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Report: State Cannabis Regulators Leave Room for Growing Black Market

An audit by the Oregon Secretary of State's office found that state regulators have failed to prevent cannabis from being diverted into the black market.

Posted: Jan 30, 2019 12:23 PM

SALEM, Ore. — More than four years into Oregon's legalization of cannabis, regulations on the industry leave much to be desired, according to a report from Secretary of State Dennis Richardson.

The biggest problem? State regulations have failed to keep large quantities of marijuana from being diverted to a burgeoning black market.

“Preventing diversion is imperative to ensure federal authorities maintain confidence in Oregon’s ability to adequately regulate the use and sale of marijuana,” said Richardson. “As the market is still developing, agency tracking of Oregon’s marijuana supply and inspections is lacking. This increases the risk that marijuana businesses in Oregon will find themselves subject to federal scrutiny.”

According to an anecdote from Richardson's office, the Oregon Liquor Control Commission (OLCC) which oversees regulation of legal cannabis has seen proof-positive of this diversion:

"In September 2018, the agency revoked a recreational grower’s license in response to 13 compliance violations. Two of the licensee’s plants reported as destroyed were found at a residence where a butane explosion had occurred earlier in the year, linking the grower to black market activity."

While the OLCC has done a great deal to automate some checks on cannabis shops and growers — such as seed-to-sale product tracking and surveillance cameras — there is still potential for "data errors," the Secretary of State's office found.

The biggest issue for both the recreational and medical areas of cannabis production is simply a lack of first-hand, human inspection of shops and grow sites, beyond an initial inspection prior to licensing.

"As of October 2018, OLCC had only conducted proactive inspections of an estimated 3% of 591 retail shops and 32% of 1,094 growers," Richardson's office found.

Meanwhile, the Oregon Health Authority (OHA) — tasked with regulating medical cannabis — has only four inspectors for some 6,850 grow sites. Between January of 2017 and September 2019, the OHA had only managed to inspect some 2.9 percent of those sites.

Richardson's office determined that the OHA lacked even the regulatory power that the OLCC possesses — rendering them unable to put in the same automated monitoring measures adopted by the OLCC and leaving them without the authority to test medical cannabis for pesticides and solvents, which is common practice for recreational cannabis.

"All marijuana labs in Oregon must be accredited by OHA’s environmental lab accreditation program," the audit found. "However, limited authority, inadequate staffing, and inefficient processes reduce the program’s ability to ensure labs consistently operate under accreditation standards."

The Secretary of State's office said that it has made 23 recommendations to the OLCC and OHA to help prevent diversion to the black market and improve testing procedures.

In a statement of response released on Wednesday, the OHA said that it agreed with the audit's findings and intended to pursue the recommendations.

"Auditor findings for the Oregon Medical Marijuana Program were consistent with findings of an internal review OHA conducted last year and submitted to the Oregon Cannabis Commission in May 2018," the agency said.

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