Cannabis News

Photo by DJ Davis | hotboxfarms.com

It was 5 a.m. when he heard somebody banging on his window from the darkness outside.

Dan Cummings, the community development director in Ontario, Ore., a city of roughly 11,000 people in the eastern part of the state, had spent some early mornings at his office in the days leading up to that clatter.

Earlier that week, in November 2018, Ontario voters overturned the city’s ban on cannabis sales, with 56.8% of 3,383 balloters showing their support for a local measure that would impose a 3% tax on adult-use retail.

Four years earlier, when Oregonians approved Measure 91 to legalize cannabis cultivation and adult-use statewide during the 2014 general election, residents in Malheur County, where Ontario is located, were on the other side, voting 68.3% against that measure. Under the state law, counties and cities that opposed the measure by at least 60% had the option to outlaw cannabis legalization in their municipalities. The Ontario City Council did just that when its members voted to prohibit cannabis retail in 2015.

But when a citizen-led petition gathered enough signatures to get a new pro-cannabis retail measure added to the Ontario ballot in 2018, Cummings said he started writing community development codes ahead of time in case voters lifted the ban. A couple statutes he wanted to establish included a licensing and permit program for dispensaries as well as 1,000-foot buffer zones between fellow retailers and between a retailer and schools, city parks and residential areas. In addition, potential dispensary owners had to show proof they owned property that met those buffer-zone parameters before receiving city permits.

“We had things in place prior to that so we didn’t get stuck like a lot of cities with your pants down,” Cummings said. “I came in at 4:30 in the morning, which I had been doing a lot to try and get all the codes and everything written up and prepared, and about 5 o’clock I heard somebody bang on the window out front. I looked out there and there was somebody sitting on my bench out there. And, at first, I thought, ‘What are they doing?’ And then it hit me like a rock, ‘Oh, I know what they’re doing. They’re lining up.’ And sure enough, that’s exactly what they were doing.”

While the 2018 measure wouldn’t take effect until Jan. 1, 2019, experienced dispensary owners and aspiring dispensary owners alike started camping outside Cummings’ office the same week of the general election in a mad rush to stake a claim in one of the most promising locations in Oregon. Nestled on the state line with Idaho, Ontario is positioned to take advantage of the most populated area in the Gem State, with Boise residents no farther than 50 miles from town.

Without medical or adult-use legalization in their own state, Idahoans have easy access to Ontario via Interstate 84. In southeastern Oregon and southwestern Idaho, in an area known as Treasure Valley, there are north of 700,000 residents whose major roadways link up in Ontario, and that population is expected to grow.

While state and local law enforcement might have something to say about the matter, the business opportunity was tremendous.

Photo by Danny Ramirez | burntriverfarms.com

Shawn McKay was one of the dispensary entrepreneurs eyeing the opportunity to take advantage of retail space in Ontario after the 2018 ballot measure passed. He and business partner Guss Young, the co-owners of Burnt River Farms, already had a cultivation operation in place in Huntington, Ore., about 30 miles northwest of Ontario. When it came to standing in line outside Cummings’ office to turn in their application for the possibility of opening their first dispensary, there were no guarantees, McKay said.  

“It was definitely an unknown,” he said. “I mean, we just had to keep, you know, just sticking to it and looking for a place. And we happened to be fortunate enough to find the place that we did, and we were able to secure it. And we had been through the licensing process a little bit and were familiar with that. So, we just kind of went after it.”

Oregon’s “Highest County”

After push came to shove, three dispensaries opened in 2019 in Ontario, including Weedology in July, Burnt River Farms in August and Hotbox Farms in October. By January 2020, those three retail operations were combining to sell more than $5 million of cannabis products a month, according to data from the Oregon Liquor Control Commission (OLCC).

Five more dispensaries gained traction in 2020, including Top Crop and Zion Cannabis opening their doors in May, Treasure Valley Cannabis Company opening in October, and then The Bud House and Cannabis & Glass setting up shop at the end of the year. Cummings said six more dispensaries are approved for 2021, and there might be around 20 in all before the city is maxed out of space with the requisite buffer zones spread across its 5 square miles.

As cannabis sales in Oregon soared past $1.1 billion in 2020, according to OLCC data, Malheur County concluded 2020 with a whopping $91,713,684 in sales, all coming from the dispensaries in Ontario. The No. 1 county in the state on a per-capital basis, with roughly $3,000 in cannabis sales per resident, Malheur took over the unofficial title of Oregon’s “Highest County,” dethroning three-time defending champion Baker County, which neighbors to the north.

According to Ontario Finance Director Kari Ott, the city is expected to receive approximately $3 million in tax revenue from cannabis sales for fiscal 2020-2021, which ends June 30, to add to its annual general fund budget of almost $10 million.  

Photo by DJ Davis | hotboxfarms.com

Steven Meland, who co-owns Hotbox Farms with Jeremy Breton, said he hopes to champion the “Highest County” title as a means to attract even more consumers to the dispensary landscape in Ontario.

“There’s certainly a huge opportunity for cannabis tourism,” Meland said. “And I think the Oregon Liquor Control Commission has been fairly supportive of us marketing Ontario as a cannabis tourism destination. It’s somewhere where people can come and enjoy legal access to cannabis. Of course, we certainly don’t recommend that they take it back to their state, or have it leave Oregon at all, but it certainly has been somewhere that sees a very high capita of customers.”

Meanwhile, Multnomah County, which includes Oregon’s most populated city, Portland, remained the state’s leader with $313.4 million in total cannabis sales in 2020, which registers to roughly $385 in sales per person.

While Meland and Breton opened the doors to their Hotbox Farms dispensary in Ontario in 2019, they opened their first dispensary four years earlier in nearby Huntington (in Baker County), a town of about 400 people, where city council members voted in favor of legalizing cannabis sales after state Measure 91 passed. About a 30-minute drive from Ontario, along I-84, Huntington used to be the nearest locality for Idahoans seeking cannabis retail.

But once dispensaries opened in Ontario, it became the closer, go-to destination for travelers from the Treasure Valley region. While Ontario cannabis sales rocketed to $91.7 million in 2020, cannabis retail out of Baker County plummeted from $30.2 million in 2019 to $7.9 million in 2020, roughly a 74% decrease, according to OLCC data. Based on location, Meland said that was to be expected.   

“I would certainly say that Huntington was a great place for us to learn the industry and get our feet underneath us,” he said. “When we were able to switch over to running both the Huntington and the Ontario store, we certainly saw an increase in [Ontario] sales right away. There was no drop-off or ramp-up period that was needed for Ontario.”

Overturning the Ontario Ban

Childhood friends, Meland and Breton moved to Ontario in 2015 to start their medical grow, and sold product to dispensaries throughout Oregon. They halted their medical cultivation when the opportunity came to open their Hotbox Farms dispensary in Ontario.

But opening another dispensary wasn’t necessarily the major hurdle they had to clear. Just getting a pro-cannabis initiative on the 2018 ballot was work in itself, Meland said. What started as a grassroots effort to gather signatures for a citizen-led petition turned into organized canvassers and political advisers to run a structured campaign, after Meland and Breton helped fund it.  

With Malheur County historically a conservative stronghold—69.4% of its voters cast ballots for Donald Trump in 2020—citizens of Ontario previously voted down pro-cannabis legislation following state-passed Measure 91 in 2014, which left city council members asking what warranted a new measure on the 2018 ballot, Meland said.

“The general sentiment of the town was that they did not want cannabis and that they had already voted to not have cannabis,” he said. “So, there was certainly a large hurdle of even trying to get the conversation. There would have been a much easier path to getting it on the [2018] ballot, which would have simply just had been the city council vote to put it onto the ballot and let the people decide. Once again, however, they weren’t really interested in that, as they felt that people had already spoken.”

But once the 2018 ballot initiative picked up steam, with campaign drives and events attracting petition signatures, city officials created a Marijuana Ad Hoc Committee, to ensure they had their laws and regulations intact. Meland said they asked him to sit on that committee, because of his background and expertise in running cannabis businesses, and then the members of that committee nominated and voted him to be the chairman at their first meeting.

In his responsibility to his community, Meland said he wanted to make sure that he helped create a system that was fair and equitable. While Hotbox Farms did end up getting several dispensary licenses through the award process, it wasn’t the first company to receive those licenses and it wasn’t the first dispensary to open up shop in town.

“A lot of that really was because the system that we created was so fair,” he said. “There was no guarantee who was going to get dispensaries.”

The same day the voters of Ontario bubbled their ballots to overturn the ban on cannabis sales, they also elected a mayor—in a four-candidate race—who ran on a “No Pot” platform. Riley Hill took office with 40.1% of the vote. When the election results came in, those two outcomes created quite the paradox, Meland said.

Photo by Danny Ramirez | burntriverfarms.com

The general preconception of Ontario residents might have been that they’d see a bunch of kids standing in line to buy smokable flower outside dispensaries, Meland said. But, if they drove by his Hotbox Farms retail location 30 minutes down the road in Huntington, what they’d actually see were retirees, ex-schoolteachers or business leaders who were there to purchase non-smokable products like topicals, Meland said.

“That started to break down those walls for the community,” he said. “So, even people that maybe were typically a supporter of the new mayor, who’s also somebody who’s been in town a long time, they may have also said, ‘Well, you know, Riley [Hill], we like you. And we like a lot of your policies. But we actually also like this cannabis cream too.’”

The Competitive Market

Once voters gave the greenlight for dispensaries to sell adult-use cannabis in Ontario, it didn’t take long for that line to form outside Cummings’ community development office in anticipation for the application process. After all, to make the process fair, the city adopted a first-come, first-serve system.

But with his door shut and people camping outside at 5 a.m., Cummings heard that bang on his window. In anticipation of a competitive rush to stake a claim in the market—even before the law was in effect—Cummings said he came up with a pre-application stage to maintain order outside his office.

“So, I went out there and painted numbers to keep the people under control out there, because the first thing happened and we had people bullying the other people,” Cummings said. “So, I went out there and painted marks on the sidewalk and separated them and said, ‘You stay in this circle. You don’t harass anybody else or you will lose your spot.’ So, that made them all behave standing in line there.”

In his heyday in the 1960s, Cummings said he was a cowboy who enjoyed his whiskey. Cannabis was never his thing. He moved to Ontario in 1974 and owned an engineering land surveying business up until 2015, when he retired. When city officials got wind of his retirement, they coaxed him into taking on the community development directorship, he said. A few years later, he was at the center of the biggest cannabis retail rush in Oregon.

