Kevin Jacoby | December 19, 2023

State of the Cannabis Industry 2023 Recap

Oregon’s cannabis industry navigated a turbulent year in 2023. With an insider’s perspective, Jacoby Law illuminates key issues impacting the future of cannabis. Below is a recap of landmark events poised to trigger forthcoming challenges.  

 

1. OLCC scandals and leadership changes. 

2023 started with a new occupant in the Governor’s Mansion, and by February 1, Willamette Week reported that Gov. Tina Kotek had asked for and received the resignation of the Oregon Liquor and Cannabis Commission’s long-time Executive Director, Steve Marks. A week later, The Oregonian reported on an internal OLCC investigation that concluded that senior OLCC executives, including Marks, used their public positions for personal benefit by diverting rare liquors for themselves. Parallel civil and criminal investigations by Oregon’s Department of Justice were announced, and much of OLCC’s senior staff were dismissed as a result. The scandal wound up also taking out OLCC’s Chair of its Board of Commissioners, Paul Rosenbaum, as a result of his combative reaction to the scandal 

The scandal has resulted in OLCC hiring a new Executive Director, Craig Prins, and a slew of replacements at the Commissioner level. These leadership changes have resulted in what appears to be a reshuffling of enforcement priorities at the agency.  

2. La Mota’s scandals bring down the Secretary of State. 

On the heels of OLCC’s liquor scandal, Willamette Week’s reporting on the embattled owners of Oregon’s second largest chain of dispensaries, La Mota, who have racked up millions of dollars in tax debts, began focusing on OLCC’s seemingly lax approach to regulating the dispensary behemoth. In April, Willamette Week reported that Oregon Secretary of State Shemia Fagan had been moonlighting as a consultant to La Mota under a $10,000 per month contract. This led to Fagan’s resignation on May 2.  

3. The battle over Aspergillus. 

On March 1, 2023, the Oregon Health Authority’s new rule went into effect requiring all usable cannabis to be tested for the presence of any DNA of the ubiquitous fungus Aspergillus. Over the course of that spring, research and development tests conducted by Oregon producers revealed an alarming fail rate for indoor grown cannabis, which forecasted a likely devastating impact on outdoor producers the following fall. Over the spring and summer, a coalition of Oregon cannabis producers began organizing weekly calls to share data and organize around the issue. They petitioned OHA to suspend enforcement of the rule to allow more data to be collected, but OHA flatly rejected the suggestion.  

At the end of July, I filed a rule challenge to the Oregon Court of Appeals and filed a motion seeking an emergency pause on enforcement of the rule while the challenge progressed through the court. Led by the Cannabis Industry Alliance of Oregon, on behalf of its members representing the cannabis industry as a collective whole, Southern Oregon Family Farms, a cooperative of outdoor producers committed to utilizing sustainable cultivation practices, and Cannassentials, a greenhouse producer in the mid-Valley, we presented a compelling case that OHA had exceeded its rulemaking authority in promulgating its zero-tolerance Aspergillus testing rule, because the law required OHA to consider less restrictive alternatives.  

On August 25, 2023, the Court of Appeals issued an order granting our emergency motion that found our legal position was correct, which was followed by OHA formally repealing the rule on September 15. OHA is expected to permanently end the rule in early January.  

4. Law enforcement grants bring cops to licensees’ doorsteps. 

As I have reported previously, in 2021, the Oregon legislature appropriated millions of dollars to law enforcement intended to combat unlicensed cannabis grows which had popped up in Southern Oregon over the course of 2020 and 2021. By the end of 2022, the large, unregulated cartel grows that caused the legislative and law enforcement panic had melted away to the ether—either naturally or as a result of increased law enforcement interdiction efforts. However, the influx of cash to law enforcement agencies to combat “illegal grows” continued unabated. With this law enforcement money, local sheriffs have expanded their dragnet to now look into licensed cannabis producers for evidence of illicit market activity. As a result, 2023 saw an increasing trend of licensed, legal cannabis producers dealing with search warrants and other scrutiny from law enforcement.  

5. Federal rescheduling. 

On August 30, 2023, the federal Department of Health and Human Services published a determination that marijuana should be moved from Schedule I to Schedule III of the Controlled Substances Act. The Drug Enforcement Administration is now considering HHS’ recommendation, and many commentators suggest DEA will approve. However, there are several more administrative hurdles that the decision must go through before marijuana is rescheduled.  

The immediate effect of a move from Schedule I to Schedule III will be that cannabis businesses will no longer be subjected to IRS Rule 280E, which results in confiscatory taxation on revenues for businesses that deal with the federally illegal plant. My colleague, Daniel Shortt, has an informative post on the legal impact of rescheduling here 

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