April 2, 2019

Legacy of a Legend

ON APRIL 1, I woke up to the sound of my phone delivering a message from Ben Dronkers, when I saw the message that our old friend Nevil had passed, I set up, grabbed my joint from the night before, and shed a tear as I started thinking about how I first heard about him in the pages of High Times magazine.

For those of us that grew in the 80’s, the ads running in High Times for high quality cannabis seeds by the Holland Seed Bank seemed too good to be true. The man behind the Seed Bank became a mystery to us all until he let the editor of High Times write a story about him on November 6th, 1986, and effectively change his life forever.

Nevil Martin Schoenmakers was born on February 2, 1957 to Dutch parents in Perth, Western Australia. When he was a teenager, Nevil scored some imported “Indonesian weed” as he called it, with his schoolmates and loved it, and was quoted in High Times as saying; “…we got extremely ripped, I really liked the sense of time distortion and everything happening so slowly.”

With his parents pushing him to become a young professional, he was offered a job as a lab assistant at a local University, and he accepted the job, which would end up being more of a burden than a blessing. Nevil was so good at his job that he was given the position of acting head of the anatomy lab with responsibilities for the operating room, animal room and office. His duties include administering drugs to the animals and he was given a set of keys to the drug cabinet, and put in the position of ordering drugs when the supplies were low, which would end up being his undoing.

Being the curious type, and feeling as if he was lied to about cannabis, he decided to start trying the other drugs that were available at his disposal and developed a taste for morphine. As many drug addiction stories go, Nevil lost his job after getting busted for drug possession, and it did not take long for the police to figure out where he was getting his supply. He was forced into rehab and around the same time, one of the girls that he sold some drugs to got busted, she identified him as her supplier and he was arrested again and charged as a dealer. By this time he was a full-on heroin addict and enrolled in a methadone program that he found to be very dehumanizing, stating that they made him “beg for drugs”.

Facing eminent prison time in Australia, he fled the country to Thailand, stayed in hotels and shot heroin until his money ran out. He then moved on to a different hotel, sold his belongings and started living the life of a junkie until he felt his time in Thailand had come to an end and all his resources were depleted. He phoned home to his parents in Australia, only to be told that the authorities had already visited the house with a warrant for his arrest. So instead of going back home to Australia, he flew to an Uncle’s house in the Netherlands.

When he arrived in Netherlands he enrolled in a methadone program and did his best to kick his habit, but unfortunately it did not work. Nevil moved out of his uncle’s house and into a city in the Netherlands called, Tilberg, which at the time, was a junkies paradise. The heroin epidemic was rampant and Nevil got sucked back in again, as he states in his interview with Steve Hager back in 1986: “Smack was being sold up and down the counter, it was a madhouse. Apparently the police didn’t or couldn’t do anything about it. It went on like that for quite some time. When the police would close one place down, everyone would move to another bar. It was a fairly rough town and I went through a time of hardship. I had no money except welfare, I had a raging habit, I was living in a town known for being tough and criminal and I cost the state large chunks of money as I went through all of the available drug rehabilitation programs. After having made numerous failed attempts at stopping, I decided no one could help me. Which is true. No one can help a junkie. He can only help himself. So I decided to kick heroin on my own. I convinced a doctor to give me ‘ludes to sleep and synthetic opiate, which probably didn’t do anything. I stayed home and suffered for six weeks until I reached the point where I could handle alcohol. Then I started drinking every day, a half bottle of Scotch in the morning, a have bottle at night. I used the ‘ludes to sleep, so that there were always a certain part of the day blocked out. Eventually, I got sick of hangovers and turned to grass. I’ve decided it was probably the only acceptable drug.”

While trying to kick the habit in 1980, Nevil came across a copy of the Marijuana Growers Guide by Mel Frank and Ed Rosenthal, which renewed his interest in cannabis cultivation, as back in Australia he grew some cannabis outdoors and really enjoyed it. And as crazy as it may sound, the drug program he was enrolled in gave grants to drug addicts to get them started doing something useful with their lives, so Nevil applied for a loan to build an indoor grow to make seeds, and he was granted the money. As Nevil was quoted in High Times; “I told them I wanted to grow weed indoors. They weren’t thrilled with the idea, but they gave me the money anyway. There was a vacant lot behind my apartment and I filled it with weed. I had Nigerian, Colombian and Mexican seeds. The Mexican was the best, I still have the strain, my dwarfs come from it”.

So with a loan from the Dutch government, Nevil became a seed merchant and the world of cannabis would never be the same. But because there was not much of a market for Naderweed, as it is called in Holland, Nevil became a hash oil maker, using petroleum ether which is extremely flammable and caused him to have a fire. Nevil suffered burns all over his body and singed his hair and ended up in the hospital where he was given morphine, but instead of continuing the treatment, he refused more shots because he knew he would turn into a junkie again. After that harrowing experience with the fire, he stopped making hash oil with flammable alcohol and focused on selling seeds.

