Lawmakers eye limits on growers to keep marijuana boom from going bust

The price of recreational cannabis is falling so quickly in Maine that lawmakers are considering bills that would limit the industry’s rapid growth to try to prevent a collapse or protect smaller grow operations from being pushed out of the oversupplied market.

One bill would authorize the state to temporarily stop licensing new grow operations if the market looks like it is about to collapse. Another would reduce the maximum square footage of licensed grow sites in hopes of keeping larger industrial operators from pushing out small operators.

Some growers want the state to step and stabilize the supply side of the flooded market before prices drop so low that a wave of growers go out of business as they have in other states, noting that closures hit harder in an industry that is not legally eligible for federal bankruptcy protections.

Maine’s marijuana farmers are drowning, Daniel Cellucci, co-owner of NorCo Cannabis in Warren, told lawmakers at one recent hearing.

“There is a massive hole sinking our ship. We must prioritize our problems and work through this together to get safely to shore,” he said.

But other growers say the state should not tinker with the free market forces that will weed out the weak businesses that try to grow too big or too fast or believed cannabis was an easy cash crop and didn’t do their basic market homework.

Cannabis consultant Derek Shirley calls them “Chads,” growers with more money than cannabis sense.

“Who forced these people to grow all these massive grows?” Shirley told lawmakers considering the bill at committee earlier this week. “This price drop was by design. … Not a damn person forced these people to grow large grows. This is a bailout, not a protection.”

The moratorium bill, L.D. 1391, would give the state the authority to stop issuing new adult use cultivation licenses or allowing expansions, either of which could increase the state’s overall cannabis supply, if the average price falls 20 percent below last year’s average or the volume grown over three months is three times greater than last year’s.

Under the terms of the bill, presented by Sen. Teresa Pierce, D-Falmouth, the Office of Cannabis Policy could suspend issuing new licenses for a period of no more than four months, or until the price or volume thresholds no longer apply, whichever occurs sooner.

A second bill, L.D. 1585, would effectively reduce the maximum size of a newly licensed medical or adult use grow operation to 7,000 square feet. It’s not yet clear whether existing large cultivators would be grandfathered or would be required to scale back.

The average price for a gram of adult-use flower, or bud, was $8.04 in March, state data shows. That is just a little more than half what customers paid for a gram in Maine in October 2020, when the market first opened. A gram is enough to roll two or three joints, depending on size.

A price drop is expected in the first year of a new market as sky-high launch prices come down to earth. Consumers benefit from the cheaper prices, but state officials now say that Maine is at the tipping point where some Maine growers aren’t making enough money to cover their expenses. Many small-scale medical marijuana growers already have dropped out of the industry.

It’s not that cannabis demand has weakened, said John Hudak, director of the state Office of Cannabis Policy – sales nearly doubled last year – but sales growth is not keeping pace with the increase in production, he said. Maine would need to cut 60 percent of what’s already being grown – not including what’s already been approved – to achieve market equilibrium.

Maine’s top cannabis regulator said that Maine is at a crossroads: intervene or watch some Mainers fail.

“(We) welcome the opportunity to examine what tools are necessary to prevent the collapse of the adult use cannabis economy due to overproduction of cannabis,” Hudak said.

OREGON AN EXAMPLE

Market gluts have toppled other state cannabis markets in as little as two financial quarters, Hudak told members of the Legislature’s Veterans and Legal Affairs Committee. Oregon’s see-saw market is a prime example, where supply is still twice as great as demand.

“Businesses failed because the state was not able to respond in an effective way,” Hudak told lawmakers. “It led to a lot of small businesses failing. It led to a lot of consolidation in the market. Larger companies bought up smaller ones that were struggling.”

No one spoke against the proposed size limits. The bill authorizing moratoriums does face opposition from smaller growers and others, who argued that it would protect large growers who already are licensed.

During a hearing this month on the moratorium bill, conservative committee members chafed at the idea of state intervention in the market despite Hudak’s reminder that marijuana is one of the least free markets in Maine, given all of the government rules and regulations that accompany the oversight of a crop that remains illegal under federal law.

“Don’t you think that the market will take care of itself based on the quality versus quantity?” asked Rep. Shelley Rudnicki, R-Fairfield. “Like any other market, if you have a better quality product, the people are going to go there for business, don’t you think?”

Operators of small and medium size cultivation sites have argued in favor of size limits over a moratorium bill. That is more likely to prevent the large-scale industrial businesses from gaining control of a consolidated market because they have the resources to outlast smaller operations, they said.

“We do not want to see a situation where only the largest out-of-state corporations survive when the bubble bursts,” said Rep. Bill Pluecker, the independent from Warren who sponsored the bill to limit the size of grow operations. “It would be a shame if we accidentally create a space that is dominated by larger corporations from away.”

BIG VERSUS SMALL

Brett Messer of Biddeford told lawmakers he supports an open and fair market, but that the regulations in place now give unfair advantages to the big operators.

“Large multistate companies can operate at a financial loss to outlast local competition,” said Messer, who was among the growers supporting the limit on square footage of grow sites at a hearing this week.

Some growers said it’s too late now to prevent oversaturation of the market.

The size limits “might be some short-term relief,” said Michael Wilson of Portland. “But I think in the longer term, I’m really skeptical it does want we want it to do. … The time to do it has passed.”

Failed grows are not only bad for those who own them, but it can be bad for Maine, too, because owners may feel compelled to continue their cultivation operation outside of the legal market – where product is not tested or taxed – to pay off the debts they have amassed, Hudak said.

But lawmakers don’t have to look abroad to see the dramatic impact of a marijuana glut, Hudak noted.

The number of caregivers, or small independent suppliers, licensed to sell medical cannabis has decreased by about a third since 2021, from 3,032 to 2,070 in March, state data show. That took a toll on the number of jobs they supported, too. In 2021, Maine documented 5,741 caregiver assistants; in March, that number fell to 4,146.

The reason they left says it all, Hudak said. In a survey, most told the state they couldn’t pay their bills.