Oklahoma marijuana industry seeing ‘painful’ rightsizing

Thousands of people who thought to jump into the business after Oklahoma voters approved a state question to legalize medical marijuana in 2018 have since leaped out, and it seems likely that more will follow, according to Adria Berry, who has directed the Oklahoma Medical Marijuana Authority since May 2023.

“I think it’s still really painful in the industry right now,” Berry said. “I don’t know when we’re going to see the end of it. I talk to licensees often who really just want to be the last one standing, so they’re holding on and borrowing money to invest capital into these businesses.”

• In July 2021 there were 8,247 licensed marijuana growers in Oklahoma and 2,274 dispensaries.
• As of July of this year, there are 3,471 licensed growers and 2,023 dispensaries.

Tax revenues have followed a similar trajectory. They jumped impressively between 2019 and 2021 but have declined since:

• After peaking at a little more than $66 million in fiscal year 2021, state excise taxes generated by medical marijuana sales declined to about $60 million in FY 2022. They fell to just under $52 million in FY 2023 and to about $46.5 million through the first 11 months of FY24.
• State and local sales taxes peaked at $82.75 million in FY21. They fell to $77.6 million in FY22 and then to $67.3 million in FY23. Through the first 11 months of FY24 they totaled a little more than $60 million.

The first couple of years of the Oklahoma medical marijuana industry, triggered by passage of State Question 788, which called for a quick start with no real roadmap for regulation, were chaotic. Thousands of people thought — correctly — that lots of money could be made and signed up to become licensed marijuana growers, processors or dispensary operators. And the state accommodated them by issuing thousands of business licenses.

At the same time, some people thought — again correctly — that lots of money could be made by acting illegally, either as state licensees not interested in truly playing by the rules or as illicit black marketeers. Many shady players arrived from out of state or even from outside the country.

The undesirable result was an oversupply of marijuana grown in the state, legally or otherwise, which pushed prices so low that many dispensaries found it difficult to remain open. It also turned Oklahoma into a major exporter of marijuana to other states.

Despite the decline in marijuana grow operations, the oversupply remains. According to Jeff Henderson, who owns Pyre Farms, a cannabis cultivator in Muskogee, the wholesale cost for lower-end marijuana might be as little as $10 to $20 an ounce. To sustain an indoor grow operation, he estimated the wholesale cost would need to be closer to $100 per ounce.

Henderson, who came from Colorado and was involved in the business before taking over Pyre, said that when things first started in Oklahoma, prices were much higher and people were excited about their prospects, but the state just “put people on the honor system” to operate legally. Back then, it was tough on those who did what they were supposed to according to their licenses, he said.

Now, the state is doing a much better job adopting and enforcing regulations, like one that mandates documenting marijuana commerce from “seed-to-sale.” Henderson said that has made it harder for bad players to stay in business and a little easier for others, but the fallout remains from those earlier free-for-all days.

“There’s just not enough money to go around for everyone to survive,” he said.

Probably, Henderson said, grow operations and dispensaries will continue to disappear.

“I definitely see that. The market is super-saturated, and only the strong will survive,” he said.

He’s hopeful that Pyre has adopted the right strategy for success. Its focus is on producing high-end marijuana sold wholesale to about 40 dispensaries statewide. It also operates the Peaceful Releaf dispensary at 51st Street and Memorial Drive in Tulsa.

“We’re not a huge grow, just a small craft grow, about 75 pounds a month,” he said. “We’re kind of like just in a happy spot, a comfortable space right now, whereas a lot of people just went too big.”

Berry said it will take more time for the industry to mature. She noted that other states, like Oregon and California, that have been in the business longer are still grappling with growing pains. In the future, she said Oklahoma may look more into trying to maintain market stability by putting limits on production.

“We have had some conversations about putting some production management tools in place, meaning only allowing growers to grow enough to support the current number of patients,” she said. “I think we definitely need to take the economics into consideration and understand what the right price is in Oklahoma.”

She said the state has made great progress in identifying and shutting down grow operations that have either operated illegally or in violation of licenses.

“We’ve seen the number of our grow licensees go down in the past several years because of implementation of the seed-to-sale tracking, our ability to actually track data and see who is doing things legally and who is not,” she said. “We have filed over 3,300 administrative cases — licensure cases, meaning we are suspending or revoking a license. The majority of them have been grows, but it’s been a mix.”

She said the OMMA also has developed strong cooperative relationships with the Oklahoma Bureau of Narcotics and Dangerous Drugs, the Oklahoma Attorney General and with local law enforcement agencies in further efforts to combat illegal grow operations.

According to OBNDD Director Donnie Anderson, since 2021 Marijuana Enforcement Teams across Oklahoma have shut down more than 1,000 illegal marijuana farms, made more than 200 arrests and seized more than 700,000 pounds of marijuana destined for the black market. Illegal operations have been linked to transnational criminal groups from Mexico, China, Russia and other countries.

“We’re doing way better than when we started out,” Berry said, “but we have a ways to go to become truly a mature, well regulated market with safe products.”