The Holland Seed Bank printed its first catalog in July of 1984, although it was not much of a catalog, it was just pieces of paper with a list of available genetics being sold at $0.25 a seed. Nevil had been collecting genetics at the coffee shops that were getting imported cannabis from various countries. In his first catalog he states that he could not guarantee the purity of the seeds, as he was not the one who bred them. The initial catalog included varieties from Jamaica, Colombia, Indonesia, India, Malawi, Mexico and more. But he quickly discovered that a lot of these equatorial genetics did not do so well indoors or in the Northern climate of the Netherlands.

Fortunately for the Seed Bank and really, the entire Dutch grow scene, an American named David Watson arrived in the Netherlands and brought with him some very valuable varieties of cannabis; Afghan #1 & Durban Poison that he got from Mel Frank, Original Haze that he had gotten from his old friends the “Haze Brothers” in Santa Cruz, Hindu Kush, and the plant that he bred himself, the now famous, Skunk #1. In the mid 70’s, David founded the very first modern cannabis seed company called the “Sacred Seed Company”.

Nevil’s cannabis genetics collection completely changed when he met Watson, as it introduced him to stable varieties that would become his best sellers. Initially Nevil just purchased seeds from Watson and resold them, until eventually Nevil inbred the lines, and started reselling the Skunk, Afghan, Hindu Kush and Haze varieties as his own, a practice that would become very common in the community of seed sellers. It was also around this time that Watson gifted Nevil three male Haze plants that would become legendary, as Nevil would use them to create some of the most popular cannabis combinations the cannabis community had ever seen. As indeed, most of the varieties that Nevil would use to make his breeding famous, he was gifted by Americans.

In the 1987 catalog of the Holland Seed Bank, the very first page showcases Skunk #1 which was bred in the Santa Cruz mountains in the early to mid 70’s. Skunk #1, was the choice plant for most indoor growers because of its stability, uniformity, and it’s exceptional scent and high. The plant was so popular with breeders that it is found in some degree in almost all varieties of modern cannabis smoked today.

In 1985 an American breeder named Greg showed up with a variety called Northern Lights. Greg, sold, gifted or traded it with Nevil, and Nevil made it famous. As he did with other varieties that he got from the states, such as Big Bud, California Orange, Early Pearl, and Haze.

I see Nevil as a great artist, much like Pablo Picasso did not invent the red and the blue and the green, but it is his combination of those colors that we all appreciate, and very similar is the art of breeding plants. Nevil took these primary plants, Northern Lights and Haze and did not just cross them and call it a day, Nevil numbered every male and female and tested the crosses to determine which of the two plants had the best hybridization. Nobody hears about Northern Lights Number 1, 2, 3, 4, X Haze A, B & C, but he crossed them all and determined that Northern Lights #5 x Haze (A) worked best. And that may sound simple, because it’s really just selective breeding, but unfortunately, most people that came after him making seeds are not like Nevil. They do not take the time to really breed and make varieties that are fantastic, they are simply chucking pollen at plants and calling it a day. But this is why I think Nevil was truly an artist, as he was really taking the time to breed, and not simply making seeds.

One of the varieties that Nevil offered in his catalog was called Ruderalis, a variety he said he collected from wild plants growing along the Russian-Hungarian border. It has an early flowering characteristic that he was breeding into other plants, because many places are challenged with a Northern environment, plants that flowered really quickly opened up more areas where cannabis plants could be successfully grown. Nevil’s Ruderalis became some of the early genetics that would become the ever so popular autoflowering varieties.

Nevil was also traveling to places such as Afghanistan in order to find seeds, as it was his famous photo printed on his 1987 catalog, taken along the Khyber Pass, simply holding hashish and smiling, that was used by both the American DEA and Interpol as his wanted poster.

OPERATION GREEN MERCHANT

Through the 1980s, the Holland Seed Bank brought in millions of dollars and provided tens of thousands of people with quality cannabis seeds throughout the world. While there were other seed companies selling the same genetics. Perhaps it was his courage, naivety or simply not giving a shit, and selling seeds in ads in High Times to the United States, that caused him both his incredible success and sadly a severe downfall.

The Holland Seed Bank was a rather sophisticated operation; when somebody from the United States ordered seeds from the Netherlands, they had to send actual cash to the Netherlands, and the Seed Bank catalog suggested wrapping the cash in carbon paper to avoid detection. The seeds were then sent to the buyer from within the United States, as Nevil set up deals with various Americans where he would ship them bulk seeds and they would redistribute those seeds based on the letters and then later faxes, they received with instructions containing codes for different varieties and how many packs, with an address to send them to.

