But this time, the bill’s 40 sponsors — who include two members of Oregon’s Congressional delegation — are optimistic about the chances for the SAFE Banking Act of 2023.

“For the first time, we have a path for SAFE Banking to move through the U.S. Senate Banking Committee and get a vote on the floor of the Senate,” U.S. Sen. Jeff Merkley (D-OR) said in a statement. “Let’s make 2023 the year that we get this bill signed into law so we can ensure that all legal cannabis businesses have access to the financial services they need to help keep their employees, their businesses and their communities safe.”

The SAFE Banking Act of 2023 is scheduled for a hearing before the Committee on Banking, Housing and Urban Affairs Thursday morning. Sen. Merkley and Rep. Earl Blumenauer (OR-3) are among the bill’s chief sponsors, along with Sen. Steve Daines (R-Montana) and Rep. Dave Joyce (R-Ohio). They introduced the current iteration of the bill at the end of April.

Recreational marijuana is legal in 21 U.S. states, including Oregon. The drug is fully illegal in just three states, while others have decriminalized the drug in recent years or made it legal for medical use. But the push toward more liberal cannabis laws at the state level has created a multibillion-dollar industry.

However,  because the drug is still illegal federally, most cannabis businesses are cash only.

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In an era when retailers and restaurants are increasingly going cashless, that puts cannabis vendors in a vulnerable spot. In 2020 the Oregon Liquor and Cannabis Commission recorded more than 100 robberies at cannabis businesses. 

The SAFE Banking Act would prohibit federal banking regulators from prohibiting, penalizing or discouraging a bank from providing financial services to legitimate state-sanctioned and regulated cannabis businesses; terminating or limiting a bank’s federal deposit insurance primarily because the bank is providing services to a legal cannabis business; recommending or incentivizing a bank to halt or downgrade providing banking services to such businesses; or taking any action on a loan to an owner or operator of a cannabis-related business.

The newest version of the bill also explicitly extends safe harbor to Community Development Financial Institutions and Minority Depository Institutions to ensure they can also serve cannabis businesses.

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A press release issued Tuesday morning said Deputy Secretary Cheryl Myers would take on oversight of the agency until the governor appoints a new secretary.

“While I am confident that the ethics investigation will show that I followed the state’s legal and ethical guidelines in trying to make ends meet for my family, it is clear that my actions have become a distraction from the important and critical work of the Secretary of State’s office,” Fagan said in the release. “Protecting our state’s democracy and ensuring faith in our elected leaders – these are the reasons I ran for this office. They are also the reasons I will be submitting my resignation today. I want to thank the incredible staff in the Secretary of State’s office for their hard work and Oregonians for the opportunity to serve them. It has been a true honor to serve the people of Oregon.”

“At this time, I believe it is in the best interest of our state for me to focus on my children, my family, and personal reflection so that the Secretary of State staff can continue to offer the exemplary customer service Oregonians deserve,” Fagan wrote.

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Last week Fagan acknowledged that in February, she entered into an agreement to provide consulting services to the Veriede Holdings, an affiliate of the embattled La Mota dispensary chain. The contract, released to reporters Monday, said she was paid $10,000 per month — with a bonus of $30,000 for each license she helped La Mota obtain outside of Oregon and New Mexico. That’s more than the Secretary of State salary of $77,000 per year.

State law does not prohibit public officials from performing outside work, provided they don’t use their public position, public resources or insider knowledge to obtain the work.

On Friday, Oregon Business reported on an audit examining the state’s oversight of cannabis licensing. During a media availability Friday morning, state audits director Kip Memmott told reporters Fagan provided guidance on the scope and scale of the audit, but had no more input than that. After the audit’s release, reporters discovered public records showing that Fagan pressed auditors as early as January 2021 to speak to Rosa Cazares, the co-owner of La Mota, during its audit of the Oregon Liquor and Cannabis Commission.

The audit report is critical of many aspects of Oregon’s approach to regulating cannabis. Notably, it says many of the state’s regulations are burdensome to businesses and are overly cautious regarding the possibility of federal intervention, which auditors wrote was unlikely, though cannabis is still federally illegal.

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On Monday Fagan announced that she has terminated her contract with Veriede Holdings, and apologized, saying,” I exercised poor judgment by contracting with a company that is owned by my significant political donors and is regulated by an agency that was under audit by my Audits Division.”

Cazares and La Mota co-owner Aaron Mitchell have donated to several top Oregon Democrats’  — many of whom have pledged to give that money to charity — but the chain and its affiliates faced numerous tax liens and lawsuits alleging unpaid bills.

Minutes after Fagan’s release, Myers issued a second press release with a statement from the deputy secretary of state.

“This is a resilient agency, with strong division leadership and internal systems that can withstand change. We are ready to continue the important work of the Secretary of State’s office during this transition,” Myers said in the stament.

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“My first priority is to make sure Oregonians receive the customer service they deserve. This agency does such critical work, and it’s our job to put Oregonians first during this transition. 

“This is an unfortunate situation, but a change of leadership will allow agency staff to continue their good work with less distraction moving forward,” Myers wrote.

The extent of Secretary of State Shemia Fagan’s involvement in and oversight of an audit of Oregon’s approach to cannabis regulation is under scrutiny following the revelation that since February, she has moonlighted as a consultant to a major dispensary chain.