“Had I only known,” Cummings said and laughed.

Ontario is historically an agricultural community, he said, but it’s always had a big retail hub being on the border with Idaho, which has a 6% sales tax. Oregon’s sales tax is zero.

Photo by Danny Ramirez | burntriverfarms.com

But business traffic is more than just Idahoans stopping in town to take advantage of the Ontario retail market, which now includes cannabis. Off I-84, Ontario has two rest areas as well as a Pilot Travel Center and a Love’s Travel Stop. McKay said that brings in even more customers to his Burnt River Farms dispensary.

“We’re right next to the truck stop,” he said. “So, we serve clients from all over the United States on a daily basis. I mean, being next to that border definitely has some influence, but we’re in a really high-traffic area anyway. So, yeah, we want to serve everybody regardless of where they’re from.”

With eight dispensaries now in Ontario, and more coming, owners have to market their businesses in a competitive cannabis landscape. At Burnt River Farms, McKay said he and co-owner Young market their shop as the homegrown company, where they locally produce a lot of the products in their store with a farm-to-table environment. In addition, Burnt River Farms offers the only detached drive-through service in town, McKay said.

“Our customers order online and they show up to the drive-through and pay for their order, and they’re in and out in about two minutes, and it’s pretty much contactless service,” McKay said. “They’re able to stay in their car. They can have their kids in the car. It’s just a great situation for everybody. And we’ve been doing that now since about April of last year.”

Meanwhile, Meland said his Hotbox Farms operation is also vertically integrated, with two grow facilities in Oregon, a processing facility and two wholesale distribution licenses he and co-owner Breton use in Ontario and in Portland to act as a depot for both purchasing and selling to other dispensaries.

Photo by DJ Davis | hotboxfarms.com

In addition to being hometown residents in Ontario, Meland and Breton market their dispensary as the go-to spot for VIP and celebrity appearances. For their grand opening in October 2019, they had Snoop Dogg come out for an impromptu concert that Meland said attracted 10,000-plus people. They only had about a 48-hour window from the time the OLCC told them their license would be issued and actually receiving that license, which meant Meland and Breton didn’t give city officials much of a notice about bringing in Snoop Dogg for a free concert.

“The city was a little flustered,” Meland said. “We sat down with the city manager before it happened, and he certainly expressed his frustrations, as did the city police chief. We kind of let them know that the cat was out of the bag a little bit on this one, and we apologize for the lack of communication, but that the show was going to go on. Again, they were pretty frustrated.”

Photo by DJ Davis | hotboxfarms.com

Ontario Police Chief Steven Romero, who had just joined the city’s department four months earlier, said his early encounters with Meland weren’t as he had hoped.

“[The Snoop Dogg concert] caught me by surprise, but fortunately all went well,” Chief Romero said. “I don’t hold grudges. I don’t believe [Meland] does, either, or hasn’t. But I’ve had very limited contact with him since then.”

Meland said there were no incidents to speak of, like fights or anyone getting hurt, and he and Breton smoothed things over in a follow-up conversation with the city manager, Adam Brown, when they agreed to pay around $10,000 in a settlement to cover the costs of paying overtime for police officers, firefighters and other city officials.

Photo by DJ Davis | hotboxfarms.com

“The city agreed to participate with us next time we want to have an event,” Meland said. “So, that’s the next big thing is that Hotbox isn’t done having events. It’s certainly something that we’ve grown to be known for and grown to love. It’s just a really neat thing for a community of our size to be able to have folks of [Snoop Dogg’s] stature coming to do a show in Ontario”

Hotbox Farms went on to host events with celebrities like Jim Belushi; B-Real of Cypress Hill; and Doggface, the viral TikTok sensation from his longboard skateboarding video with Fleetwood Mac’s song “Dreams.”  

Local Law Enforcement

When Oregonians passed Measure 91 in 2014, the state was granted the right to tax adult-use cannabis sales 17%, which, in part, would be dispersed to local municipalities based on population and number of dispensaries. In Ontario, city officials planned to budget much of that money for law enforcement.

But Measure 91 stops short of considering a municipality’s broader customer base—which in this situation would include Idaho and other areas around eastern Oregon—which means that Ontario’s cannabis sales are technically subsidizing the bigger cities in the western part of Oregon. While state taxes amounted to roughly $15.6 million from Ontario’s cannabis sales in 2020, the city only received $65,869 back from the state through the dispersion formula in 2020, according to Ott.

Chief Romero said that money didn’t put much of a dent in the city’s need to grow its police department, which currently has a budget for 24 full-time personnel with four reserve police officers.

Ontario previously funded two officers through its local cannabis tax, so Romero is hopeful his police department will realize some of the anticipated $3 million in city-generated tax revenue for fiscal 2020-21 to expand his agency a bit more, he said. But that revenue stream is still open for discussion among Ontario’s elected officials and the city’s budget committee.

“I’m actually asking for more [full-time officers] now because this department has been underfunded and under structured for quite a long time,” Chief Romero said. “Based on the workload that it produces, and it responds to, it is way understaffed.”

In terms of his department’s relationship with dispensary owners, Chief Romero said his officers take a hands-off approach to being present anywhere around the city’s cannabis retail operations.

“They didn’t want the stigma that if police were visible in their area, that it would hurt their businesses,” he said. “So, I could tell you this —I have not conducted any real proactive outreach to the owners, nor have they in return. It’s not an adversarial relationship, I can guarantee you that. But we really don’t have a lot of communication at all other than when an event happens at their stores.”

In Chief Romero’s previous position, he was a bureau commander for the Hawthorne Police Department on the southwest side of Los Angeles. And he also worked some other assignments, including the deputy directorship at the Los Angeles Interagency Metropolitan Police Apprehension Crime Task Force (IMPACT), one of the largest transnational drug interdiction taskforces in the country.

But when it comes to Ontario law enforcement coordinating with Idaho law enforcement regarding cannabis dispensaries catering to out-of-state customers, Chief Romero said there is none.

Photo by DJ Davis | hotboxfarms.com

“There’s zero [collaboration with Idaho], because it is a legal activity here, and it’s not our position to, per se, set up marijuana traps,” he said. “Now, Idaho’s law enforcement takes a different stance. They’re still very much firm and it’s still very much illegal in their state. However, for what is considered legal in Oregon, there’s no reason for Oregon law enforcement to collaborate with out-of-state law enforcement.”

Both Chief Romero and Cummings said, if they had to guess, probably 90% of cannabis sales in Ontario come from buyers in Idaho.

Meland said his team at Hotbox Farms treats every customer the same, no matter where they’re from, because it’s legal for them to buy cannabis products at their dispensary in Ontario. What’s illegal is for customers from Idaho to take cannabis back home to their Gem State residences.

“We certainly don’t recommend for any of our customers to press that issue or try their luck with going against the laws of any other state,” Meland said. “But we certainly enjoy living in and operating within Oregon, where we’re able to take part in the industry.” 

Photo by DJ Davis | hotboxfarms.com

It was 5 a.m. when he heard somebody banging on his window from the darkness outside.

Dan Cummings, the community development director in Ontario, Ore., a city of roughly 11,000 people in the eastern part of the state, had spent some early mornings at his office in the days leading up to that clatter.

Earlier that week, in November 2018, Ontario voters overturned the city’s ban on cannabis sales, with 56.8% of 3,383 balloters showing their support for a local measure that would impose a 3% tax on adult-use retail.

Four years earlier, when Oregonians approved Measure 91 to legalize cannabis cultivation and adult-use statewide during the 2014 general election, residents in Malheur County, where Ontario is located, were on the other side, voting 68.3% against that measure. Under the state law, counties and cities that opposed the measure by at least 60% had the option to outlaw cannabis legalization in their municipalities. The Ontario City Council did just that when its members voted to prohibit cannabis retail in 2015.

But when a citizen-led petition gathered enough signatures to get a new pro-cannabis retail measure added to the Ontario ballot in 2018, Cummings said he started writing community development codes ahead of time in case voters lifted the ban. A couple statutes he wanted to establish included a licensing and permit program for dispensaries as well as 1,000-foot buffer zones between fellow retailers and between a retailer and schools, city parks and residential areas. In addition, potential dispensary owners had to show proof they owned property that met those buffer-zone parameters before receiving city permits.

“We had things in place prior to that so we didn’t get stuck like a lot of cities with your pants down,” Cummings said. “I came in at 4:30 in the morning, which I had been doing a lot to try and get all the codes and everything written up and prepared, and about 5 o’clock I heard somebody bang on the window out front. I looked out there and there was somebody sitting on my bench out there. And, at first, I thought, ‘What are they doing?’ And then it hit me like a rock, ‘Oh, I know what they’re doing. They’re lining up.’ And sure enough, that’s exactly what they were doing.”

While the 2018 measure wouldn’t take effect until Jan. 1, 2019, experienced dispensary owners and aspiring dispensary owners alike started camping outside Cummings’ office the same week of the general election in a mad rush to stake a claim in one of the most promising locations in Oregon. Nestled on the state line with Idaho, Ontario is positioned to take advantage of the most populated area in the Gem State, with Boise residents no farther than 50 miles from town.

Without medical or adult-use legalization in their own state, Idahoans have easy access to Ontario via Interstate 84. In southeastern Oregon and southwestern Idaho, in an area known as Treasure Valley, there are north of 700,000 residents whose major roadways link up in Ontario, and that population is expected to grow.

While state and local law enforcement might have something to say about the matter, the business opportunity was tremendous.

Photo by Danny Ramirez | burntriverfarms.com

Shawn McKay was one of the dispensary entrepreneurs eyeing the opportunity to take advantage of retail space in Ontario after the 2018 ballot measure passed. He and business partner Guss Young, the co-owners of Burnt River Farms, already had a cultivation operation in place in Huntington, Ore., about 30 miles northwest of Ontario. When it came to standing in line outside Cummings’ office to turn in their application for the possibility of opening their first dispensary, there were no guarantees, McKay said.  

“It was definitely an unknown,” he said. “I mean, we just had to keep, you know, just sticking to it and looking for a place. And we happened to be fortunate enough to find the place that we did, and we were able to secure it. And we had been through the licensing process a little bit and were familiar with that. So, we just kind of went after it.”