According to the sworn affidavit by Raymond Anthony Cogo, dated January 26, 1994, in early 1986, Nevil was taking phone calls and answering questions from his customers about seeds when he received a phone call from Raymond Anthony Cogo. The two men developed a friendship and in the summer of 1986, Nevil invited Cogo to visit him in Holland. By January of 1988, the two men developed a trusting friendship and Nevil asked Cogo if he would distribute seeds for the Seed Bank within the United States, Cogo agreed, so from about February, 1988, until June, 1989, Cogo acted as Nevil’s distribution agent within the United States.

Cogo not only distributed seeds for the Seed Bank, but in 1988, Nevil and Cogo structured a deal where Cogo would sell nutrients. As Cogo stated in his sworn affidavit to the DEA: “Schoenmakers told me that he would pay me $10 for every seed order that I mailed. Later, my compensation for this service was changed by agreement with Schoenmakers, pursuant to which he had Charles Benjamin Frink give me the Seed Bank’s formula for liquid fertilizer, and agreed to endorse it when I started to the market it in the United States.”

Unbelievably, Ray Cogo is still selling the nutrient solutions he got from the Seed Bank, on his company website “Cogo’s Original Cannabis Formula” he states on the “About Us” page: “Ray Cogo traveled to the Netherlands in 1986 to 1989, where he collected herb and flower formulations from professional cultivators, then he returned to the USA.”

Because Nevil was advertising in a nationally distributed magazine, the DEA was obviously onto the seed sales, they did not, however, know where the seeds were coming from within the United States, and according to the affidavit by DEA agent Carl Pike, the case against the Seed bank started on June 7, 1987, when DEA agent Patrick Warner ordered seeds from the Seed Bank. On July 14, 1987, he received 71 seeds by mail. This started routine seed purchases by the DEA in order to establish a case against the Seed Bank. Because these officers were based out of Louisiana, Nevil’s indictment was filed there.

Cogo distributed seeds for the seed bank from February, 1988, until June, 1989, when he was arrested in Michigan for growing cannabis, sentenced to serve six months in jail. At Cogo’s wife’s request, Nevil sent them $30,000 to cover legal expenses. Up to this point, the DEA did not know the connection between Cogo and the Seed Bank, but that was all about to change.

According to his sworn affidavit, while Cogo was on a work release program, he learned that the company that was handling distribution for his liquid fertilizer, Superior Growers, Inc., had stolen the formula and was cutting him out of the picture. He says that this and other things led him to go to law enforcement authorities and agree to cooperate and providing information about his dealings with Nevil and the Seed Bank. Cogo states that the authorities were not to his knowledge aware of his serving as the Seed Bank’s distribution agent at the time. Cogo became the source of information to the DEA about not only how the Seed Bank was conducting its business, but he even turned over to the DEA the lists of people Cogo was mailing the seed to within the United States for the Seed Bank. In Cogo’s own affidavit, he states: “Although Schoenmakers told me to destroy these lists, I kept them as a record of my activities in support of his operations.”

On February 8, 1990, with information provided directly by Cogo, Nevil and Charles Benjamin Frink, were indicted by a Louisiana grand jury. It is almost impossible to determine how many people were raided directly by the DEA from the more than 11,000 addresses that Cogo provided to the DEA. The customer lists that he turned over no doubt became the first victims of Operation Green Merchant, as DEA and local police stalked out local gardening stores for potential cannabis cultivators. What is more alarming is that the DEA agents already had the addresses of the people who received the seeds during the time that Cogo was responsible for sending them. By knowing who the growers were, it was simply a matter of following them to their local gardening shop and implicating the garden store owners as conspirators in the manufacture of a controlled substance.

This type of abhorrent behavior was very common during the drug war, and greatly rewarded. In his affidavit Cogo also states; “I have cooperated with the United States Drug Enforcement Administration and its investigation of the activities of Neville Martin Schoenmakers and others. No charges have been made against me as a result of the facts related herein, although I fully appreciate the fact that my statements have the effect of incriminating me.”

It saddens me to no end to think about how many lives Cogo destroyed simply because he found out the bottling company he used for his nutrient company was screwing him over and he wanted some type of twisted revenge. While I was researching the true history and timeline of Nevil’s case, I could not help to notice Steve Hager’s 1987, High Times article attached to Ray Cogo’s affidavit as “Attachment 1.”

The DEA’s “Operation Green Merchant” started on October 26th 1989, and by the end of 1991, the operation had arrested 1,262 people, busted 977 indoor grows and confiscated $17.5 million dollars in assets.