State audits director Kip Memmott told reporters Friday that Fagan, who is his supervisor, provided guidance on the scope and scale of the audit — which was listed in Fagan’s 2021-22 audit plan — but did not provide more guidance than that.

“She can tell me what to audit, but what she can’t tell us to do is what to find in those audits,” Memmott said.

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Fagan confirmed to Willamette Week Thursday that she recused herself from involvement with the audit Feb. 15. That’s when she began providing consulting services to an affiliate of La Mota, a large cannabis dispensary chain that holds more than 50 licenses from the Oregon Liquor and Cannabis Commission despite a troubled history that includes more than $7 million in tax liens and more than 30 lawsuits, most related to nonpayment of bills.

Shortly after Memmott spoke to reporters at a Friday-morning media availability on the audit’s findings, WW and Oregonlive reported that a draft of the audit was sent to OLCC for response Feb. 8 — meaning the bulk of the work of the audit was completed a week before Fagan’s recusal.

Memmott said Fagan’s recusal was the first time in his six-year history with the Secretary of State’s office that a Secretary of State has recused themselves from an audit. Fagan has not performed consulting work before.

Oregon ethics laws allow public officials to take outside employment, so long as they don’t use their public position, public resources or insider knowledge from their position to obtain outside work.

The report is critical of many aspects of the state’s relationship to the cannabis industry, saying OLCC regulations are financially burdensome to cannabis licensees and based on fears of federal intervention, which it argues are outdated.

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Titled “Oregon Needs to Modernize Cannabis Laws to Help Grow the State’s Economy and to Ensure Equitable Opportunities and Benefits for all Communities,” the report said:

• Oregon’s cannabis industry is subject to regulations that “create burdens the alcohol industry does not face” and are “clearly not based on a robust risk assessment, or the test of real-world effectiveness”;
• Many of the state’s cannabis regulations are based on repealed federal guidance and are largely in place to prevent federal intervention in Oregon’s legal cannabis system, “a concern that no longer carries the same significance, risk or likelihood”;
• The state should adopt creative strategies to mitigate caused by existing federal cannabis laws and barriers;
• Oregon did not consider or include targeted equity provisions when developing its recreational cannabis program, and there are still limitations and barriers preventing significant progress;
• The OLCC’s current licensing system isn’t capable of tracking demographic data, hindering efforts to mitigate disproportionate impacts in communities target by the War on Drugs.

The report is also highly critical of the state’s security requirements, saying “For example, a cannabis licensee may be fined thousands of dollars if their security system fails, or they fail to properly track a product. According to one cannabis licensee, a downed section of a fence on their property resulted in a violation of OLCC’s regulations that cost their business thousands of dollars.” The number of security-related fees issued is not listed in the report, nor is the fee schedule.

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The audit also criticizes the state for not setting up a banking system allowing cannabis licensees to reduce their reliance on cash, which has made licensees and employees more vulnerable to crime, and criticizes Business Oregon — the state’s economic development agency — for failing to offer support to cannabis businesses.

Auditors attributed Business Oregon’s failure to assist the cannabis industry to concern on the part of agency leadership that “employees would be at risk of committing a federal crime by providing assistance to cannabis businesses.” Banks are also subject to federal oversight, and Oregon’s Congressional leadership has repeatedly championed legislation that would free up banking services to the cannabis industry. The Secure and Fair Enforcement Banking Act stalled in the last Congressional session, but was reintroduced earlier this week.

The audit repeatedly suggest state leadership’s concern about federal intervention are “based on repealed federal guidance,” referring to the Cole memorandum, a set of guidelines issued to all United States Attorneys in 2013 by then-Deputy Attorney General James Cole. In 2018 then-Attorney General Jeff Sessions rescinded the memo. Based on that gesture, and President Joe Biden’s decision to pardon federal marijuana offenses in 2022, the report suggests federal intervention in the marijuana industry is unlikely.

“Though some of these requirements were initially put in place to minimize risk of federal intervention in Oregon’s system, the lack of federal intervention in Oregon’s system to date, the changing social and political environments, and increasing number of draft federal bills focused on cannabis reform led auditors to conclude the risk of federal intervention is increasingly unlikely,” the report reads.

The report was not all critical, however: auditors praised the state’s actions to reduce the tax burden on cannabis businesses.

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The report recommended ensuring the state’s cannabis industry receives similar supports provided to other industries that help bolster the economy, and said Oregon should adopt “creative strategies” to try to mitigate the risks associated with selling a federally illicit substance.

“Oregon’s cannabis industry faces significant regulatory issues, stemming from federal restrictions on cannabis. This audit revealed Oregon’s regulatory system for cannabis compounds these problems,” said Deputy Secretary of State Cheryl Myers, in the report’s accompanying press release. “Given the action taking place at the federal level, now is the time for Oregon to prepare its system for a future when cannabis is legal nationally.”

To subscribe to Oregon Business, click here. 

 The U.S. Securities and Exchange Commission has filed a complaint against the Nevada-based cannabis company American Patriot Brands that hinges in part on claims the company made about the size and scope of its Medford farm, Urban Pharms.

On March 16 the company and its CEO Robert Lee, along with five other parties, were charged with a “long-running scheme” in which, the SEC alleges, they defrauded more than 100 investors, raising more than $30 million.

According the official filing, previously reported on by MJ Biz Daily, Lee and former executives Brian Pallas and J. Bernard Ricebegan raising money from investors in 2016 by selling fraudulent security offerings.

