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Oregon Goes Recreational. USA v MAMM. California MMRSA

chardancm.com | JAMES McILREE, CFA, Senior Analyst | Oct 26, 2016

Sales of recreational marijuana in Oregon began October 1st. Registered medical marijuana dispensaries were allowed to being selling a limited suite of products-dried leaves and flowers, immature marijuana plants and seeds, through December 31, 2016. This is a temporary measure, authorized by Oregon Senate Bill 460. Oregon currently has 315 authorized dispensaries, serving almost 77,000 patients.

We estimate sales of medical marijuana in Oregon is between $230 and $275 million annually. This is based on the average monthly consumption of medical marijuana cardholders in Colorado, who consume between $250 and $300 per month of marijuana. In July, Colorado medical marijuana cardholders purchased, on average, $338 of marijuana. Using this value, Oregon’s medical marijuana market could be over $310 million annually.

Based on population, Oregon is about 70% of the size of the Colorado market, Oregon recreational sales could reach $500 million annually in about two years, assuming a similar pace in Oregon as that experienced by Colorado. Oregon’s sales tax is 25%, lower than the 35% excise tax imposed in Washington and not far from Colorado’s tax regime that imposes a 2.9% sales tax transfer fund, 10% retail excise tax and a 15% excise tax on wholesalers. However, prices of illegal marijuana in the Oregon market is about 15% lower than both Washington and Colorado (per a High Times survey), and this could result in faster growth and greater consumption than we have assumed in the estimates above.

Of the 315 medical marijuana dispensaries in Oregon, 132, or over 40%, are in the city of Portland, the states’ largest city. The Oregon portion of the Portland MSA has a population of 1.8 million about 46% of the states’ total population of 3.9 million. Now that these Portland dispensaries are allowed to sell medical marijuana, and at a lower tax rate than neighboring Vancouver, Washington, we believe there is market share shift to Oregon at the expense of the half-dozen stores in Vancouver. (see below).

Last week the OLCC (Oregon Liquor Control Commission) adopted temporary rules regulating the recreational marijuana industry. Beginning January 4, 2016, applications will be accepted to obtain a license to be a marijuana producer, processor, wholesaler, retailer or laboratory. Licensees must be 21 years of age, a resident of Oregon for 2 years and own 51% of the business. Ownership does not include options, rights, converts or preferred. Retailers will be allowed to sell to any one consumer within a 24 hour period: “One ounce of usable marijuana; 16 ounces of a cannabinoid product in solid form; 72 ounces of a cannabinoid product in liquid form; Five grams of cannabinoid extracts or concentrate, whether sold alone or contained in an inhalant delivery system; and four immature marijuana plants.” Retailers will also be allowed to offer delivery services, under a strict set of conditions. Cultivators will be limited to 5,000 square feet of canopy for Tier 1 indoor production, 10,000 square feet in Tier II indoor production, up to 20,000 square feet for Tier I outdoor production and 240,000 square feet for Tier II outdoor production.

The state will use METRC (Marijuana Enforcement Tracking Reporting and Compliance) system, similar to Colorado’s. It is anticipated the tax will decline to 17% beginning 2017 with an additional 3% possible from cities and counties, versus the 25% temporary rate imposed while recreational sales are allowed in medical marijuana dispensaries.

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