On July 24, 1990, Nevil was arrested in Australia while visiting his family. Even though Cogo provided the DEA with over 11,000 addresses, Nevil was only charged with sending a total of 1,921 seeds to DEA agents and growers in the New Orleans area from 1985 to 1990, but he was also charged with the cultivation of more than 1,000 plants, by tying him to the conspiracy charges of people who purchased his seeds and grew cannabis in the United States. Nevil served 11 months in prison in Australia while he awaited extradition to the United States.

While sitting in prison, Nevil’s friend and Sensi Coffee shop owner Ben Dronkers, cut a deal with Nevil and purchased the assets of the Seed Bank, his son Alan Dronkers, moved into the cannabis castle and continued Nevil’s work. In June of 1991, the Australian government gave Neville a $100,000 bond which was posted, and within six weeks, Nevil left the country and went back to the Netherlands, where the Dutch government would not extradite him to the United States for something that was not even a crime in the Netherlands.

The Seed Bank became the Sensi Seed Bank and and released its first catalog in 1991. The one big change was that seeds were no longer sent to the United States. Ben Dronkers decided to look East and directed the seed companies marketing towards the emerging cannabis culture coming from the Eastern Bloc of Europe, the move was brilliant and most likely saved the now Sensi Seed Bank from more indictments, as the DEA kept it’s prized informant Ray Cogo a secret till he gave his sworn affidavit on January 26th 1994, and his involvement in the case became public record.

PERSONAL MEMORIES

I first visited the Amsterdam Cannabis Cup in November of 1994 with Jack Herer and the crew of High Times, I was fortunate enough to attend the very first tour of the Cannabis Castle open to the public, which was really, just open to the friends and family of High Times, and was when Ben Dronkers christened Jack Herer with a cultivar named in his honor. Nevil was nervously in attendance and stayed on the roof for most of the festivities, dressed as a ghost no less.

While I was living there in 1996, the working relationship between Nevil and the Sensi Seed Bank ended, for a short while Nevil went to work with Arjan and Scotty aka; Shantibaba, of the Greenhouse Cafe, which had started its own seed company just the year before. Unfortunately, personalities clashed and the working relationship did not last that long, but in that time, Nevil bred his Northern Lights #5 x Haze, crossed back to Haze (C), and called it “Nevil’s Haze”, that combination was incredible. He then took that plant and bred it against Skunk #1, and that became the multi-award-winning Super Silver Haze.

In the years that followed, Nevil moved back to his home country of Australia, and for a short while was making a comeback in the industry he helped create, but as a longtime drug user, he was battling both hepatitis C and also cancer, and unfortunately passed away in March of 2019.

The mark Nevil left on the cannabis cultivation community is tremendous, his influence is undeniable, and the many varieties that passed through his hands have become legendary. I believe that the entire cannabis community owes much reverence to Nevil for his dissemination of genetics for so many years.

When I lived in Amsterdam in 1996, I had the great pleasure of hanging out with him numerous times, playing chess with him and learning from him. On numerous occasions my girlfriend and I were invited up to the castle to smoke hash, sleep over and be inspired. Nevil was always very open in his discussion about cannabis breeding and was very willing to explain to those who did not know as much. Nevil was a kind teacher to me and I will always appreciate time we got to spend together.

Long live the legend of Cannabis Castle.

Nevil Martin Schoenmakers

February 2, 1957 – March 30, 2019

November 7, 2018

Gray Market for a Very Green State

By Felisa Rogers

Trees, salmon, weed.

Invariably, the story of a state is the story of the industries that sustain its citizens. Fish and forests drew the original settlers to Oregon, but cannabis is at the heart of the state’s modern history. Since the 1960s, the green hills of Oregon have provided haven for outlaw growers who taught themselves to grow some of the world’s best weed. Growers in Oregon were never as overt as their neighbors to the south in Humboldt, and the state’s industry was more about making a living than it was about living large. That said, black-market money comprised a significant chunk of the state’s cash flow. Weed bankrolled the craft industries, artists, bands, breweries, organic farms, and niche businesses that would eventually bring Oregon a new kind of fame as a hippie/hipster haven. 

The evolution of state cannabis legislation reflects a streak of anti-regulatory sentiment that runs strong among Oregonians. Oregon was the first U.S. state to decriminalize small quantities of cannabis (in 1973) and was an early adopter of medical legislation, with the passage of Ballot Measure 67 in 1998. But Oregonians were suspicious of further regulation. Voters vetoed two proposals for a medical retail system, as well as the first recreational cannabis measure.