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“Although APB produced only a small amount of sellable cannabis a year, it promoted itself as one of the largest cannabis farms in the country and provided wildly inflated financial information to support extremely high revenue projections,” the complaint reads. “To make the investment appear even more attractive, APB promised that investments would be secured by a lien on APB’s cannabis farm, at times when the farm likely did not have enough equity to secure investments.

The complaint also alleges that executives siphoned “millions in investor funds” to two companies: one partly owned by Lee, and a second company company APB does not control. Officers also used the investment proceeds to pay themselves in totals which exceeded the total revenues APB generated from the sale of its cannabis products.

The complaint goes onto say that the executive “have also used investment proceeds to enrich themselves through payments that, in some years, vastly exceeded the revenues APB generated from the sale of cannabis products.”

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The SEC also alleges that at the time of its filing, APB was still actively marketing securities to potential investors. The company also still has an active license with the Oregon Liquor and Cannabis Commission, which regulates Oregon’s legal cannabis sector.

According to public records, Urban Pharms incorporated as a limited liability corporation in Oregon in June 2015. American Patriot Brands appears to have acquired the farm in 2017.

Mark Pettinger, director of communications and education at the Oregon Liquor and Cannabis Commission, says the agency was not aware of the SEC filing against Urban Pharms. He also tells Oregon Business the company’s license is and will continue to remain in operation unless criminal charges are filed.

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“Our agency only has administrative powers, as opposed to the Washington Liquor and Cannabis Board, which has criminal enforcement powers,” Pettinger says. “There was a recent case in Southern Oregon that involved the murder of a couple of licensees living in Houston, Texas. We had to stay out the investigation until the Jackson County Sheriff’s department office was done with it.”

SEC investigations are civil, not criminal, but the agency can refer cases to law enforcement or coordinate SEC investigations with criminal investigations involving the same conduct.

Lee has previously served as chairman of the video rental chain Video City and as chairman and CEO of U.S. Dry Cleaning, one of the largest operators of dry cleaning operations in the United States. The latter underwent Chapter 11 bankruptcy and successful reorganization between 2011 and 2013.

In 2012 Lee became chairman and interim CEO of The Grilled Cheese Truck, Inc., stepping into the role of permanent CEO in 2016. The company, formed in 2009 by two Los Angeles chefs, changed its name to American Patriot Brands in 2016.

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In September 2019 the SEC issued an order of suspended trading against APB, saying the company had failed to comply with periodic filing requirements, resulting in “a lack of current and accurate information” concerning the company’s securities. In October of that year, the SEC issued another order revoking the registration of APB’s securities.

Pettinger says the SEC filing shows no sign of a “white hat/black hat” operation from Urban Pharms, referring to scenarios where growers hide an illicit cannabis growing operation behind a legitimate one. He says due to the financial nature of the allegations, the OLCC is unlikely to get involved.

The SEC declined to comment on the filing beyond the scope of the initial report.

Christine Smith founded THC edibles brand Grön (which means “green” in Swedish) as a side project in 2015 while working at an architecture firm in Portland.

She had worked in architecture for more than 15 years. But after one year of operation, she says, she knew she wanted to dedicate herself to Grön full-time.

“I realized I had stopped being creative and I started being a project manager. I was looking for a creative outlet on the side, and I saw this burgeoning cannabis industry,” Smith says. “I saw that there weren’t any really high-quality chocolate products on the line, and so I thought I would make my own.”

Oregon’s cannabis industry has ebbed and flowed since the drug was made legal for recreational use in 2015, but Grön is growing: According to internal reports shared with Oregon Business, the company has grown 276% in overall revenue since 2019.

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In August the company officially went international, making a deal with a third-party distributor to sell Grön products in Canada. Smith attributes the company’s growth to its ability to connect to middle-market consumers — and by expanding into a less-regulated, less-competitive national market.

Domestically, Grön products are sold in Oklahoma, Missouri, Nevada and Arizona, as well as Oregon, where most of the products are made. The company has three production facilities in Portland.

Smith says her dream is to open a new Oregon facility if and when cannabis becomes federally legal. But until then, having a single mass-manufacturing plant for edibles doesn’t make sense, given current regulations barring cannabis from crossing state lines. That means all THC-infused products manufactured in Oregon must be sold here.

Grön’s colorful packaging. Photos by Jason E. Kaplan

There is nothing illegal about exporting chocolate and packaging, though, from her distribution hub in Portland. Smith can export the packaging, candy ingredients, chocolate and recipes to facilities out of state to be made with cannabis grown in those areas.

Grön operations in Arizona, Oklahoma and Missouri are all run by Grön employees, but the production spaces in those states are sublet to a licensed partner able to obtain a state cannabis- processing license.

The Nevada operation is like the Canada agreement — a true licensing agreement allowing use of Grön’s intellectual property — but allowing for more hands-on involvement in marketing, manufacturing and sales support from Grön. Both are licensing agreements, which operate like franchises, with Grön giving contractual permission to make, promote and sell Grön products in their own markets.

While the exact THC strains present in the candies may not be 100% identical from state to state, she says she has been able to maintain consistency when it comes to the things consumers care most about: flavor, branding and experience.

The metal chocolate dispensers and vats of candy shelling brought to mind Willy Wonka’s chocolate factory, but despite the humming machinery, most of the products were pressed and rolled by hand — something Smith says is a central tenet of good chocolate making. She taught herself how to make chocolate candies by hand while developing her business, and is still the company’s head chocolatier.