Oregon’s “Highest County”

After push came to shove, three dispensaries opened in 2019 in Ontario, including Weedology in July, Burnt River Farms in August and Hotbox Farms in October. By January 2020, those three retail operations were combining to sell more than $5 million of cannabis products a month, according to data from the Oregon Liquor Control Commission (OLCC).

Five more dispensaries gained traction in 2020, including Top Crop and Zion Cannabis opening their doors in May, Treasure Valley Cannabis Company opening in October, and then The Bud House and Cannabis & Glass setting up shop at the end of the year. Cummings said six more dispensaries are approved for 2021, and there might be around 20 in all before the city is maxed out of space with the requisite buffer zones spread across its 5 square miles.

As cannabis sales in Oregon soared past $1.1 billion in 2020, according to OLCC data, Malheur County concluded 2020 with a whopping $91,713,684 in sales, all coming from the dispensaries in Ontario. The No. 1 county in the state on a per-capital basis, with roughly $3,000 in cannabis sales per resident, Malheur took over the unofficial title of Oregon’s “Highest County,” dethroning three-time defending champion Baker County, which neighbors to the north.

According to Ontario Finance Director Kari Ott, the city is expected to receive approximately $3 million in tax revenue from cannabis sales for fiscal 2020-2021, which ends June 30, to add to its annual general fund budget of almost $10 million.  

Photo by DJ Davis | hotboxfarms.com

Steven Meland, who co-owns Hotbox Farms with Jeremy Breton, said he hopes to champion the “Highest County” title as a means to attract even more consumers to the dispensary landscape in Ontario.

“There’s certainly a huge opportunity for cannabis tourism,” Meland said. “And I think the Oregon Liquor Control Commission has been fairly supportive of us marketing Ontario as a cannabis tourism destination. It’s somewhere where people can come and enjoy legal access to cannabis. Of course, we certainly don’t recommend that they take it back to their state, or have it leave Oregon at all, but it certainly has been somewhere that sees a very high capita of customers.”

Meanwhile, Multnomah County, which includes Oregon’s most populated city, Portland, remained the state’s leader with $313.4 million in total cannabis sales in 2020, which registers to roughly $385 in sales per person.

While Meland and Breton opened the doors to their Hotbox Farms dispensary in Ontario in 2019, they opened their first dispensary four years earlier in nearby Huntington (in Baker County), a town of about 400 people, where city council members voted in favor of legalizing cannabis sales after state Measure 91 passed. About a 30-minute drive from Ontario, along I-84, Huntington used to be the nearest locality for Idahoans seeking cannabis retail.

But once dispensaries opened in Ontario, it became the closer, go-to destination for travelers from the Treasure Valley region. While Ontario cannabis sales rocketed to $91.7 million in 2020, cannabis retail out of Baker County plummeted from $30.2 million in 2019 to $7.9 million in 2020, roughly a 74% decrease, according to OLCC data. Based on location, Meland said that was to be expected.   

“I would certainly say that Huntington was a great place for us to learn the industry and get our feet underneath us,” he said. “When we were able to switch over to running both the Huntington and the Ontario store, we certainly saw an increase in [Ontario] sales right away. There was no drop-off or ramp-up period that was needed for Ontario.”

Overturning the Ontario Ban

Childhood friends, Meland and Breton moved to Ontario in 2015 to start their medical grow, and sold product to dispensaries throughout Oregon. They halted their medical cultivation when the opportunity came to open their Hotbox Farms dispensary in Ontario.

But opening another dispensary wasn’t necessarily the major hurdle they had to clear. Just getting a pro-cannabis initiative on the 2018 ballot was work in itself, Meland said. What started as a grassroots effort to gather signatures for a citizen-led petition turned into organized canvassers and political advisers to run a structured campaign, after Meland and Breton helped fund it.  

With Malheur County historically a conservative stronghold—69.4% of its voters cast ballots for Donald Trump in 2020—citizens of Ontario previously voted down pro-cannabis legislation following state-passed Measure 91 in 2014, which left city council members asking what warranted a new measure on the 2018 ballot, Meland said.

“The general sentiment of the town was that they did not want cannabis and that they had already voted to not have cannabis,” he said. “So, there was certainly a large hurdle of even trying to get the conversation. There would have been a much easier path to getting it on the [2018] ballot, which would have simply just had been the city council vote to put it onto the ballot and let the people decide. Once again, however, they weren’t really interested in that, as they felt that people had already spoken.”

But once the 2018 ballot initiative picked up steam, with campaign drives and events attracting petition signatures, city officials created a Marijuana Ad Hoc Committee, to ensure they had their laws and regulations intact. Meland said they asked him to sit on that committee, because of his background and expertise in running cannabis businesses, and then the members of that committee nominated and voted him to be the chairman at their first meeting.

In his responsibility to his community, Meland said he wanted to make sure that he helped create a system that was fair and equitable. While Hotbox Farms did end up getting several dispensary licenses through the award process, it wasn’t the first company to receive those licenses and it wasn’t the first dispensary to open up shop in town.

“A lot of that really was because the system that we created was so fair,” he said. “There was no guarantee who was going to get dispensaries.”

The same day the voters of Ontario bubbled their ballots to overturn the ban on cannabis sales, they also elected a mayor—in a four-candidate race—who ran on a “No Pot” platform. Riley Hill took office with 40.1% of the vote. When the election results came in, those two outcomes created quite the paradox, Meland said.

Photo by Danny Ramirez | burntriverfarms.com

The general preconception of Ontario residents might have been that they’d see a bunch of kids standing in line to buy smokable flower outside dispensaries, Meland said. But, if they drove by his Hotbox Farms retail location 30 minutes down the road in Huntington, what they’d actually see were retirees, ex-schoolteachers or business leaders who were there to purchase non-smokable products like topicals, Meland said.

“That started to break down those walls for the community,” he said. “So, even people that maybe were typically a supporter of the new mayor, who’s also somebody who’s been in town a long time, they may have also said, ‘Well, you know, Riley [Hill], we like you. And we like a lot of your policies. But we actually also like this cannabis cream too.’”

The Competitive Market

Once voters gave the greenlight for dispensaries to sell adult-use cannabis in Ontario, it didn’t take long for that line to form outside Cummings’ community development office in anticipation for the application process. After all, to make the process fair, the city adopted a first-come, first-serve system.

But with his door shut and people camping outside at 5 a.m., Cummings heard that bang on his window. In anticipation of a competitive rush to stake a claim in the market—even before the law was in effect—Cummings said he came up with a pre-application stage to maintain order outside his office.

“So, I went out there and painted numbers to keep the people under control out there, because the first thing happened and we had people bullying the other people,” Cummings said. “So, I went out there and painted marks on the sidewalk and separated them and said, ‘You stay in this circle. You don’t harass anybody else or you will lose your spot.’ So, that made them all behave standing in line there.”

In his heyday in the 1960s, Cummings said he was a cowboy who enjoyed his whiskey. Cannabis was never his thing. He moved to Ontario in 1974 and owned an engineering land surveying business up until 2015, when he retired. When city officials got wind of his retirement, they coaxed him into taking on the community development directorship, he said. A few years later, he was at the center of the biggest cannabis retail rush in Oregon.

“Had I only known,” Cummings said and laughed.

Ontario is historically an agricultural community, he said, but it’s always had a big retail hub being on the border with Idaho, which has a 6% sales tax. Oregon’s sales tax is zero.

Photo by Danny Ramirez | burntriverfarms.com

But business traffic is more than just Idahoans stopping in town to take advantage of the Ontario retail market, which now includes cannabis. Off I-84, Ontario has two rest areas as well as a Pilot Travel Center and a Love’s Travel Stop. McKay said that brings in even more customers to his Burnt River Farms dispensary.

“We’re right next to the truck stop,” he said. “So, we serve clients from all over the United States on a daily basis. I mean, being next to that border definitely has some influence, but we’re in a really high-traffic area anyway. So, yeah, we want to serve everybody regardless of where they’re from.”

With eight dispensaries now in Ontario, and more coming, owners have to market their businesses in a competitive cannabis landscape. At Burnt River Farms, McKay said he and co-owner Young market their shop as the homegrown company, where they locally produce a lot of the products in their store with a farm-to-table environment. In addition, Burnt River Farms offers the only detached drive-through service in town, McKay said.

“Our customers order online and they show up to the drive-through and pay for their order, and they’re in and out in about two minutes, and it’s pretty much contactless service,” McKay said. “They’re able to stay in their car. They can have their kids in the car. It’s just a great situation for everybody. And we’ve been doing that now since about April of last year.”

Meanwhile, Meland said his Hotbox Farms operation is also vertically integrated, with two grow facilities in Oregon, a processing facility and two wholesale distribution licenses he and co-owner Breton use in Ontario and in Portland to act as a depot for both purchasing and selling to other dispensaries.

Photo by DJ Davis | hotboxfarms.com

In addition to being hometown residents in Ontario, Meland and Breton market their dispensary as the go-to spot for VIP and celebrity appearances. For their grand opening in October 2019, they had Snoop Dogg come out for an impromptu concert that Meland said attracted 10,000-plus people. They only had about a 48-hour window from the time the OLCC told them their license would be issued and actually receiving that license, which meant Meland and Breton didn’t give city officials much of a notice about bringing in Snoop Dogg for a free concert.

“The city was a little flustered,” Meland said. “We sat down with the city manager before it happened, and he certainly expressed his frustrations, as did the city police chief. We kind of let them know that the cat was out of the bag a little bit on this one, and we apologize for the lack of communication, but that the show was going to go on. Again, they were pretty frustrated.”

Photo by DJ Davis | hotboxfarms.com

Ontario Police Chief Steven Romero, who had just joined the city’s department four months earlier, said his early encounters with Meland weren’t as he had hoped.

“[The Snoop Dogg concert] caught me by surprise, but fortunately all went well,” Chief Romero said. “I don’t hold grudges. I don’t believe [Meland] does, either, or hasn’t. But I’ve had very limited contact with him since then.”

Meland said there were no incidents to speak of, like fights or anyone getting hurt, and he and Breton smoothed things over in a follow-up conversation with the city manager, Adam Brown, when they agreed to pay around $10,000 in a settlement to cover the costs of paying overtime for police officers, firefighters and other city officials.