Oregonian reluctance to go legal is easy enough to understand if you’ve ever lived in a state with a vibrant black-market economy. Medical and black-market growers were skeptical of the attendant fees and regulations, and we heard the usual mutterings about corporate hegemony and Phillip-Morris pre-rolls. But after years of debate, the majority of pro-cannabis Oregonians were unable to reconcile their ethics with continuing support of prohibition. In the words of Eugene architect Alyssa Baz: “Whether one sees marijuana as a recreational substance, a medical godsend, or an economic means, the potential damage that the plant can cause is insignificant compared to the ramifications that were piled on the public. Property seizure, jail, expensive fines, and child custody were real threats that loomed over the heads of millions.”

Medical grower Nicole Marie worried that legalization would put an end to the black-market economy that supported so many small businesses and creative endeavors but set her concerns aside on election day. “Leading up to the voting, I was 100 percent behind it,” she says. 

On July of 2015, it became legal for adults (21 or older) to grow and consume recreational cannabis in the state of Oregon. Measure 91 outlined the usual restrictions regarding driving under the influence, smoking in public, seed-to-sale tracking, and kids, while establishing a system that permits relatively large grows (up to 40,000 square feet for outdoor) and allows retailers to sell seeds, immature plants, flower, extracts, and concentrates.

In reading the law, it’s clear that Oregon cannabis advocates learned a few things from observing the positive and negative aspects of the trailblazing recreational laws that first passed in Washington and Colorado. Oregon’s legislation is great for the casual consumer: Oregonians can grow four plants per household, possess up to eight ounces of weed, carry up to an ounce in public, possess ten seeds, and buy flower and concentrates from the state’s many recreational shops. Because there’s no cap on the limit of licenses issued to retailers, competition is steep and weed is cheap.

As with all cannabis legislation, there’s a few aspects of the law that don’t make much sense. For example, you’d have to be a pretty slack gardener to grow four plants and produce only eight ounces of bud. On the other hand, you’d have to be a pretty slick gardener to get ten seeds to yield four healthy female plants. That said, most Oregonian stoners seem happy with the arrangement. The situation is a bit more complicated for medical patients and caregivers, legal recreational growers, dispensary owners, black-market growers, and anyone who hasn’t read the fine print.

Living in a “legal” state can give a false sense of security. Decriminalization only applies if you’re operating within the limits set forth by the law, which can seem arbitrary. So while you can grow four plants with perfect impunity, it’s still a felony to grow more than eight plants without a license, a sentence that carries up to five years in prison and a $125,000 fine. And while you can go forth freely with one ounce of bud, double that number and you can still expect a misdemeanor, a $2,500 fine, and up to six months in jail.

On the commercial side, the regulations are predictably complicated, but not as draconian as certain cannabis laws (we’re looking at you, Washington). The Oregon Liquor Control Commission (OLCC) issues an unlimited number of licenses, and licensee may hold multiple licenses, and multiple license types. The initial licensing fees are not particularly steep when compared to other states (we’re looking at you, Hawaii) and are arranged on a spectrum so that smaller businesses pay less. Additionally, the law mandates that the OLCC “Assist the viability of marijuana producers that are independently owned and operated and that are limited in size and revenue with respect to other marijuana producers, by minimizing barriers to entry into the regulated system and by expanding, to the extent practicable, transportation options that will support their access to the retail market.”

Despite this lip service to small businesses, the law does not require licensees to be Oregon residents, which has opened the doors to deep-pocketed investors from out of state. For example, Oregon’s largest cannabis business (based on number of employees) is Golden Leaf Holdings, a Toronto-based company that operates production and extraction facilities, as well as seven stores in Oregon, while simultaneously doing business in California, Nevada, and Canada.

Several of the law’s seemingly liberal provisions have had negative consequences for small growers. “The separations of licenses (processor, wholesaler, distributor) and the prohibitive costs of obtaining multiple licenses effectively did away with the home-based model,” says former medical grower Nicole Piper, who believes that the flooded market is due to the high plant limits for recreational grows. The combination of plummeting prices and rising fees have made it cost-prohibitive for her to farm. “The Oregon legislature has held session after session that, over and over again, has made it harder and harder for the growers,” she says. “They don’t seem like they have a long-term plan. It keeps changing, so that it’s incredibly difficult to follow the law.” She points out that constantly changing laws are particularly challenging for farmers, who can’t easily shift direction in the middle of the growing season.

Piper is not alone. Many Oregonians don’t jibe with the new regulatory structure and corporate flavors. Surviving in an outlaw industry takes a certain personality type and set of skills—which don’t necessarily mesh with bureaucracy. While some venerable players have chosen to opt out of the business completely, others continue to work in the shadows. According to a report filed by the Oregon State Police Drug Enforcement Section, Oregon is the country’s leading source of black market weed. And a federally-funded agency called the Oregon-Idaho High Intensity Drug Trafficking Area (HIDTA), claims that Oregon produces more than two million pounds of cannabis each year, or more than six times the consumption demands of Oregonians. (How they arrived at two million is something of a mystery.)