Grön candies in production. Photo by Jason E. Kaplan

That is not to say becoming an international brand hasn’t caused problems. Supply-chain issues and the global wheat shortage — an effect of Russia’s invasion of Ukraine in February — have made it challenging to get enough inventory to satisfy demand. (Some of Grön’s candy bars include wheat for sugary wafer crumbles and candy coatings.) Smith tells OB she has had to modify some recipes to leave out rarer ingredients like coconut to ensure consistency while her company grows.

Despite attempts from Democratic lawmakers to legalize cannabis nationally, Smith says that states with budding cannabis markets need federal prohibition to help them compete against out-of-state brands like Grön.

“In my opinion, we’ve crossed a bridge when it comes to national legalization. The companies that have invested in a lot of these states to create the cannabis framework now own those states. Companies have invested billions of dollars to own states like Florida, or Arizona or New Jersey, and those companies have really little interest in bringing the walls down and opening it up for other people to come in,” says Smith. “I think there will be some sort of federal legalization eventually, but there’s going to be a lot of lobbying to keep it state-specific beforehand.”

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If Smith is right, it makes sense for states to institute protectionist measures. Oregon’s mature market has less room to grow, but sales of cannabis in the U.S. are still exploding at the national level. According to German market and consumer data platform Statista, sales of flower in the U.S. grew by 27% from 2020 to 2021 and are estimated to grow an additional 29% in 2022. Sales of edibles are lower, less than a quarter of overall flower sales (estimated $3 billion nationally compared to $14.1 billion for 2022), but have also increased 22% and 24% over the last two years, respectively.

The Oregon market is growing more slowly. According to OLCC department data, edibles and tinctures sold $10.5 million worth of product in September of 2022, compared to $41.2 million worth of usable marijuana flower and $20 million of extracts and concentrates.

But sales of edibles appear to be more resistant to price fluctuations. Sales of flower products declined 35% from their high in July of 2020. Edibles declined 14.3% from their record high of $12,279,418 in April of this year.

Grön edibles are still sold mostly in Oregon: About 40% of the company’s revenue comes from the Oregon market. But that percentage is going down every year.

Grön edibles often feature high-quality chocolate. Photo by Jason E. Kaplan

Josh Snyder, co-owner of Smooth Roots dispensary in McMinnville and Lincoln City, says new edibles products — from gummies and brownies to popcorn, soda and frozen desserts — are landing at his stores constantly.

That can make it difficult for brands to keep up. Smooth Roots stopped carrying Grön two years ago when, Snyder says, he wasn’t seeing the product move as quickly as some of the newcomers.

“I think Oregon has more gummies than probably any other state,” Snyder says. “I swear, every other day somebody arrives trying to show me a new edibles product. While the edibles market is highly saturated, it’s also stable and shows the most potential for growth, since edibles are popular for medicinal use and among middle-market consumers.

“You can dose yourself really well now on the legal market,” Snyder says. “You can know you’re taking 2 grams, 5 grams, and with nanotechnology, edibles can be affecting you for 15 to 20 minutes, as opposed to eight hours. We’re seeing more elderly people using cannabis and using it for sleep, including my grandma.”

But Oregon edibles makers could have trouble getting bedtime cannabis products to larger markets. CBN, a cannabis derivative present in many gummies meant to help with sleep, was banned from supermarkets by the OLCC, a ban which took effect on July 1. According to the OLCC, the compound, which produces drowsiness, is frequently created under laboratory conditions and thus considered “artificially derived.”

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Christine Smith, whose CBN products were removed from grocery stores in July, says the OLCC’s decision “broke [her] heart.”

Smith says she’s thankful the OLCC is giving edible companies a year to continue selling through dispensaries and is hopeful the commission will revise its ban once more research on the compound has been conducted.

“The one-to-one-to-one THC, CBD and CBN format is so effective. There’s a reason why it’s 30% of our revenue,” says Smith. “To lose that for consumers, I think, was setting back the industry. So being able to find at least an avenue for us to be able to keep it on market in Oregon I think is important.”

After the OLCC’s announcement, both Smith and an attorney for Wyld — another Oregon edibles manufacturer with a multi-state footprint — slammed the ban as hobbling Oregon cannabis brands from growing in their home state.

Because of the grocery-store ban, Grön officially discontinued its line of CBN-only products, since its top-selling item contained CBN. Smith says she has no intention of leaving Oregon, though the ban did make her reconsider where Grön’s world headquarters should be located, especially given her company’s continuing expansion into other states.

Grön production facility. Photo by Jason E. Kaplan

She says the biggest industry shock will arrive in July 2023, when all CBN products not meeting FDA approval will be banned from all Oregon markets.

Cannabis products cannot achieve FDA certification because marijuana is federally illegal. But the agency can designate products as Generally Recognized as Safe, a notification companies must apply for at their own expense.

Smith says Grön’s current CBN supplier, Milwaukie-based cannabinoid biotechnology firm FloraWorks, will likely be the only CBN supplier able to meet OLCC requirements. A representative from Wyld told OB via email that company leaders are confident their CBN supplier will both meet the deadline and “definitively prove the safety profile of CBN as an edible ingredient.”