Photo by DJ Davis | hotboxfarms.com

“The city agreed to participate with us next time we want to have an event,” Meland said. “So, that’s the next big thing is that Hotbox isn’t done having events. It’s certainly something that we’ve grown to be known for and grown to love. It’s just a really neat thing for a community of our size to be able to have folks of [Snoop Dogg’s] stature coming to do a show in Ontario”

Hotbox Farms went on to host events with celebrities like Jim Belushi; B-Real of Cypress Hill; and Doggface, the viral TikTok sensation from his longboard skateboarding video with Fleetwood Mac’s song “Dreams.”  

Local Law Enforcement

When Oregonians passed Measure 91 in 2014, the state was granted the right to tax adult-use cannabis sales 17%, which, in part, would be dispersed to local municipalities based on population and number of dispensaries. In Ontario, city officials planned to budget much of that money for law enforcement.

But Measure 91 stops short of considering a municipality’s broader customer base—which in this situation would include Idaho and other areas around eastern Oregon—which means that Ontario’s cannabis sales are technically subsidizing the bigger cities in the western part of Oregon. While state taxes amounted to roughly $15.6 million from Ontario’s cannabis sales in 2020, the city only received $65,869 back from the state through the dispersion formula in 2020, according to Ott.

Chief Romero said that money didn’t put much of a dent in the city’s need to grow its police department, which currently has a budget for 24 full-time personnel with four reserve police officers.

Ontario previously funded two officers through its local cannabis tax, so Romero is hopeful his police department will realize some of the anticipated $3 million in city-generated tax revenue for fiscal 2020-21 to expand his agency a bit more, he said. But that revenue stream is still open for discussion among Ontario’s elected officials and the city’s budget committee.

“I’m actually asking for more [full-time officers] now because this department has been underfunded and under structured for quite a long time,” Chief Romero said. “Based on the workload that it produces, and it responds to, it is way understaffed.”

In terms of his department’s relationship with dispensary owners, Chief Romero said his officers take a hands-off approach to being present anywhere around the city’s cannabis retail operations.

“They didn’t want the stigma that if police were visible in their area, that it would hurt their businesses,” he said. “So, I could tell you this —I have not conducted any real proactive outreach to the owners, nor have they in return. It’s not an adversarial relationship, I can guarantee you that. But we really don’t have a lot of communication at all other than when an event happens at their stores.”

In Chief Romero’s previous position, he was a bureau commander for the Hawthorne Police Department on the southwest side of Los Angeles. And he also worked some other assignments, including the deputy directorship at the Los Angeles Interagency Metropolitan Police Apprehension Crime Task Force (IMPACT), one of the largest transnational drug interdiction taskforces in the country.

But when it comes to Ontario law enforcement coordinating with Idaho law enforcement regarding cannabis dispensaries catering to out-of-state customers, Chief Romero said there is none.

Photo by DJ Davis | hotboxfarms.com

“There’s zero [collaboration with Idaho], because it is a legal activity here, and it’s not our position to, per se, set up marijuana traps,” he said. “Now, Idaho’s law enforcement takes a different stance. They’re still very much firm and it’s still very much illegal in their state. However, for what is considered legal in Oregon, there’s no reason for Oregon law enforcement to collaborate with out-of-state law enforcement.”

Both Chief Romero and Cummings said, if they had to guess, probably 90% of cannabis sales in Ontario come from buyers in Idaho.

Meland said his team at Hotbox Farms treats every customer the same, no matter where they’re from, because it’s legal for them to buy cannabis products at their dispensary in Ontario. What’s illegal is for customers from Idaho to take cannabis back home to their Gem State residences.

“We certainly don’t recommend for any of our customers to press that issue or try their luck with going against the laws of any other state,” Meland said. “But we certainly enjoy living in and operating within Oregon, where we’re able to take part in the industry.” 

According to a press release published on February 8, a number of associations, advocacy organizations and cannabis businesses launched the U.S. Cannabis Council (USCC), which they claim is the largest coalition of its kind.

The 501(c)4 nonprofit organization goals are to advance social equity and racial justice, and end federal cannabis prohibition, according to their debut press release. The USCC says it will focus on federal reforms that achieve those goals above as well as promoting a safe and fair cannabis market on a national level.

The USCC’s Interim CEO is Steven Hawkins, who is also the executive director of the Marijuana Policy Project, which is one of the founding members of the USCC. “USCC is a unified voice advocating for the descheduling and legalization of cannabis,” says Hawkins. “Legalization at both the state and federal level must include provisions ensuring social equity and redress for harms caused to communities impacted by cannabis prohibition.”

In the press release, Representative Earl Blumenauer (D-OR) is quoted saying he is looking forward to working with the USCC on Capitol Hill. “As founder and co-chair of the Congressional Cannabis Caucus, I’ve seen firsthand that our most successful cannabis wins have been secured by a team,” says Rep. Blumenauer. “That’s why I am glad to see this first-of-its-kind alliance. We have a unique opportunity in the 117th Congress to advance cannabis reform, but we must remain united to create the change we know is possible.”

Founding members of the USCC include Acreage Holdings, Akerna Corp, the American Trade Association of Cannabis and Hemp, Canopy Growth, the Cannabis Trade Federation, Cresco Labs, MedMen, Marijuana Policy Project, PharmaCann, Vireo, Wana and much more. For a full list of its founding members, visit their website here.

Last week, GW Pharmaceuticals (Nasdaq: GWPH) announced they have entered into an agreement with Jazz Pharmaceuticals (Nasdaq: JAZZ) for Jazz to acquire GW Pharma. Both boards of directors for the two companies have approved the deal and they expect the acquisition to close in the second quarter of 2021.

GW Pharma is well-known in the cannabis industry as producing the first and only FDA-approved drug containing CBD, Epidiolex. Epidiolex is approved for the treatment of seizures in rare diseases like severe forms of epilepsy. GW is also currently in phase 3 trials seeking FDA approval for a similar drug, Nabiximols, that treats spasms from conditions like multiple sclerosis and spinal cord injuries.

Jazz Pharmaceuticals is a biopharmaceutical company based in Ireland that is known for its drug Xyrem, which is approved by the FDA to treat narcolepsy.

Bruce Cozadd, chairman and CEO of Jazz, says the acquisition will bring together two companies that have a track record of developing “differentiated therapies,” adding to their portfolio of sleep medicine and their growing oncology business. “We are excited to add GW’s industry-leading cannabinoid platform, innovative pipeline and products, which will strengthen and broaden our neuroscience portfolio, further diversify our revenue and drive sustainable, long-term value creation opportunities,” says Cozadd.

Justin Gover, CEO of GW Pharma, says the two companies share a vision for developing and commercializing innovative medicines, with a focus on neuroscience. “Over the last two decades, GW has built an unparalleled global leadership position in cannabinoid science, including the successful launch of Epidiolex, a breakthrough product within the field of epilepsy, and a diverse and robust neuroscience pipeline,” says Gover. “We believe that Jazz is an ideal growth partner that is committed to supporting our commercial efforts, as well as ongoing clinical and research programs.”

Photo by DJ Davis | hotboxfarms.com

It was 5 a.m. when he heard somebody banging on his window from the darkness outside.

Dan Cummings, the community development director in Ontario, Ore., a city of roughly 11,000 people in the eastern part of the state, had spent some early mornings at his office in the days leading up to that clatter.

Earlier that week, in November 2018, Ontario voters overturned the city’s ban on cannabis sales, with 56.8% of 3,383 balloters showing their support for a local measure that would impose a 3% tax on adult-use retail.

Four years earlier, when Oregonians approved Measure 91 to legalize cannabis cultivation and adult-use statewide during the 2014 general election, residents in Malheur County, where Ontario is located, were on the other side, voting 68.3% against that measure. Under the state law, counties and cities that opposed the measure by at least 60% had the option to outlaw cannabis legalization in their municipalities. The Ontario City Council did just that when its members voted to prohibit cannabis retail in 2015.

But when a citizen-led petition gathered enough signatures to get a new pro-cannabis retail measure added to the Ontario ballot in 2018, Cummings said he started writing community development codes ahead of time in case voters lifted the ban. A couple statutes he wanted to establish included a licensing and permit program for dispensaries as well as 1,000-foot buffer zones between fellow retailers and between a retailer and schools, city parks and residential areas. In addition, potential dispensary owners had to show proof they owned property that met those buffer-zone parameters before receiving city permits.

“We had things in place prior to that so we didn’t get stuck like a lot of cities with your pants down,” Cummings said. “I came in at 4:30 in the morning, which I had been doing a lot to try and get all the codes and everything written up and prepared, and about 5 o’clock I heard somebody bang on the window out front. I looked out there and there was somebody sitting on my bench out there. And, at first, I thought, ‘What are they doing?’ And then it hit me like a rock, ‘Oh, I know what they’re doing. They’re lining up.’ And sure enough, that’s exactly what they were doing.”

While the 2018 measure wouldn’t take effect until Jan. 1, 2019, experienced dispensary owners and aspiring dispensary owners alike started camping outside Cummings’ office the same week of the general election in a mad rush to stake a claim in one of the most promising locations in Oregon. Nestled on the state line with Idaho, Ontario is positioned to take advantage of the most populated area in the Gem State, with Boise residents no farther than 50 miles from town.

Without medical or adult-use legalization in their own state, Idahoans have easy access to Ontario via Interstate 84. In southeastern Oregon and southwestern Idaho, in an area known as Treasure Valley, there are north of 700,000 residents whose major roadways link up in Ontario, and that population is expected to grow.

While state and local law enforcement might have something to say about the matter, the business opportunity was tremendous.

Photo by Danny Ramirez | burntriverfarms.com

Shawn McKay was one of the dispensary entrepreneurs eyeing the opportunity to take advantage of retail space in Ontario after the 2018 ballot measure passed. He and business partner Guss Young, the co-owners of Burnt River Farms, already had a cultivation operation in place in Huntington, Ore., about 30 miles northwest of Ontario. When it came to standing in line outside Cummings’ office to turn in their application for the possibility of opening their first dispensary, there were no guarantees, McKay said.  

“It was definitely an unknown,” he said. “I mean, we just had to keep, you know, just sticking to it and looking for a place. And we happened to be fortunate enough to find the place that we did, and we were able to secure it. And we had been through the licensing process a little bit and were familiar with that. So, we just kind of went after it.”

Oregon’s “Highest County”

After push came to shove, three dispensaries opened in 2019 in Ontario, including Weedology in July, Burnt River Farms in August and Hotbox Farms in October. By January 2020, those three retail operations were combining to sell more than $5 million of cannabis products a month, according to data from the Oregon Liquor Control Commission (OLCC).

