“Audit,” already an unpleasant word in cannabis circles, got a little worse this week with the release of astern assessmentof Oregon’s cannabis program by the Oregon Secretary of State. The 42-page report, the first such review since Oregon voters legalized recreational marijuana in 2014, catalogues numerous gaps in Oregon’s regulatory oversight of cannabis. While offering qualified praise for the theoretical scope of Oregon’s adult-use regulations, the audit found that a lack of resources has led to spotty enforcement.

The audit is organized around four key findings:

  1. Oregon Liquor Control Commission (OLCC) staffing and inspections have not kept pace with the number of licenses;
  2. Oregon Health Authority (OHA) lacks the resources and statutory authority to conduct any meaningful level of oversight;
  3. Oregon does not require that cannabis be tested for heavy metals or microbiological contaminants, jeopardizing public health; and
  4. Oregon’s testing program does not do enough to ensure the accuracy of results and insulate labs from industry pressures away from best practices.

We’re still sifting through the findings, but initial review of the audit confirms what many already knew. There’s too much cannabis being produced by too many licensees — the audit estimates that Oregon can legally produce somewhere around five times more than the state consumes. Oversupply has pushed per-gram prices down over 50 percent since October 2016, incentivizing producers to divert cannabis outside of regulated channels and often across state lines.

Problems of oversupply and diversion are compounded by overmatched regulators. The OLCC’s ratio of inspectors to licensees (about 1:88) is among the lowest of adult-use states, while the OHA has six inspectors for over 7,000 grow sites (nearly 14,000, counting smaller home grows).

The audit also expresses concerns about consumer safety due to Oregon’s testing laboratories. Oregon requires testing for pesticides, but not heavy metals or microbiological contaminants. Testing requirements for medical marijuana, whose consumers are often particularly vulnerable to contaminants, are inconsistent. The testing that is required is performed by labs that lack consistent standards or compliance procedures, and that are subject to market pressures to provide favorable test results.

To their credit, the audited agencies agreed with the audit and its recommendations. Across the board, the issues raised by the audit are rooted in lack of resources, not lack of willingness. And while the audit is unsparing, this kind of tough love is necessary for the health of the industry as a whole. Consumer protection and robust oversight are crucial for a new industry, especially while pioneering states like Oregon try to avoid the ire of the federal government.

We will be spending more time with the audit results and discussing some of the specific implications for the future of cannabis Oregon here. Stay tuned!

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Benjamin Pirie

Ben Pirie counsels cannabis businesses on a wide range of corporate needs. He is passionate about building long-lasting relationships with clients as they reach toward their goals in one of the most dynamic and fraught industries in the world.  Ben brings his experience as in-house counsel to a Fortune 1000 company in Portland to bear on Oregon’s emerging cannabis industry, where he advises clients on business transactions, contracts, entity formation and management, securities compliance, corporate governance, intellectual property, mergers and acquisitions, state and local administrative law, and employment matters.