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“The OLCC says your CBN products need to be FDA approved, but you can’t be FDA approved. The FDA isn’t approving cannabinoids, so what they allowed for was an independent review process where they accept the approval of a third party. FloraWorks is spending somewhere maybe in the million-dollars [range] to do a third-party toxicology study to show that this is not dangerous,” says Smith. She notes CBN products have not been shown to be dangerous for consumption by any research she is aware of, with millions of CBN products being on the market.

Smith believes the Oregon cannabis market is overregulated but says companies that can compete with Oregon’s cannabis standards are in better shape across the country. Until federal legalization takes place, and likely after, states will have differing standards on what they consider acceptable THC products — standards which Grön will have likely met or exceeded in Oregon.

Despite Oregon’s comparatively heavy regulations, Smith says having a strong presence in Oregon will always be a top priority for her company. She describes Oregon cannabis consumers as having refined taste, and that staying ahead in the hypercompetitive Oregon market gives Grön the best chance to succeed elsewhere.

“It really still is the Wild West out there. We’re trying to stay ahead of regulation because, I mean, our livelihood is at stake, and the industry is moving so fast and evolving that the rules are trying to keep up,” says Smith.

“As a cannabis brand, if you can make it here, you can make it anywhere,” she says.

Christine Smith is used to working through regulations.

Smith founded THC edibles brand Grön (which means ‘Green’ in Swedish) as a side project in 2015 while working at an architecture firm in Portland. But says she knew after one year of operation that her edibles company was where she wanted to dedicate her time.

“I realized I had stopped being creative and I started being a project manager. I was looking for a creative outlet on the side and I saw this burgeoning cannabis industry,” says Smith. “I saw that there weren’t any really high-quality chocolate products on the line, and so I thought I would make my own.”

Grön founder Christine Smith. Photo Jason Kaplan

Oregon’s cannabis industry has ebbed and flowed since the drug was made legal for recreational use in 2015, but Grön is growing: according to internal reports shared with Oregon Business, the company has grown 276% in overall revenue since 2019. This month the company officially went international, with Grön products now sold in Canada through a third-party distributor. Smith attributes the company’s growth to its ability to connect to middle-market consumers — and by expanding into less-regulated, less competitive national market.

Domestically, Grön products are sold in Oklahoma, Missouri, Nevada, and Arizona as well as Oregon. The company has three production facilities in Portland. Smith says her dream is to open a new Oregon facility if and when cannabis becomes federally legal. But until then, having a single mass-manufacturing plant for edibles doesn’t make sense, given current regulations barring cannabis from crossing state lines.

Until federal legalization, and all THC-infused products manufactured in Oregon must be sold here. Smaller manufacturing operations spread out across states may not be the most efficient way of running a national cannabis brand, but it’s the only way for now.

Grön founder Christine Smith holds chocolate covered edibles. Photo Jason Kaplan

Smith is also the company’s head chocolatier, a skill she taught herself while creating her business. The metal chocolate squirters and vats of candy shelling brought to mind Willy Wonka’s Chocolate Factory, but despite the humming machinery, most of the products were pressed and rolled by hand. Something Smith says is a central tenant of good chocolate making.

There is nothing illegal about exporting chocolate and packaging, and not being able to move cannabis across state lines is something Smith says her company has been able to work around. From her distribution hub in Portland, Smith can export the packaging, candy ingredients, chocolate, and recipes to facilities out of state to be made with cannabis grown in those areas.

Grön operations in Arizona, Oklahoma, and Missouri are all run by Grön employees, but the production space is subleased with a license partner able to obtain a state cannabis processing license.

A worker pours crushed peanut butter pretzels over chotolate at Grön’s original Portland kitchen. 

 The Nevada operation is like the Canada agreement, but with more hands-on involvement in marketing and sales support. Both are ‘licensing agreements’ which operate like franchises, with Grön giving contractual permission to make, promote, and sell Grön products in their own markets.

While the exact THC strains present in the candies may not be 100% identical from state to state, she says the things consumers care most about — flavor, branding and experience of her gummies — is something she has been able to keep consistent.

That is not to say becoming an international brand hasn’t caused problems. Supply chain issues and the world’s current wheat shortages — a byproduct of Russia’s invasion of Ukraine in February — have made getting enough inventory to satisfy demand a challenge. (Some of Grön’s candy bars use wheat to create sugary wafer crumbles, as do certain candy coatings.) Smith tells OB she has had to modify some recipes to leave out rarer ingredients like coconut to ensure consistency while her company pioneers into growing out-of-state markets.

Photo: Jason Kaplan

Grön edibles are still sold mostly in Oregon: about 40% of the companies’ revenue comes from the Oregon market. But that percentage is going down every year, and the decrease is likely to continue due to Oregon’s ban on supermarket sales of CBN products — which took effect July 1.

Smith says that decision “broke her heart.”

According to the OLCC, the compound, which produces drowsiness, is frequently created under laboratory conditions and thus considered “artificially derived.”

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Smith says she’s thankful the OLCC is giving edible companies a year to continue selling through dispensaries and is hopeful the commission will revise its ban once more research on the compound has been conducted.

“The one-to-one-to-one THC, CBD, and CBN format is so effective. There’s a reason why it’s 30% of our revenue,” says Smith. “To lose that for consumers I think was setting back the industry. So being able to find at least an avenue for us to be able to keep it on market in Oregon, I think is important.”

After the OLCC’s announcement, both Smith and an attorney for Wyld CBD, Oregon’s other major edibles brand both slammed the ban as hobbling Oregon cannabis brands from growing in their home state.