Five more dispensaries gained traction in 2020, including Top Crop and Zion Cannabis opening their doors in May, Treasure Valley Cannabis Company opening in October, and then The Bud House and Cannabis & Glass setting up shop at the end of the year. Cummings said six more dispensaries are approved for 2021, and there might be around 20 in all before the city is maxed out of space with the requisite buffer zones spread across its 5 square miles.

As cannabis sales in Oregon soared past $1.1 billion in 2020, according to OLCC data, Malheur County concluded 2020 with a whopping $91,713,684 in sales, all coming from the dispensaries in Ontario. The No. 1 county in the state on a per-capital basis, with roughly $3,000 in cannabis sales per resident, Malheur took over the unofficial title of Oregon’s “Highest County,” dethroning three-time defending champion Baker County, which neighbors to the north.

According to Ontario Finance Director Kari Ott, the city is expected to receive approximately $3 million in tax revenue from cannabis sales for fiscal 2020-2021, which ends June 30, to add to its annual general fund budget of almost $10 million.  

Photo by DJ Davis | hotboxfarms.com

Steven Meland, who co-owns Hotbox Farms with Jeremy Breton, said he hopes to champion the “Highest County” title as a means to attract even more consumers to the dispensary landscape in Ontario.

“There’s certainly a huge opportunity for cannabis tourism,” Meland said. “And I think the Oregon Liquor Control Commission has been fairly supportive of us marketing Ontario as a cannabis tourism destination. It’s somewhere where people can come and enjoy legal access to cannabis. Of course, we certainly don’t recommend that they take it back to their state, or have it leave Oregon at all, but it certainly has been somewhere that sees a very high capita of customers.”

Meanwhile, Multnomah County, which includes Oregon’s most populated city, Portland, remained the state’s leader with $313.4 million in total cannabis sales in 2020, which registers to roughly $385 in sales per person.

While Meland and Breton opened the doors to their Hotbox Farms dispensary in Ontario in 2019, they opened their first dispensary four years earlier in nearby Huntington (in Baker County), a town of about 400 people, where city council members voted in favor of legalizing cannabis sales after state Measure 91 passed. About a 30-minute drive from Ontario, along I-84, Huntington used to be the nearest locality for Idahoans seeking cannabis retail.

But once dispensaries opened in Ontario, it became the closer, go-to destination for travelers from the Treasure Valley region. While Ontario cannabis sales rocketed to $91.7 million in 2020, cannabis retail out of Baker County plummeted from $30.2 million in 2019 to $7.9 million in 2020, roughly a 74% decrease, according to OLCC data. Based on location, Meland said that was to be expected.   

“I would certainly say that Huntington was a great place for us to learn the industry and get our feet underneath us,” he said. “When we were able to switch over to running both the Huntington and the Ontario store, we certainly saw an increase in [Ontario] sales right away. There was no drop-off or ramp-up period that was needed for Ontario.”

Overturning the Ontario Ban

Childhood friends, Meland and Breton moved to Ontario in 2015 to start their medical grow, and sold product to dispensaries throughout Oregon. They halted their medical cultivation when the opportunity came to open their Hotbox Farms dispensary in Ontario.

But opening another dispensary wasn’t necessarily the major hurdle they had to clear. Just getting a pro-cannabis initiative on the 2018 ballot was work in itself, Meland said. What started as a grassroots effort to gather signatures for a citizen-led petition turned into organized canvassers and political advisers to run a structured campaign, after Meland and Breton helped fund it.  

With Malheur County historically a conservative stronghold—69.4% of its voters cast ballots for Donald Trump in 2020—citizens of Ontario previously voted down pro-cannabis legislation following state-passed Measure 91 in 2014, which left city council members asking what warranted a new measure on the 2018 ballot, Meland said.

“The general sentiment of the town was that they did not want cannabis and that they had already voted to not have cannabis,” he said. “So, there was certainly a large hurdle of even trying to get the conversation. There would have been a much easier path to getting it on the [2018] ballot, which would have simply just had been the city council vote to put it onto the ballot and let the people decide. Once again, however, they weren’t really interested in that, as they felt that people had already spoken.”

But once the 2018 ballot initiative picked up steam, with campaign drives and events attracting petition signatures, city officials created a Marijuana Ad Hoc Committee, to ensure they had their laws and regulations intact. Meland said they asked him to sit on that committee, because of his background and expertise in running cannabis businesses, and then the members of that committee nominated and voted him to be the chairman at their first meeting.

In his responsibility to his community, Meland said he wanted to make sure that he helped create a system that was fair and equitable. While Hotbox Farms did end up getting several dispensary licenses through the award process, it wasn’t the first company to receive those licenses and it wasn’t the first dispensary to open up shop in town.

“A lot of that really was because the system that we created was so fair,” he said. “There was no guarantee who was going to get dispensaries.”

The same day the voters of Ontario bubbled their ballots to overturn the ban on cannabis sales, they also elected a mayor—in a four-candidate race—who ran on a “No Pot” platform. Riley Hill took office with 40.1% of the vote. When the election results came in, those two outcomes created quite the paradox, Meland said.

Photo by Danny Ramirez | burntriverfarms.com

The general preconception of Ontario residents might have been that they’d see a bunch of kids standing in line to buy smokable flower outside dispensaries, Meland said. But, if they drove by his Hotbox Farms retail location 30 minutes down the road in Huntington, what they’d actually see were retirees, ex-schoolteachers or business leaders who were there to purchase non-smokable products like topicals, Meland said.

“That started to break down those walls for the community,” he said. “So, even people that maybe were typically a supporter of the new mayor, who’s also somebody who’s been in town a long time, they may have also said, ‘Well, you know, Riley [Hill], we like you. And we like a lot of your policies. But we actually also like this cannabis cream too.’”

The Competitive Market

Once voters gave the greenlight for dispensaries to sell adult-use cannabis in Ontario, it didn’t take long for that line to form outside Cummings’ community development office in anticipation for the application process. After all, to make the process fair, the city adopted a first-come, first-serve system.

But with his door shut and people camping outside at 5 a.m., Cummings heard that bang on his window. In anticipation of a competitive rush to stake a claim in the market—even before the law was in effect—Cummings said he came up with a pre-application stage to maintain order outside his office.

“So, I went out there and painted numbers to keep the people under control out there, because the first thing happened and we had people bullying the other people,” Cummings said. “So, I went out there and painted marks on the sidewalk and separated them and said, ‘You stay in this circle. You don’t harass anybody else or you will lose your spot.’ So, that made them all behave standing in line there.”

In his heyday in the 1960s, Cummings said he was a cowboy who enjoyed his whiskey. Cannabis was never his thing. He moved to Ontario in 1974 and owned an engineering land surveying business up until 2015, when he retired. When city officials got wind of his retirement, they coaxed him into taking on the community development directorship, he said. A few years later, he was at the center of the biggest cannabis retail rush in Oregon.

“Had I only known,” Cummings said and laughed.

Ontario is historically an agricultural community, he said, but it’s always had a big retail hub being on the border with Idaho, which has a 6% sales tax. Oregon’s sales tax is zero.

Photo by Danny Ramirez | burntriverfarms.com

But business traffic is more than just Idahoans stopping in town to take advantage of the Ontario retail market, which now includes cannabis. Off I-84, Ontario has two rest areas as well as a Pilot Travel Center and a Love’s Travel Stop. McKay said that brings in even more customers to his Burnt River Farms dispensary.

“We’re right next to the truck stop,” he said. “So, we serve clients from all over the United States on a daily basis. I mean, being next to that border definitely has some influence, but we’re in a really high-traffic area anyway. So, yeah, we want to serve everybody regardless of where they’re from.”

With eight dispensaries now in Ontario, and more coming, owners have to market their businesses in a competitive cannabis landscape. At Burnt River Farms, McKay said he and co-owner Young market their shop as the homegrown company, where they locally produce a lot of the products in their store with a farm-to-table environment. In addition, Burnt River Farms offers the only detached drive-through service in town, McKay said.

“Our customers order online and they show up to the drive-through and pay for their order, and they’re in and out in about two minutes, and it’s pretty much contactless service,” McKay said. “They’re able to stay in their car. They can have their kids in the car. It’s just a great situation for everybody. And we’ve been doing that now since about April of last year.”

Meanwhile, Meland said his Hotbox Farms operation is also vertically integrated, with two grow facilities in Oregon, a processing facility and two wholesale distribution licenses he and co-owner Breton use in Ontario and in Portland to act as a depot for both purchasing and selling to other dispensaries.

Photo by DJ Davis | hotboxfarms.com

In addition to being hometown residents in Ontario, Meland and Breton market their dispensary as the go-to spot for VIP and celebrity appearances. For their grand opening in October 2019, they had Snoop Dogg come out for an impromptu concert that Meland said attracted 10,000-plus people. They only had about a 48-hour window from the time the OLCC told them their license would be issued and actually receiving that license, which meant Meland and Breton didn’t give city officials much of a notice about bringing in Snoop Dogg for a free concert.

“The city was a little flustered,” Meland said. “We sat down with the city manager before it happened, and he certainly expressed his frustrations, as did the city police chief. We kind of let them know that the cat was out of the bag a little bit on this one, and we apologize for the lack of communication, but that the show was going to go on. Again, they were pretty frustrated.”

Photo by DJ Davis | hotboxfarms.com

Ontario Police Chief Steven Romero, who had just joined the city’s department four months earlier, said his early encounters with Meland weren’t as he had hoped.

“[The Snoop Dogg concert] caught me by surprise, but fortunately all went well,” Chief Romero said. “I don’t hold grudges. I don’t believe [Meland] does, either, or hasn’t. But I’ve had very limited contact with him since then.”

Meland said there were no incidents to speak of, like fights or anyone getting hurt, and he and Breton smoothed things over in a follow-up conversation with the city manager, Adam Brown, when they agreed to pay around $10,000 in a settlement to cover the costs of paying overtime for police officers, firefighters and other city officials.

Photo by DJ Davis | hotboxfarms.com

“The city agreed to participate with us next time we want to have an event,” Meland said. “So, that’s the next big thing is that Hotbox isn’t done having events. It’s certainly something that we’ve grown to be known for and grown to love. It’s just a really neat thing for a community of our size to be able to have folks of [Snoop Dogg’s] stature coming to do a show in Ontario”

Hotbox Farms went on to host events with celebrities like Jim Belushi; B-Real of Cypress Hill; and Doggface, the viral TikTok sensation from his longboard skateboarding video with Fleetwood Mac’s song “Dreams.”  