That said, many black market, grey market, and medical growers have adapted to the new industry—as legal recreational growers, as consultants, and, sometimes, as workers. Jill Delahanty grew cannabis for thirteen years, earning enough to support herself and her daughter while simultaneously channeling funds into her other business—an eco-friendly fashion line. But everything changed when recreational was legalized. She doesn’t have suitable property for a recreational grow and, with the market in its current state, she doesn’t think it’s worth it for a small grower. Today she works for a large cannabis farm in southern Oregon, where she makes $16.00 an hour. “I’m making much less money now. But I have health benefits and stability, so there’s a trade-off,” she says, adding that she no longer has the time or energy for her fashion line.

Which isn’t to imply that legalization is completely strangling Oregon’s small creative businesses. In fact, the end of prohibition opened doors for a new set of imaginative pioneers. The OLCC had approved more than 1,800 licenses for production, processing, and retail, but that doesn’t account for the full scope of the ever-diversifying cannabis economy: weed-themed weddings, “weed country” tourism packages, specialized marketing consultants, and security firms that specialize in cannabis. Many of these businesses are brand new, but existing businesses are also benefiting from diversifying with cannabis. For example, Aradia Willow, a Portland massage therapist, is excited to be able to offer therapeutic massages with cannabis-infused oil. “If I look at our web traffic, our second most searched term is CBD massage,” she says.

Although the law doesn’t work for everyone, the state is humming with opportunity and it’s undeniable that Oregonian cannabis enthusiasts have it better than most Americans. Despite being unable to survive as a medical grower under the current regulatory structure, Nicole Piper can see the bright side. “I’m proud of Oregon for legalizing,” she says, “and I’m proud of the activists and organizers who got it on the ballot.” 

October 29, 2018

National Recreational in 2019

By Amari Emani

Speaking at the Cannabis Law Institute, Reps. Earl Blumenauer (D-Ore.) and David Joyce (R-Ohio) mixed their cannabis predictions with answers to questions about state and federal law from John Hudak, a Brookings Institution cannabis expert.

FORGET ABOUT 2018

Neither lawmaker expects any of the numerous cannabis bills introduced in the current Congress to be passed before this November.

“I think it is a longshot something happens in the remaining days of this Congress,” Blumenauer said. But both agreed that political momentum and pubic support will force change after the mid-term elections.

“It’s not going to pass this year, but ‘momentum is moving in our direction’ on the STATES Act,” says Rep. David Joyce (R-Ohio).

“The public is fed up,” said Blumenauer, who co-founded the Congressional Cannabis Caucus. “Cannabis is going to be a significant issue in dozens of races around the country.”

The lawmakers spoke specifically about the STATES (Strengthening the Tenth Amendment Through Entrusting States) Act. Introduced in June, the bill would exempt states with legal cannabis laws from federal cannabis law enforcement.

Momentum regarding this bill is “moving in our direction,” said Joyce. “With 30 states having legalized medical marijuana, and 47 states adopting at least some form of decriminalization,” he said, “it’s time Congress gets out of the way.” Recalling a conversation he had with former House Speaker John Boehner (who joined a cannabis company’s advisory board in April) Joyce added: “I believe this is a states’ rights issue. States have made it available medically. People should be able to receive it, and we should do more studies on it.”

STATES ACT IS IN PLAY

The STATES Act and other cannabis-related legislation will likely pass no matter which political party controls Congress, both lawmakers said. They cited increasing public support, especially for medical cannabis, and decreasing fear among politicians about the negative consequences of being pro-cannabis.

“Even under Republican control, the dam breaks in 2019,” says Rep. Earl Blumenauer .

The bipartisan cannabis caucus has seen its ranks swell during its work sessions, Blumenauer added, which “demonstrates the potential for moving legislation forward.”

“I think it is possible even if the Republicans retain control, the dam breaks,” Blumenauer said, adding that more Republicans will begin co-sponsoring bills regardless. “Progress is inevitable.”

“Once we get hearings, I think the dominoes will fall very quickly,” Blumenauer added. “I do think the next 12 months could be ‘game over,’ if we get the right results in November.”

OVERWHELMING MEDICAL SUPPORT

Political support for medical cannabis is especially strong, the lawmakers said, so any measures addressing medical legalization should see swift Congressional attention. “Most people want legalization, at least for medical purposes. That’s why I think we will see successes on the fall ballot,” Blumenauer said. “There is no downside for a candidate who embraces it.”