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Because of the ban, Grön officially discontinued its line of CBD-only products, since its top-selling item, CBN-infused gummies, contained CBN. Smith says she has no intention of leaving Oregon, though the ban did make her reconsider where Grön’s world headquarters should be located, especially given her company’s continuing expansion into other states. She says the customer base of cannabis users is also changing, with more consumers looking for low-dose produts to help with sleep and relaxation, 

“Cannabis products are becoming more normalized day by day as more states vote to legalize,” says Smith. “If I was going to put my wizard hat on, I think we’re going see a lot more low-dose product. People who use THC to make doing housework and homework with their kids a little more pleasant. The minor cannabinoids products, for people are looking for sleep, to relax and to focus, are getting really, huge.”

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Smith says she thinks the low-dose THC products, like her gummies, are going to become more mainstream as time goes on. She says the largest-growing demographic for cannabis users are people wanting to use the product medicinally. If the trend continues, it could be great news for Grön products.

Smith admits she believes the Oregon cannabis market is overregulated, but says companies able to compete up to Oregon’s cannabis standards are in better shape to across the country. Until federal legalization takes place, and likely after, states will have differing standards on what they consider acceptable THC products — standards which Grön will have likely met or exceeded in Oregon.

Despite Oregon’s comparatively heavy regulations, Smith says having a strong presence in Oregon will always be a top priority for her company. She describes Oregon cannabis consumers as having refined taste, and that staying ahead in the hypercompetitive Oregon market gives the Grön the best chance to succeed elsewhere.

“As a cannabis brand, if you can make it here, you can make it anywhere,” says Smith.

 To subscribe to Oregon Business, click here.

A certified public accountant with more than 30 years in the financial services industry, Hunzicker saw an opportunity to provide services to the new crop of entrepreneurs entering the field. He started contacting fellow accountants, only to find they were rather quiet on the subject.

So in 2018, he launched DOPE CFO, a firm that trains national accounting firms and others — including CPAs, CFOs, bookkeepers and attorneys — on how to provide financial services for the cannabis niche. The company now works with more than 500 CPAs and accountants in every state in the United States. Hunzicker also trains national firms and helps the American Institute of CPAs organize conferences, including the organization’s upcoming cannabis industry conference in Colorado.

Oregon Business spoke with Hunzicker, who is based in Bend, about the state of the industry. This interview has been edited for space and clarity.

What are some of the challenges that this industry has as far as the financial end? The biggest thing, of course, that I can think of is the lack of access to traditional banking, and dealing in cash. What are some of the others?

That’s actually a common myth. Just looking at our home state here of Oregon, is banking not allowed? No, it actually is. MAPS Credit Union, which has 14 locations in the state, they bank cannabis all over the state. There are many, many banks and credit unions that serve cannabis clients all over the U.S.

That said, there’s a lot of cash in the industry. We still see dispensaries that may have a couple 100 grand laying around, or a farm. So we have to deal with that as accountants. Just like casinos have lots of cash — we can still account for it and control it. But yes, that is one of the issues.

Most companies are not doing correct cost accounting, even today. Oregon’s a great example where, after eight years [of legalization], probably seven out of 10 cannabis companies are doing accounting and their tax returns wrong. There’s a big opportunity to come in and actually do it right. But it’s not simple.

When you say that they’re doing their taxes wrong — and maybe there’s not a simple answer to this — what are the biggest mistakes that dispensaries are making?

It’s not just dispensaries; it’s farms or product manufacturers or gummy-bear makers or whatever. First and foremost, most of them are not doing cost accounting. Say you have a bookkeeper, and you pay the rents or whatever for your dispensary or your farm. That’s $1,000. Most bookkeepers go into QuickBooks or whatever and enter rent expenses and pay $1,000. That’s step one. But you need to come back at the end of the month and deal with cost accounting. There’s all kinds of processes. We’ll take part of rent and we’ll put it in work in process inventory, we’ll take another piece of rent, and we’ll put it in finished goods inventory, we’ll take another piece of rent and put it into cost of goods sold, and then we’ll keep the remaining piece of rent as rent. So we need to do that for every single indirect cost.
If we’re not doing that correctly, under federal tax code, we will be doing our tax return basically wrong. We’ll be missing out on some of the costs that we can put in the inventory. It’s a benefit to the farmer or dispensary if they’re doing this right. They’re going to actually lower their taxable income. We find most of them are not doing it right. I’ve personally never ever found a client that was actually doing this accounting right.

The biggest reason this was not done right is there just simply weren’t people that were qualified or dove deep into this niche early on. There were people that maybe didn’t even know how to do cost accounting. Even if they maybe took that class, maybe they don’t have the tools and work papers built to do that. [AICPA is] actually doing a cannabis conference in Denver, on August 8 — it’s only their second one. The industry is coming in, but it’s taking them a long time.

RELATED STORY: Cannabis Crunch

When you were getting into this niche, what was the attitude among other accountants? Were they excited about it? Were they reluctant?

Totally reluctant. So again, back in 2015, I was stuck. I was asking [other accountants], like, “Hey, have you all looked at this issue or that issue?” They were like, “No way, we’re not touching cannabis.” I called national firms, and they said, “We don’t touch this space. No way.”