Local Law Enforcement

When Oregonians passed Measure 91 in 2014, the state was granted the right to tax adult-use cannabis sales 17%, which, in part, would be dispersed to local municipalities based on population and number of dispensaries. In Ontario, city officials planned to budget much of that money for law enforcement.

But Measure 91 stops short of considering a municipality’s broader customer base—which in this situation would include Idaho and other areas around eastern Oregon—which means that Ontario’s cannabis sales are technically subsidizing the bigger cities in the western part of Oregon. While state taxes amounted to roughly $15.6 million from Ontario’s cannabis sales in 2020, the city only received $65,869 back from the state through the dispersion formula in 2020, according to Ott.

Chief Romero said that money didn’t put much of a dent in the city’s need to grow its police department, which currently has a budget for 24 full-time personnel with four reserve police officers.

Ontario previously funded two officers through its local cannabis tax, so Romero is hopeful his police department will realize some of the anticipated $3 million in city-generated tax revenue for fiscal 2020-21 to expand his agency a bit more, he said. But that revenue stream is still open for discussion among Ontario’s elected officials and the city’s budget committee.

“I’m actually asking for more [full-time officers] now because this department has been underfunded and under structured for quite a long time,” Chief Romero said. “Based on the workload that it produces, and it responds to, it is way understaffed.”

In terms of his department’s relationship with dispensary owners, Chief Romero said his officers take a hands-off approach to being present anywhere around the city’s cannabis retail operations.

“They didn’t want the stigma that if police were visible in their area, that it would hurt their businesses,” he said. “So, I could tell you this —I have not conducted any real proactive outreach to the owners, nor have they in return. It’s not an adversarial relationship, I can guarantee you that. But we really don’t have a lot of communication at all other than when an event happens at their stores.”

In Chief Romero’s previous position, he was a bureau commander for the Hawthorne Police Department on the southwest side of Los Angeles. And he also worked some other assignments, including the deputy directorship at the Los Angeles Interagency Metropolitan Police Apprehension Crime Task Force (IMPACT), one of the largest transnational drug interdiction taskforces in the country.

But when it comes to Ontario law enforcement coordinating with Idaho law enforcement regarding cannabis dispensaries catering to out-of-state customers, Chief Romero said there is none.

Photo by DJ Davis | hotboxfarms.com

“There’s zero [collaboration with Idaho], because it is a legal activity here, and it’s not our position to, per se, set up marijuana traps,” he said. “Now, Idaho’s law enforcement takes a different stance. They’re still very much firm and it’s still very much illegal in their state. However, for what is considered legal in Oregon, there’s no reason for Oregon law enforcement to collaborate with out-of-state law enforcement.”

Both Chief Romero and Cummings said, if they had to guess, probably 90% of cannabis sales in Ontario come from buyers in Idaho.

Meland said his team at Hotbox Farms treats every customer the same, no matter where they’re from, because it’s legal for them to buy cannabis products at their dispensary in Ontario. What’s illegal is for customers from Idaho to take cannabis back home to their Gem State residences.

“We certainly don’t recommend for any of our customers to press that issue or try their luck with going against the laws of any other state,” Meland said. “But we certainly enjoy living in and operating within Oregon, where we’re able to take part in the industry.” 

Photo by DJ Davis | hotboxfarms.com

It was 5 a.m. when he heard somebody banging on his window from the darkness outside.

Dan Cummings, the community development director in Ontario, Ore., a city of roughly 11,000 people in the eastern part of the state, had spent some early mornings at his office in the days leading up to that clatter.

Earlier that week, in November 2018, Ontario voters overturned the city’s ban on cannabis sales, with 56.8% of 3,383 balloters showing their support for a local measure that would impose a 3% tax on adult-use retail.

Four years earlier, when Oregonians approved Measure 91 to legalize cannabis cultivation and adult-use statewide during the 2014 general election, residents in Malheur County, where Ontario is located, were on the other side, voting 68.3% against that measure. Under the state law, counties and cities that opposed the measure by at least 60% had the option to outlaw cannabis legalization in their municipalities. The Ontario City Council did just that when its members voted to prohibit cannabis retail in 2015.

But when a citizen-led petition gathered enough signatures to get a new pro-cannabis retail measure added to the Ontario ballot in 2018, Cummings said he started writing community development codes ahead of time in case voters lifted the ban. A couple statutes he wanted to establish included a licensing and permit program for dispensaries as well as 1,000-foot buffer zones between fellow retailers and between a retailer and schools, city parks and residential areas. In addition, potential dispensary owners had to show proof they owned property that met those buffer-zone parameters before receiving city permits.

“We had things in place prior to that so we didn’t get stuck like a lot of cities with your pants down,” Cummings said. “I came in at 4:30 in the morning, which I had been doing a lot to try and get all the codes and everything written up and prepared, and about 5 o’clock I heard somebody bang on the window out front. I looked out there and there was somebody sitting on my bench out there. And, at first, I thought, ‘What are they doing?’ And then it hit me like a rock, ‘Oh, I know what they’re doing. They’re lining up.’ And sure enough, that’s exactly what they were doing.”

While the 2018 measure wouldn’t take effect until Jan. 1, 2019, experienced dispensary owners and aspiring dispensary owners alike started camping outside Cummings’ office the same week of the general election in a mad rush to stake a claim in one of the most promising locations in Oregon. Nestled on the state line with Idaho, Ontario is positioned to take advantage of the most populated area in the Gem State, with Boise residents no farther than 50 miles from town.

Without medical or adult-use legalization in their own state, Idahoans have easy access to Ontario via Interstate 84. In southeastern Oregon and southwestern Idaho, in an area known as Treasure Valley, there are north of 700,000 residents whose major roadways link up in Ontario, and that population is expected to grow.

While state and local law enforcement might have something to say about the matter, the business opportunity was tremendous.

Photo by Danny Ramirez | burntriverfarms.com

Shawn McKay was one of the dispensary entrepreneurs eyeing the opportunity to take advantage of retail space in Ontario after the 2018 ballot measure passed. He and business partner Guss Young, the co-owners of Burnt River Farms, already had a cultivation operation in place in Huntington, Ore., about 30 miles northwest of Ontario. When it came to standing in line outside Cummings’ office to turn in their application for the possibility of opening their first dispensary, there were no guarantees, McKay said.  

“It was definitely an unknown,” he said. “I mean, we just had to keep, you know, just sticking to it and looking for a place. And we happened to be fortunate enough to find the place that we did, and we were able to secure it. And we had been through the licensing process a little bit and were familiar with that. So, we just kind of went after it.”

Oregon’s “Highest County”

After push came to shove, three dispensaries opened in 2019 in Ontario, including Weedology in July, Burnt River Farms in August and Hotbox Farms in October. By January 2020, those three retail operations were combining to sell more than $5 million of cannabis products a month, according to data from the Oregon Liquor Control Commission (OLCC).

Five more dispensaries gained traction in 2020, including Top Crop and Zion Cannabis opening their doors in May, Treasure Valley Cannabis Company opening in October, and then The Bud House and Cannabis & Glass setting up shop at the end of the year. Cummings said six more dispensaries are approved for 2021, and there might be around 20 in all before the city is maxed out of space with the requisite buffer zones spread across its 5 square miles.

As cannabis sales in Oregon soared past $1.1 billion in 2020, according to OLCC data, Malheur County concluded 2020 with a whopping $91,713,684 in sales, all coming from the dispensaries in Ontario. The No. 1 county in the state on a per-capital basis, with roughly $3,000 in cannabis sales per resident, Malheur took over the unofficial title of Oregon’s “Highest County,” dethroning three-time defending champion Baker County, which neighbors to the north.

According to Ontario Finance Director Kari Ott, the city is expected to receive approximately $3 million in tax revenue from cannabis sales for fiscal 2020-2021, which ends June 30, to add to its annual general fund budget of almost $10 million.  

Photo by DJ Davis | hotboxfarms.com

Steven Meland, who co-owns Hotbox Farms with Jeremy Breton, said he hopes to champion the “Highest County” title as a means to attract even more consumers to the dispensary landscape in Ontario.

“There’s certainly a huge opportunity for cannabis tourism,” Meland said. “And I think the Oregon Liquor Control Commission has been fairly supportive of us marketing Ontario as a cannabis tourism destination. It’s somewhere where people can come and enjoy legal access to cannabis. Of course, we certainly don’t recommend that they take it back to their state, or have it leave Oregon at all, but it certainly has been somewhere that sees a very high capita of customers.”

Meanwhile, Multnomah County, which includes Oregon’s most populated city, Portland, remained the state’s leader with $313.4 million in total cannabis sales in 2020, which registers to roughly $385 in sales per person.

While Meland and Breton opened the doors to their Hotbox Farms dispensary in Ontario in 2019, they opened their first dispensary four years earlier in nearby Huntington (in Baker County), a town of about 400 people, where city council members voted in favor of legalizing cannabis sales after state Measure 91 passed. About a 30-minute drive from Ontario, along I-84, Huntington used to be the nearest locality for Idahoans seeking cannabis retail.

But once dispensaries opened in Ontario, it became the closer, go-to destination for travelers from the Treasure Valley region. While Ontario cannabis sales rocketed to $91.7 million in 2020, cannabis retail out of Baker County plummeted from $30.2 million in 2019 to $7.9 million in 2020, roughly a 74% decrease, according to OLCC data. Based on location, Meland said that was to be expected.   

“I would certainly say that Huntington was a great place for us to learn the industry and get our feet underneath us,” he said. “When we were able to switch over to running both the Huntington and the Ontario store, we certainly saw an increase in [Ontario] sales right away. There was no drop-off or ramp-up period that was needed for Ontario.”

Overturning the Ontario Ban

Childhood friends, Meland and Breton moved to Ontario in 2015 to start their medical grow, and sold product to dispensaries throughout Oregon. They halted their medical cultivation when the opportunity came to open their Hotbox Farms dispensary in Ontario.

But opening another dispensary wasn’t necessarily the major hurdle they had to clear. Just getting a pro-cannabis initiative on the 2018 ballot was work in itself, Meland said. What started as a grassroots effort to gather signatures for a citizen-led petition turned into organized canvassers and political advisers to run a structured campaign, after Meland and Breton helped fund it.  

