Deep inside an otherwise rosy state revenue forecast this week, state economists issued a cautionary signal on the soaring demand for legal cannabis, which generated a record $1.1 billion in Oregon sales last year.
"Part of the large increase in sales since the pandemic began was likely due to increased stressors in everyday life and the fact other forms of relaxation and entertainment were limited," wrote state economists Mark McMullen and Josh Lehner in their quarterly revenue forecast, which found overall that state tax revenue remained well ahead of earlier projections, despite the pandemic.
After an extraordinarily 2020, the economists noted, cannabis is showing some signs of flagging demand.
"In recent months, however, sales tapered more than expected," the economists wrote.
That dip led them to lower expectations for the biennium for cannabis tax revenues by 1.8%, which equates to $5.3 million. That's a modest change to a forecast that still calls for significant growth in cannabis taxes overall. But, the economists noted, "this is the first time our office has revised down the outlook due to tracking since the December 2017 forecast."
The adjustment comes as the cannabis market overall is chewing through the massive production surplus that hung over the market prior to the pandemic. In its report to the Legislature earlier this month, the Oregon Liquor Control Commission, which regulates cannabis, noted that consumers in 2020 bought about 65% of the cannabis grown in the state. That's a big jump from the just 50% of production consumers purchased in 2019. The uptick caused wholesale prices to rise to levels not seen since 2017.
But the OLCC cautioned that its staff is still working through a backlog of applications for producer licenses submitted before it put a moratorium on such applications in 2018 because there were already too many companies growing cannabis.
The OLCC says the new producers could add as much as 11% to total supply, a significant increase.
"On the one hand, supply of usable marijuana that will be sold as usable marijuana has shifted towards supply/demand equilibrium, and in fact during the summer months that supply becomes comparatively tight," the OLCC report says.
"On the other hand, overall supply of harvested marijuana is abundant, with a large portion of the harvest functioning as low-cost input material for extracts and concentrates. The extract and concentrate demand segment has seen strong growth, but the growth in extract/concentrate supply continues to outpace it."
Last year, the OLCC found, saw supply and demand in relative balance.
But the agency doesn't expect that balance to last.
"2021 is unlikely to see the unprecedented growth that the Oregon market witnessed between March and July of 2020," the agency concluded. "Moreover, an anticipated surge in producer licenses in 2021, combined with an already strong growth in supply from the existing base of producers, means that growth in supply will likely be quite high."
That's good news for cannabis consumers—and, as the state economists noted, Oregon is home to a lot of those, even relative to other weed-friendly states.