Where are we today? I talk to at least five to seven accountants a day. Actually, more than 10 if you add in people who message me on Instagram and Facebook and text me, people who want to get in. People are dying to get into the niche for good reason. It’s a very lucrative niche. It’s growing rapidly. It’s underserved.

So many national firms are into cannabis in a big way right now. It’s just completely changed over the last five years.

And on the flip side, what was the attitude in the [cannabis] industry? I suspect you probably were talking to a lot of people who had not really dealt with professional accountants before and did things very informally.

We saw — and we still see it today — either accounting didn’t exist or it was horrible. Or it was someone’s cousin doing it, or a bookkeeper, and it was all wrong.

They’re realizing now that the IRS is coming. It takes them three, four years to come. But when [the IRS] shows up, [business owners] are paying in a big, big way. The IRS is winning every single case. Even small, single dispensaries or farms are getting huge penalties and interest against them. Not just for doing the taxes wrong, but even accuracy-related penalties.

Our community is tied very deeply into the IRS. We’ve had people working in the IRS or whatever. We have attorneys that are trying cases, and the IRS is ramping up in a big way to come up to this industry. So I tell people: Even if, say, you’re in Bend, you got a dispensary, you have a very good chance of getting visited in the next couple of years. And you’re going to really pay big if you’re not doing accounting and taxes right.

Do you have any data on how often cannabis businesses get audited?

I don’t have the actual statistics, but it’s ramped up every year. The IRS’s division that deals with cannabis, they’ve been allocated a ton of money and a ton of new hires. They’ve told the industry they’re coming. If you sit in the IRS’s seat — or the state of Oregon, or state of California — there are big dollars to be collected there. Almost every tax return they look at is wrong, and it’s wrong in a way that’s underpaying taxes. And what is it our government needs? It needs money. They say, “OK, let’s go after the industry that’s going to give us the most bang for our buck.” So it makes perfect sense when you look at it from their viewpoint.

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According to the OLCC market report released this month, the wholesale price of a pound of useable marijuana in June had dropped by nearly half of what it was last year. ($1,299 versus $698). Retail prices have also dropped 20% year-over-year, despite inflation reaching 9.1% in June.

Jeremy Kwit, founder of the Bend-based cannabis retailer Substance, says inflation means his customers have less discretionary money to spend on his products. And although his operating costs have increased, he tells Oregon Business that he has lowered prices in order to keep customers coming back.

“Wealthy people can take yoga classes and eat at fancy restaurants when they want to feel happy, but cannabis is a working-class drug,” says Kwit. “We know individuals are suffering, so as a community resource we have to provide them with the lowest prices possible so they can afford to consume.” 

Substance Cannabis Market in Bend. Credit Substance Cannabis Market. 

Kwit was in the process of opening a new location in Cottage Grove when, he says, inflationary pressure increased his expansion costs by nearly 30%.

Competition with large out-of-state retailers and the illicit market, as well as consumers buying smaller amounts of product, meant scaling up the company would give it the best chance to succeed. But a tight labor market, combined with increased costs and decreased revenue, also made it difficult to grow.

“We made 30 calls to surveyors along the I-5 corridor and none of them called us back. Finally, someone said they would do the work but it took them three months for the proposal and three months to get onsite and do the work. But their work was terrible, so we had to hire a new one,” says Kwit. “That’s 12 months just to get lines on paper. That impacts my ability to run our business, let alone expand. We might literally lose out on our ability to open stores in other cities because we have been unable to produce city planning documents.”

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Meanwhile, Kwit still operates without access to national banking systems, one of a myriad of regulatory challenges facing cannabis suppliers.

“It’s like one of those silly television game show shows where you have to scale over things with a rope and there are obstacles trying to push you into the water,” says Kwit. “We’re all climbing a wall in the cannabis business, I’ll tell you that.”

Bethany Moore, communications director of the National Cannabis Industry Association, told OB via email that the market fluctuations were a “normal part of the growing pains of any emerging industry.” Moore acknowledged the specific challenges Oregon cannabis businesses face competing with the illicit market, which makes raising prices to keep up with inflation more difficult.

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She says after an extremely profitable 2020 and 2021, market forces and federal inaction on cannabis reform are making growers and retailers feel the squeeze.

The Cannabis Administration and Opportunity Act (CAOA), introduced last week by Senate majority leader Chuck Schumer and co-sponsored by Senate finance committee chairman Ron Wyden (D-OR) and Corey Booker (D-NJ) would remove cannabis from the federal list of controlled substances. The bill joins other frozen federal legal action to ease restrictions on cannabis businesses, including the SAFE Banking Act, and the MORE Act — which would allow the cannabis industry to operate like other industries.

Senate Republicans have threatened to filibuster all three pieces of legislation, though some polls say most Republican voters support cannabis legalization according to some polling figures.

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The cannabis industry’s struggles will likely cause budgetary problems for states that have legalized the drug. State economist Josh Lehner tells OB that lower cannabis prices could lead to a “moderate slowing” of tax revenue generated by the industry.

“The drop in prices is having a clear impact on tax revenues,” says Lehner, who adds that while his economic forecast did anticipated a decline in tax revenue for the cannabis industry, the dip may be from inflation rather than from consumers shifting their spending habits in the wake of COVID-19, as his previous model suggests.

“We expected a decline in tax revenue, but it may be that we are getting the forecast correct for the wrong reasons.”