With Malheur County historically a conservative stronghold—69.4% of its voters cast ballots for Donald Trump in 2020—citizens of Ontario previously voted down pro-cannabis legislation following state-passed Measure 91 in 2014, which left city council members asking what warranted a new measure on the 2018 ballot, Meland said.

“The general sentiment of the town was that they did not want cannabis and that they had already voted to not have cannabis,” he said. “So, there was certainly a large hurdle of even trying to get the conversation. There would have been a much easier path to getting it on the [2018] ballot, which would have simply just had been the city council vote to put it onto the ballot and let the people decide. Once again, however, they weren’t really interested in that, as they felt that people had already spoken.”

But once the 2018 ballot initiative picked up steam, with campaign drives and events attracting petition signatures, city officials created a Marijuana Ad Hoc Committee, to ensure they had their laws and regulations intact. Meland said they asked him to sit on that committee, because of his background and expertise in running cannabis businesses, and then the members of that committee nominated and voted him to be the chairman at their first meeting.

In his responsibility to his community, Meland said he wanted to make sure that he helped create a system that was fair and equitable. While Hotbox Farms did end up getting several dispensary licenses through the award process, it wasn’t the first company to receive those licenses and it wasn’t the first dispensary to open up shop in town.

“A lot of that really was because the system that we created was so fair,” he said. “There was no guarantee who was going to get dispensaries.”

The same day the voters of Ontario bubbled their ballots to overturn the ban on cannabis sales, they also elected a mayor—in a four-candidate race—who ran on a “No Pot” platform. Riley Hill took office with 40.1% of the vote. When the election results came in, those two outcomes created quite the paradox, Meland said.

Photo by Danny Ramirez | burntriverfarms.com

The general preconception of Ontario residents might have been that they’d see a bunch of kids standing in line to buy smokable flower outside dispensaries, Meland said. But, if they drove by his Hotbox Farms retail location 30 minutes down the road in Huntington, what they’d actually see were retirees, ex-schoolteachers or business leaders who were there to purchase non-smokable products like topicals, Meland said.

“That started to break down those walls for the community,” he said. “So, even people that maybe were typically a supporter of the new mayor, who’s also somebody who’s been in town a long time, they may have also said, ‘Well, you know, Riley [Hill], we like you. And we like a lot of your policies. But we actually also like this cannabis cream too.’”

The Competitive Market

Once voters gave the greenlight for dispensaries to sell adult-use cannabis in Ontario, it didn’t take long for that line to form outside Cummings’ community development office in anticipation for the application process. After all, to make the process fair, the city adopted a first-come, first-serve system.

But with his door shut and people camping outside at 5 a.m., Cummings heard that bang on his window. In anticipation of a competitive rush to stake a claim in the market—even before the law was in effect—Cummings said he came up with a pre-application stage to maintain order outside his office.

“So, I went out there and painted numbers to keep the people under control out there, because the first thing happened and we had people bullying the other people,” Cummings said. “So, I went out there and painted marks on the sidewalk and separated them and said, ‘You stay in this circle. You don’t harass anybody else or you will lose your spot.’ So, that made them all behave standing in line there.”

In his heyday in the 1960s, Cummings said he was a cowboy who enjoyed his whiskey. Cannabis was never his thing. He moved to Ontario in 1974 and owned an engineering land surveying business up until 2015, when he retired. When city officials got wind of his retirement, they coaxed him into taking on the community development directorship, he said. A few years later, he was at the center of the biggest cannabis retail rush in Oregon.

“Had I only known,” Cummings said and laughed.

Ontario is historically an agricultural community, he said, but it’s always had a big retail hub being on the border with Idaho, which has a 6% sales tax. Oregon’s sales tax is zero.

Photo by Danny Ramirez | burntriverfarms.com

But business traffic is more than just Idahoans stopping in town to take advantage of the Ontario retail market, which now includes cannabis. Off I-84, Ontario has two rest areas as well as a Pilot Travel Center and a Love’s Travel Stop. McKay said that brings in even more customers to his Burnt River Farms dispensary.

“We’re right next to the truck stop,” he said. “So, we serve clients from all over the United States on a daily basis. I mean, being next to that border definitely has some influence, but we’re in a really high-traffic area anyway. So, yeah, we want to serve everybody regardless of where they’re from.”

With eight dispensaries now in Ontario, and more coming, owners have to market their businesses in a competitive cannabis landscape. At Burnt River Farms, McKay said he and co-owner Young market their shop as the homegrown company, where they locally produce a lot of the products in their store with a farm-to-table environment. In addition, Burnt River Farms offers the only detached drive-through service in town, McKay said.

“Our customers order online and they show up to the drive-through and pay for their order, and they’re in and out in about two minutes, and it’s pretty much contactless service,” McKay said. “They’re able to stay in their car. They can have their kids in the car. It’s just a great situation for everybody. And we’ve been doing that now since about April of last year.”

Meanwhile, Meland said his Hotbox Farms operation is also vertically integrated, with two grow facilities in Oregon, a processing facility and two wholesale distribution licenses he and co-owner Breton use in Ontario and in Portland to act as a depot for both purchasing and selling to other dispensaries.

Photo by DJ Davis | hotboxfarms.com

In addition to being hometown residents in Ontario, Meland and Breton market their dispensary as the go-to spot for VIP and celebrity appearances. For their grand opening in October 2019, they had Snoop Dogg come out for an impromptu concert that Meland said attracted 10,000-plus people. They only had about a 48-hour window from the time the OLCC told them their license would be issued and actually receiving that license, which meant Meland and Breton didn’t give city officials much of a notice about bringing in Snoop Dogg for a free concert.

“The city was a little flustered,” Meland said. “We sat down with the city manager before it happened, and he certainly expressed his frustrations, as did the city police chief. We kind of let them know that the cat was out of the bag a little bit on this one, and we apologize for the lack of communication, but that the show was going to go on. Again, they were pretty frustrated.”

Photo by DJ Davis | hotboxfarms.com

Ontario Police Chief Steven Romero, who had just joined the city’s department four months earlier, said his early encounters with Meland weren’t as he had hoped.

“[The Snoop Dogg concert] caught me by surprise, but fortunately all went well,” Chief Romero said. “I don’t hold grudges. I don’t believe [Meland] does, either, or hasn’t. But I’ve had very limited contact with him since then.”

Meland said there were no incidents to speak of, like fights or anyone getting hurt, and he and Breton smoothed things over in a follow-up conversation with the city manager, Adam Brown, when they agreed to pay around $10,000 in a settlement to cover the costs of paying overtime for police officers, firefighters and other city officials.

Photo by DJ Davis | hotboxfarms.com

“The city agreed to participate with us next time we want to have an event,” Meland said. “So, that’s the next big thing is that Hotbox isn’t done having events. It’s certainly something that we’ve grown to be known for and grown to love. It’s just a really neat thing for a community of our size to be able to have folks of [Snoop Dogg’s] stature coming to do a show in Ontario”

Hotbox Farms went on to host events with celebrities like Jim Belushi; B-Real of Cypress Hill; and Doggface, the viral TikTok sensation from his longboard skateboarding video with Fleetwood Mac’s song “Dreams.”  

Local Law Enforcement

When Oregonians passed Measure 91 in 2014, the state was granted the right to tax adult-use cannabis sales 17%, which, in part, would be dispersed to local municipalities based on population and number of dispensaries. In Ontario, city officials planned to budget much of that money for law enforcement.

But Measure 91 stops short of considering a municipality’s broader customer base—which in this situation would include Idaho and other areas around eastern Oregon—which means that Ontario’s cannabis sales are technically subsidizing the bigger cities in the western part of Oregon. While state taxes amounted to roughly $15.6 million from Ontario’s cannabis sales in 2020, the city only received $65,869 back from the state through the dispersion formula in 2020, according to Ott.

Chief Romero said that money didn’t put much of a dent in the city’s need to grow its police department, which currently has a budget for 24 full-time personnel with four reserve police officers.

Ontario previously funded two officers through its local cannabis tax, so Romero is hopeful his police department will realize some of the anticipated $3 million in city-generated tax revenue for fiscal 2020-21 to expand his agency a bit more, he said. But that revenue stream is still open for discussion among Ontario’s elected officials and the city’s budget committee.

“I’m actually asking for more [full-time officers] now because this department has been underfunded and under structured for quite a long time,” Chief Romero said. “Based on the workload that it produces, and it responds to, it is way understaffed.”

In terms of his department’s relationship with dispensary owners, Chief Romero said his officers take a hands-off approach to being present anywhere around the city’s cannabis retail operations.

“They didn’t want the stigma that if police were visible in their area, that it would hurt their businesses,” he said. “So, I could tell you this —I have not conducted any real proactive outreach to the owners, nor have they in return. It’s not an adversarial relationship, I can guarantee you that. But we really don’t have a lot of communication at all other than when an event happens at their stores.”

In Chief Romero’s previous position, he was a bureau commander for the Hawthorne Police Department on the southwest side of Los Angeles. And he also worked some other assignments, including the deputy directorship at the Los Angeles Interagency Metropolitan Police Apprehension Crime Task Force (IMPACT), one of the largest transnational drug interdiction taskforces in the country.

But when it comes to Ontario law enforcement coordinating with Idaho law enforcement regarding cannabis dispensaries catering to out-of-state customers, Chief Romero said there is none.

Photo by DJ Davis | hotboxfarms.com

“There’s zero [collaboration with Idaho], because it is a legal activity here, and it’s not our position to, per se, set up marijuana traps,” he said. “Now, Idaho’s law enforcement takes a different stance. They’re still very much firm and it’s still very much illegal in their state. However, for what is considered legal in Oregon, there’s no reason for Oregon law enforcement to collaborate with out-of-state law enforcement.”

Both Chief Romero and Cummings said, if they had to guess, probably 90% of cannabis sales in Ontario come from buyers in Idaho.

Meland said his team at Hotbox Farms treats every customer the same, no matter where they’re from, because it’s legal for them to buy cannabis products at their dispensary in Ontario. What’s illegal is for customers from Idaho to take cannabis back home to their Gem State residences.

“We certainly don’t recommend for any of our customers to press that issue or try their luck with going against the laws of any other state,” Meland said. “But we certainly enjoy living in and operating within Oregon, where we’re able to take part in the industry.” 

