallout of the crisis and the ban.

How will the ban affect growers and extractors?

For some in the industry, the limited scope of the ban was met with a sigh of relief.

Nathan Howard of East Fork Cultivars in Southern Oregon is one of the farmers in the clear: His farm supplies roughly 10 cartridge producers, all of which use only cannabis-derived terpenes.

But Howard sees trouble for farmers who supply plants mostly to cartridge companies that add botanical terpenes to their products for consumers who "want their smoke to taste good."

"Those [companies] were willing—legally, up until this point—to add flavors and increase their sales," Howard says. "It's going to punish folks that have been following the regulations up until now."

J.T. Thompson owns Sublime Solutions, an extraction company that relies heavily on botanical terpenes to flavor oil. He's one of the people who will be punished by the ban.

"It would put me out of business overnight," says Thompson, whose company contracts with roughly 10 cartridge producers. "I'm the guy who's going to be destroyed first."

Extractors like Thompson have two choices: alter their manufacturing practices to comply with the new state regulations or watch their businesses crumble.

Thompson says 80 percent of the oils he extracts contain botanically derived terpenes, and he estimates the oils he extracts for cartridge companies make up 15 to 30 percent of the cartridges on sale in Oregon. His clients include some of the biggest cartridge makers in the state, including Winberry Farms.

For cartridge companies that want to shift to cannabis terpenes, the process of getting a new product designed, approved by the OLCC and tested takes months.

Economist Beau Whitney, who follows the cannabis industry, thinks extractors can make the shift if they have enough money to re-engineer their manufacturing process. "I think it should be fairly straightforward for the industry to adjust on this," Whitney says. "It's easier to take something out of a product than add something in."

But Thompson says it's not that simple, and the flavor ban isn't grounded in science.

"I don't have a big pile of cash to burn through," he says. "It's truly as if I got convicted of murder and sentenced to death, with no evidence, no witnesses, and no information to back up that charge."

How will consumer trends change?

The ban guarantees that a portion of vape users accustomed to fruit-flavored cartridges will have to convert to unflavored products. Joe Bergen, general manager of Avitas, a cannabis farm and cartridge maker, says restricting the ban to flavoring has already resulted in an initial spike in sales for his company's 100 percent cannabis oil line.

"Honestly, we have seen a dramatic increase in sales in the natural products that we sell," Bergen says. "We believe that several of the dispensaries that carry a variety of products are saying, 'Gosh, we need to increase our inventory of natural cannabis products.'"

The other option for consumers is to switch to flower, creating a more competitive market. Essentially, says Avitas owner Adam Smith, the "entire market will be squeezed" and could drive up prices across the state if demand overwhelms supply. This could be beneficial for farmers, whose livelihoods were threatened after last year's massive oversupply of flower steeply slashed market prices, giving them little profit margin. Flower prices have mostly recovered from last year's shock, but could climb higher if consumer habits shift following the flavor ban.

But Whitney says consumer trends depend on several factors, and the flavor ban could be just one  more nuance in the equation.

Perhaps the most elusive thing to remediate in the wake of the crisis is consumer trust. As a monthlong frenzy consumed the industry, farmers, budtenders, shop owners and oil extractors have been peppered with consumer queries about the safety of their products.

Smith is hopeful the market will adapt, but he says restoring consumer trust will take time.

"Even if the Centers for Disease Control and Prevention came out tomorrow and said, 'We figured it out,' the consumer confidence won't just rebound like that," Smith says. "We have a lot of work to rebuild trust in the industry."

What will the impact be on the federal level?

As the long-term effects of the flavored-vape ban cloud the future of Oregon's cannabis industry, there is some agreement about the silver lining—it points to the need for federal legalization to ensure consistent regulations across state lines and to stamp out the black market.

"As long as the illicit market continues to thrive," says Amanda Ostrowitz, CEO of CannaRegs, a company that tracks cannabis legislation across the U.S., "the wrongdoings of members of the illicit market will impact the good actors."

Despite the furor surrounding vaping, federal cannabis legislation continues to inch forward: In September, an act championed by Oregon's congressional delegation to remove barriers blocking banks from serving cannabis businesses unexpectedly passed the U.S. House of Representatives in September and now awaits a vote in the U.S. Senate.

Whitney says the potential for revenue is immense if the industry can come out of the crisis—he estimates 340,000 new jobs are waiting to be created by the legal cannabis industry right now.

But until federal legalization becomes a reality, Whitney says he believes the Oregon cannabis industry will adapt to the governor's flavor ban, just as it has always adapted to a constantly evolving regulatory climate.

"What I predict is that these manufacturers will adjust to the new rules," he says, "because that's in the industry DNA."

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