Cannabis Oversupply Presents a Challenge to Regulators | Canna Law Blog™

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Date:
Friday, Jan 19, 2018

Properly managing marijuana supply is the single most challenging aspect of state-level marijuana regulation. In an op-ed published January 12th in the Oregonian, Billy Williams, U.S. Attorney for the federal district that encompasses Oregon wrote about what he calls Oregon’s “massive overproduction problem.” According to Williams, postal agents in Oregon seized 2,644 pounds of marijuana in outbound parcels in 2017 alone. Decreasing wholesale prices in Washington and Colorado indicate oversupply as well based on the inverse correlation between supply and price. We hear anecdotes in Washington all the time from marijuana producers that are finding it more and more challenging to survive with the current market prices.

If this were any other market, data points indicating falling prices and oversupply would be wholly unremarkable. Free markets tend to find an equilibrium point between supply and demand that support relatively stable wholesale and retail prices. Free markets also tend to self-correct, if given the opportunity to do so. If businesses in a market are all extremely profitable, new firms are induced to enter the market. The entry of those new firms tends to increase competition and decrease profits across the board, signaling to other would-be market participants not to enter. Similarly, if things are not going well and competitors exit the market, surviving businesses are given a little bit more room to maneuver and succeed.

Managing cannabis supply is a tightrope for state regulators.

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