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For Kwit, the only option is to keep moving forward. He compared Oregon’s cannabis industry to its craft beer scene, where some of the state’s decades-old breweries have shut down due to competition and inability to scale. He adds that the struggles of cannabis retailers are the “tip of the iceberg” and that that cannabis supply chain is hurting all the way down.

He says labor costs and the cost of dealing with insects — which are a problem for farmers across the state this summer — have hurt growers as much as declining revenue.

Still, Kwit was upbeat about his company’s prospects moving forward. As of now, the Cottage Grove expansion is still full speed ahead.

“We’re running on fumes, but we’re not a distressed asset. We’re an efficient operation. There’s a lot of consolidation happening all around us, and we need to grow the business to make it a fiercer competitor,” says Kwit. “Those of us that are able to make it through this are going to be scrappier.”

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This week products containing the cannabis compound CBN will be removed from Oregon grocery-store shelves, due to restrictions passed by the Oregon Liquor and Cannabis Commission in December.

Oregon will become the first non-prohibition state in the country to ban the sale of products which use cannabinol, or CBN, from grocery stores when the ban becomes effective Friday.

CBN is not as well known or widely researched as cannabidiol (CBD) and cannabigerol (CBG), but is not considered psychoactive. Proponents say it can induce sleep and help patients manage pain.

A sales clerk displays Wyld CBN-infused gummies. Photo: Jason Kaplan.

Because the compound is usually created in a laboratory, it is considered “artificially derived” under regulations adopted by the Oregon Liquor and Cannabis Commission. OLCC officials say they aren’t as concerned about the potential for intoxication so much as whether the product is safe.

According to a 2021 market analysis by Seattle-based data-analytics firm Headset and FloraWorks and published by MJ Biz Daily, an Oregon supplier of hemp-derived cannabinoids, found sales of CBN products totaled $65 million in the four quarters before the analysis was published.

Of the four states where CBN was available in 2021 — California, Colorado, Nevada and Oregon — Oregon was the second largest market for CBN products, behind California, the analysis said.

Wyld CBN-infused gummies. Photo: Jason Kaplan.

After Oregon’s ban goes into effect, grocery stores will be unable to carry CBN products, but dispensaries will have a one-year grace period to continue to sell the products.

After the year is up, the OLCC only allow the sale of CBN products that undergo a rigorous and expensive testing processes and receive approval from the Food and Drug Administration.

At least two Oregon-based manufacturers — Wyld and Grön — threatened to leave the state shortly after the ban passed, telling Willamette Week in January that the ban would make their businesses unsustainable.

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Earlier this week the Portland Business Journal reported that while Wyld continues to fight the ban, the company has not announced a move or any job cuts.

Neither company responded to request for comment in time for Oregon Business’ deadline, but a Wyld representative said they would provide a statment in the near future.

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Workers at a Gresham-based cannabis grow operation walked off the job on Monday to demand recognition of their labor union, saying the company fired four employees for trying to unionize the facility.

In a press release, United Food and Commercial Workers Local 555 said the workers at CBN Holdings decided to unionize in order to address unsafe working conditions.

According to communications director Miles Eshaia, the walkout included around 25 assistant growers, maintenance staff, and post production staff, and comprised a ‘majority’ of the holding company’s workforce.

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CBN co-owner and chief operation officer Matt Hurt told Oregon Public Broadcasting and Willamette Weekthat only about six employees participated in the walkout. Hurt also said he was “completely unaware” of efforts to unionize, and that no employees had been fired due to a union drive.

Neither Hurd, nor CBN Holdings, responded to Oregon Business’ request for comment.

Graham Trainor, president of the Oregon AFL-CIO, wrote in an email to Oregon Business that his organization “stands proudly” with the CBN employees, and that the Oregon AFL-CIO will continue to support efforts to unionize workers in the cannabis industry across the state.

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“Cannabis workers like the ones at CBN Holdings deserve protection under our labor laws and they deserve the ability to stand together in the workplace by forming unions,” Trainor tells OB. “Our Movement lives and breathes the idea that an injury to one is an injury to all, and we will continue to speak up for any worker dreaming of a better life and organizing their union on the job.”

Sandy Humphrey, secretary-treasurer of UFCW Local 555, said in Monday’s press release that when Oregon legalized recreational cannabis, it did not lay out clear enough guidelines for employees to unionize. That left workers in “legal limbo” without a state agency to protect and oversee workers at grow operations.

A 2021 report by the Economic Policy Institute said unionization in the cannabis industry could lead to safer jobs that pay between $2,810 to $8,690 more per year than in what it describes as a “low-road scenario,” where cannabis workers would have few to no workplace protections. Workers at unionized cannabis businesses also enjoyed more workplace benefits, including health care, paid leave and fairer scheduling practices.

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In an interview with OB, Eshaia acknowledged that cannabis store owners face challenges of their own, including federal restrictions that prevent them from using. He said UFCW was in support of local and national efforts to let owners use banks, instead of keeping large amounts of cash on-hand.

UFCW Local 555 has also called on cannabis dispensaries to stop selling CBN Holdings’s products, sold as Cannabis Nation, until it recognizes its workers’ call for a union.

“Unionization of the cannabis industry not only creates a better environment for workers and their families, but further pushes its need for federal recognition and legalization as a high priority. The right to form a union is more important now than ever before, and why UFCW 555 is calling for a boycott of CBN Holding’s products,” said Dan Clay, President of UFCW Local 555, in UFCW’s release.

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