“I agree that we are about to turn a corner,” Joyce added. Many lawmakers have suppressed their voting support for cannabis measures because they feared upsetting chairs of their committees from their own party. No more, Joyce said: “Given the opportunity in the next Congress, they will do what they need to do for their communities.”

The National Cannabis Bar Association hosted the event at George Washington University. The event’s sponsors included Americans for Safe Access, Students for Sensible Drug Policy and the Minority Cannabis Business Association.

September 30, 2018

Overproduction and Diversion

WHEN SUPPLY OUTWEIGHS DEMAND

BY CHRISTOPHER LYNCH

IN 2012, WASHINGTON and Colorado legalized the possession of small amounts of marijuana and also established regulation of commercial cannabis production, processing, and sale, as well as recreational adult-use. In response, the US Department of Justice (DOJ) announced updates to its marijuana enforcement policy.

US Deputy Attorney General James M. Cole issued a memorandum for internal use that set out enforcement priorities for those states that legalized cannabis activity or were considering doing so. In what is now known as the Cole Memo, the DOJ made clear that marijuana was a Schedule I drug under the federal Controlled Substances Act, but also stated that it would continue its traditional policy of relying on state and local governments to regulate this activity within their borders through enforcement of their own laws as they saw fit.

The Cole Memo stated that it would defer its right to challenge state laws allowing for the production, distribution, and possession of marijuana for the time being as long as the states established strict regulatory schemes to protect eight federal interests described in the memo. Among those eight interests was “preventing the diversion of marijuana from states where it is legal under state law in some form to other states.”

Diversion (the export of marijuana from legalized regulatory systems outside of that system) and the ability to regulate overproduction of cannabis remain some of the most difficult and predominant issues for legal cannabis to resolve.

Economic theory suggests that a commodity in a free market will reach an equilibrium price when supply and demand become equal. Theoretically, higher demand for a product decreases prices as more market participants become involved, whereas higher prices tend to reduce demand leading to an excess supply. However, the emerging cannabis industry is no ordinary market because of the strict regulation and oversight facing industry members, as well as the threat of federal prosecution.

Some law enforcement agencies argue that overproduction encourages producers to participate in the black market and undermines states’ recreational and medical cannabis regulatory schemes. Those agencies cite that overproduction of cannabis products and the subsequent decreased profitability result in a greater supply of product than the market demand and may result in diversion. The logic being that, rather than destroying excess product or letting it rot, some licensees may opt to illegally sell or transfer the product to consumers outside of the legalized regulatory system or to other states where commercial cannabis activity is still illegal. Based on the very distinct regulatory schemas of the states that have legalized commercial cannabis activity, however, it would appear that diversion may be a problem rooted in lack of oversight and enforcement rather than overproduction.

COLORADO

Colorado’s commercial cannabis market, though initially a target of both the federal government as well as neighboring states of Oklahoma and Nebraska for diversion issues, has reached a level of equilibrium. When Colorado legalized commercial cannabis in 2012 under Amendment 64, it set strict caps on the number of production licenses and amounts available to licensees. Colorado subsequently passed a bill in 2017, HB17-1220, directed at preventing diversion to illegal markets by placing a cap on the number of plants to be grown or possessed on a residential property, as well as establishing criminal penalties for violation.

In part due to this enforcement authority, it appears that Colorado’s supply and demand allowed adequate opportunity to equalize a fair market price of approximately six dollars per gram, according to BDS Analytics. Though Colorado certainly had its problems with diversion early in the inception of its commercial industry, it appears that enforcement and oversight in that state allowed the market to steady itself.

WASHINGTON

Washington is currently facing an overproduction problem, but it does not appear to have resulted in diversion, nor has it stopped the Washington market from normal market stabilization. Beginning in the summer of 2016, marijuana prices plunged as the market was over-saturated with product, and many businesses were concerned about market stability. Likely in response to the overproduction, the Washington State Liquor and Cannabis Board (WSLCB) began a period of enforcement focused on shutting down those businesses, licensed or otherwise, that engage in the diversion of cannabis outside of the regulated Washington system.

Despite the existing issues with the change to the LEAF traceability system in Washington, there does not appear to have been a documented increase in diversion, despite the wealth of product in the market. Much of this could be attributed to the increase in frequency of WSLCB inspections and the increased emphasis on enforcement as it relates to diversion. The WSLCB recently created and expanded the size of its special investigations unit, which is dedicated to complex issues such as diversion and hidden financial parties of interest.

On par with Colorado, market prices in Washington have dropped to an average of about six dollars per gram, according to BDS Analytics, and appear to be stabilizing. Though a surplus of product still exists in Washington at this time, it appears that Washington is moving towards equilibrium as the WSLCB increases enforcement efforts, companies fold, and the market struggles to self-regulate.