Part One of this series took a look at how the regulated cannabis market can only be understood in relation to the previous medical market as well as the ongoing “traditional” market. Part Two of the series describes how regulation defines vertical integration in California cannabis, and conversely, how vertical integration can address some of the problems that the regulations create. But first:

A Grain of Salt

Take the conventional wisdom about vertical integration with a grain of salt. Expected benefits may not materialize under the current circumstances:

• Overall, the business environment is highly challenging due to extensive regulation, over taxation, insufficient retail capacity and competition from the “traditional” market. As a result, integrating businesses upstream or downstream may mean capturing losses, not profits.
• The three major types of cannabis activity span three major industrial sectors: raw materials (i.e., cultivation), manufacturing and service (distribution, testing and retail). As a result, a vertically integrated company needs to carry out very different types of activity, which require very different types of core competencies, equipment and facilities.
  • Developing core competencies is especially challenging because each of the major cannabis sectors is still evolving.
  • Realizing the benefits of vertical integration requires an additional core competency in cross-sector operations.

 Regulations Define the Supply Chain

California’s regulations define the cannabis supply chain by defining both the individual links (licensees) and the relationships between those links. Therefore, an understanding of vertical integration must be grounded in an understanding of the underlying regulatory definitions.

The regulatory definition of each link is extensive. For example, each licensee is tied to a specific facility, and must have its own procedures for production, inventory control, security, etc. When the links are strung together, this definition tends to preserve operational redundancies, and impede operational integration.

Overall, the relationships between the links are primarily defined in terms of preserving the chain of cannabis custody. On top of that, regulations define very specific (and very consequential) links between certain licenses, as discussed below.

A Taxonomy of Links

There are currently 26 types of cannabis license in California, 25 of which can be vertically integrated:

• Cultivation – 14 licenses, including 4 sizes each for Indoor (up to 22,0000 sf), Mixed Light (up to 22,000 sf) and Outdoor (up to 1 acre), as well as Nursery and Processor (drying, trimming and packaging/labeling). Note that cultivation licenses are the only licenses that restrict the scale of activities.
• Manufacturing – 5 licenses, including volatile extraction, non-volatile extraction, everything but extraction (i.e., infusion) and packaging/labeling.
• Testing (Type 8), for testing cannabis according to state standards prior to sale. The owner of a testing license cannot own any other type of license.
• Distribution (Type 11), acts as the gateway between cultivation and manufacturing on the one hand, and retail on the other. The distributor’s gateway status is entirely an artifact of regulation – cannabis must be officially tested before it is sold to a consumer, and only a distributor can order the official test. All products must stay in a “quarantine” area at the distributor until they pass testing. Products that fail testing must be destroyed if they cannot be remediated.
• Transport (Type 13), which can move cannabis between licensees (with a narrow exception). This license does not allow for official testing.
• Storefront Retail (Type 9), which is the best license to have, and the hardest one to get.
• Delivery Retail (Type 10), for delivery services that are subject to the vagaries of software platforms and the intransigence of local authorities.
• Microbusiness (Type 12), which allows the licensee to carry out cultivation (up to 10,000 square feet), non-volatile manufacturing, distribution and retail.
• Event Organizer

Self-Distribution – A Case of Useful Integration

You may gather from the previous section that shoving a gratuitous and mandatory distributor into the middle of the supply chain creates problems for cultivators and manufacturers. Savvy operators solve this problem by getting a distribution license. This allows the cultivator or manufacturer to:

• Pick the time and place for the testing of its cannabis products.
• Avoid paying someone else for the storage of cannabis products as they await test results or purchase.
• Reduce transport costs (particularly if the distributor is near the other operations).
• Sell directly to retailers.

The bottom line is that vertical integration in California cannabis is useful as a means to an end, as opposed to an end in itself. Therefore, cannabis operators should carefully consider how vertical integration will benefit their core business before incurring the risks and expenses associated with an additional license.

This article is an opinion only and is not intended to be legal advice.

It’s no secret that the rollout of cannabis legalization has underperformed in countries like Canada. Since legalization in October of 2018, industry experts have warned that the projections of the big cannabis firms and venture capitalists far exceeded the expected demand from the legal market.

Today, major production facilities are closing down, some before they even opened, dried flower inventory is sitting on shelves in shocking quantities (and degrading in quality), and an extremely robust illicit market accounts for an estimated 80% of the estimated $8 billion Canadian cannabis industry. None of those things sound like reasons for optimism, but while some models for cannabis business are withering away, others are beginning to put down stronger roots. Crucially, we are beginning to see new business models emerge that will be able to compete against the robust black market in Canada.

The Legal Cannabis Industry Can’t Compete

Legal rollout in Canada could easily be described as chaotic, privileging larger firms with access to capital who were able to fulfil the rigid – and expensive – regulatory requirements for operating legally. But bigger in this case certainly did not mean better. The product these larger firms offered immediately following legalization was of a lower qualityand higher price than consumers would tolerate. In Ontario, cannabis being shipped to legal distributors lacks expiration dates, leaving retailers with no indication of what to sell first, and consumers stuck with a dry, poor quality product.

The majority of existing cannabis consumers across the country prefer the fresher, higher quality and generally lower priced product they can easily find on the illicit market. That preference couldn’t be clearer when you look at the growth of inventory, which is far outpacing sales, in the graph below:

Which brings us to the crux of the matter: when it comes to building up the Canadian cannabis industry, what will succeed against the black market that has decades of expertise and inventiveness behind it?

Rising From the Ashes: Craft Growers and Other Small-Scale Producers

The massive facilities like Canopy’s may be shutting down, but our friends over at Althing Consulting tell us that those millions of square feet facilities are being replaced by smaller, more boutique-style cultivation facilities in the 20,000 ft tier, which are looking to be the future of the industry.

Consumers have consistently shown a strong preference for craft cultivators and other small-scale producers who produce higher quality, more varied products that are more responsive to consumer needs. It also hasn’t hurt that prices are also coming down: Pure Sun Farms in Delta, BC is consistently selling out of their $100/ounce special, which is highly competitive even with the illicit market.

This vision of the industry matches up better with the picture we’ve been getting from other legalization projects around the world. It also squares with other indicators of success. Despite the small market capture of the legal market, industry employment numbers are still relatively high, especially when compared with more established legal consumer products markets such as beer. In fact, craft cannabis growers now employ nearly as many people as the popular craft brewing sector here in British Columbia.

But in order to make the craft cannabis market actually competitive in both the regulated and unregulated spaces, the government will have to address four major challenges.

Challenge #1: License Distribution is Uneven and Chaotic

A December 2020 report by Ontario’s auditor general contains admissions by the Alcohol and Gaming Commission of Ontario (AGCO), Ontario’s cannabis industry regulator, that they lack the capacity and resources to manage the number of applications for private cannabis retailing. Problems relating to the issuing of licenses, including long delays and difficult requirements, are widespread across provinces. One way this becomes clear is by looking at the very uneven distribution of stores across the country in the graph below.

Challenge #2: Basic Regulatory Compliance is Complex and Time-Consuming

Smaller-scale micro cultivators, whose good quality craft product remains in high demand, still face prohibitive barriers to entry into the legal market. Licensing from Health Canada is one onerous challenge that everyone must tackle. Monthly reporting requirements have in excess of 477 compliance fields. Without additional support to navigate these requirements – including automation technology to ease the administrative burden – these smaller producers struggle to meet the minimum regulatory standards to compete in the legal market.

Challenge #3: A Long-Distance Road to Compliance and Safety Means Higher Costs

Even with all regulatory requirements satisfied, cannabis cultivators can’t sell their product from “farm to fork” (to borrow a phrase from the food industry). Many growers ship their product to be irradiated in order to ensure they are below the acceptable microbial threshold set by Health Canada. While irradiation positively impacts the safety of the product, new evidence shows that it may degrade quality by affecting the terpene profile of the plant. Furthermore, only a few facilities in Canada will irradiate cannabis products in the first place, meaning that companies have to ship the finished product sometimes thousands of kilometers to get their product to market.

Next year, Health Canada looks set to lower the limit on microbials, making it virtually impossible to avoid cannabis irradiation. If Health Canada follows through, the change will be a challenge for small-scale cultivators who strive to prioritize quality, cater to consumers who are increasingly becoming more educated about terpene profiles, and seek to minimize the environmental impact of production.

Challenge #4: It is Virtually Impossible to Market Improved Products

Finally, there is a marketing problem. Even though the regulated market has made dramatic improvements in terms of product quality from legalization two years ago, Health Canada’s stringent marketing restrictions means that cannabis producers are virtually unable to communicate these improvements to consumers. Cannabis producers have little to no opportunity to reach consumers directly, even at the point of sale – most legal sales are funneled through government-run physical and online stores.

What Can a Thriving, Legal Cannabis Market Look Like in Canada?

The good news is that change is being driven by cannabis growers. Groups like BC Craft Farmers Co-Op are pooling resources, helping each other navigate financial institutions still hostile to the cannabis trade, obtain licenses and organizing craft growers to advocate to the government for sensible regulatory changes. As a result of their advocacy, in October, the federal government initiated an accelerated review of the Cannabis Act’s restrictive regulations related to micro-class and nursery licenses.

Now, more co-op models are popping up. Businesses like BC Craft Supply are working to provide resources for licensing, quality assurance and distribution to craft growers as well. Indigenous growers are also showing us how cannabis regulation could work differently. Though Indigenous cultivators currently account for only 4% of Canadian federal cannabis licensees (19/459), that number looks to be growing, with 72 new site applications in process self-identified as Indigenous, including 27 micro cultivators. In September, Williams Lake First Nation entered into a government-to-government agreement with the province of British Columbia to grow and sell their own cannabis. The press release announcing the agreement includes the following statement:

“The agreement supports WLFN’s interests in operating retail cannabis stores that offer a diverse selection of cannabis products from licensed producers across Canada, as well as a cannabis production operation that offers farm-gate sales of its own craft cannabis products.”

More widespread adoption of the farm-gate model, which allows cultivators to sell their products at production sights like a winery or brewery, has a two-fold benefit: it better supports local, small-scale producers, and it offers opportunities in the canna-tourism sector. As the economy begins its recovery alongside vaccine rollouts and restrictions on travel ease, provincial governments will have the chance to leverage the reputation of unique regional cannabis offerings (i.e. BC bud) through these farm-gate operations.

While the cannabis legalization story in Canada has had its bumps, the clear path forward for greater legal market success lies in increased support for micro-cultivators. By increasing support for these small-scale producers to navigate regulatory requirements, more will be able to enter the legal market and actually compete against their illicit counterparts. The result will be higher quality and more diverse products for consumers across the country.