OREGON

Oregon presents a unique set of circumstances with regard to diversion and oversupply. In 2017, Oregon State Police released a study, “A Baseline Evaluation of Cannabis Enforcement Priorities in Oregon”, allegedly providing evidence connecting illegal external markets and in-state overproduction of marijuana. According to Oregon law enforcement, overproduction within the state encourages licensed producers to participate in the black market and undermines the state’s licensed market. Despite having a relatively low population compared to other states regulating recreational marijuana, Oregon has a diversion rate comparable to more densely populated states. The report argues that these figures constitute evidence that Oregon’s licensed production has been pushed “far beyond satiation of local demand.”

The issue of diversion in Oregon is well-documented. Oregon US Attorney, Billy Williams, an outspoken critic of the regulated cannabis market in Oregon, demanded reports and audits regarding overproduction and diversion in the state. As a result, in February of 2018, an audit of the Oregon Liquor Control Commission (OLCC) found that the state’s traceability system lacked proper safeguards and identified five major weaknesses in the tracking system implementation, which could facilitate or contribute to diversion.

According to the Oregon traceability system, there is currently a glut of more than one million pounds of usable, but unsold, marijuana in the state. This represents nearly three times the amount of cannabis that was sold in Oregon in all of 2017. Though the demand for cannabis in Oregon is expected to grow, it is highly unlikely that demand will increase quickly enough to deplete the reserves accumulated in Oregon.

The problem in Oregon is likely a lack of oversight. Since implementing its commercial regulatory system in 2015, more than 1,800 production operations have been licensed or are in various stages of approval. By way of comparison, Washington has 1,205 licensed cultivators of various canopy sizes with an estimated population of 7.53 million people. Oregon has a population of only 4.2 million, resulting in an inverse proportion of licensed cultivators to population.

Additionally, the Oregon Health Authority (OHA) completed a report regarding Oregon’s medical marijuana program operations and compliance in May of 2018, and confirmed the diversion issue. The OHA report links diversion to inadequate control and supervision by the Oregon cannabis regulatory bodies. The OHA further found that, despite more than 20,000 licensed medical grow sites, only 58 inspections were completed in 2017. The report states, “Potentially erroneous reporting coupled with low reporting compliance makes it difficult to accurately track how much product is in the medical system . . . this limits [our] ability to successfully identify and address potential diversion.”

Arguably, because Oregon’s cannabis industry is an evolving market, equilibrium is still a few years away. Unfortunately, given the broad-spread evidence of diversion and demonstrated lack of oversight, Oregon’s overproduction fosters a diversion problem.

CALIFORNIA

At this time, little information is available regarding issues of diversion in California, given the infancy of its regulated commercial market. However, the Bureau of Cannabis Control (BCC) included measures in their regulations to restrict licensees’ ability to divert product into the black market by including traceability requirements, security measures, mandatory video surveillance systems, and reconciliation of product on hand with the track-and- trace system every 14 days. Although the BCC has not expressly limited the number of cultivator licenses it plans to issue, it has allowed local jurisdictions the authority to determine the number of commercial cannabis licenses allowed in its own jurisdiction. It remains to be seen if California will have the same kind of diversion problems as Oregon or will find stasis as Colorado and Washington have. However, given that California has the sixth largest economy in the world and considering the state’s robust tourism industry, it is likely that the demand for commercial cannabis will avoid the same sort of oversupply problems found in other states.

Until cannabis is de-scheduled at the federal level, diversion will persist as an issue in the commercial cannabis market. By de-scheduling commercial cannabis activity at the federal level, the overproduction problem could be remedied by allowing those states with surplus to sell across borders to other legalized states, facilitating a larger economic market solution of supply and demand. Although the Cole Memo was rescinded by US Attorney General Sessions, states with legalized cannabis activity still have a vested interest in eliminating diversion. Those licensees that engage in diversion not only undermine the legitimacy of the industry as a whole, but risk federal prosecution as well.

Furthermore, because of federal illegality, legalized cannabis markets may not have the time or freedom to reach equilibrium in the way that other industries have. The threat of federal prosecution requires both licensees and licensing agencies to find a delicate balance between restricting the market to meet the guidance issued by the DOJ and allowing adequate time for a free market to develop and reach a sustainable and stable equilibrium.

Though overproduction of regulated cannabis may be a factor in the existing diversion issues, it seems clearer when comparing the various states that diversion is more closely tied to the effectiveness of regulation in that state. Those states that have demonstrated effective enforcement begin to see equilibrium of wholesale prices and demand, despite overproduction problems.

If you have any questions about the topics discussed here, please contact an attorney to discuss how these issues affect you or your business.