The Oklahoma Medical Marijuana Authority (OMMA) recently released a study about the supply and demand market for cannabis. It's the first of its kind, delving deep into the state's medical cannabis market. The study's researchers have done an outstanding job examining the supply and demand dynamics in our home state, even enlisting over 1,300 cannabis consumers across 68 counties. It is one of those fascinating reads, imagine that.
I’ve been curious how Oklahoma stacks up against other states in terms of cannabis demand, since we allowed Medical Marijuana? Well, it turns out our regulated medical market is on par with the national average. However, here's where it gets crazy - the supply-to-demand ratio in the medical marijuana program is a whopping 64:1. To put it in perspective, we're producing at least 32 times more cannabis than our licensed patients need. (note: the study uses a general assumption that units of supply should not exceed two times the units of demand, the medical marijuana program has no less than 32 times more regulated marijuana necessary than licensed patient demand.) This imbalance is a red flag for anyone in the commercial real estate sector. Is it really an imbalance or is there a thriving illicit market fueled by this surplus. The report doesn’t even take into consideration that a majority of license holders are recreational, not medical, users. And get this - there might even be out-of-state export of cannabis products happening which is illegal. It's a wake-up call for anyone in the real estate game to ensure any potential tenants involved in the cannabis business are legit and have a sustainable business model.
Here's another interesting tidbit - the total yearly regulated medical cannabis demand in Oklahoma is roughly 50 million grams. And this demand, driven by 369,515 licensed patients, could have massive implications for real estate, especially in the retail and industrial sectors. But given the oversupply, we might be nearing market saturation, which raises questions about the viability of new grow operations and dispensaries.
The study doesn't stop there. Estimates are that the total yearly cannabis demand in Oklahoma, covering both regulated and illicit sources, is about 340 million grams. The kicker? Our regulated cannabis supply could satisfy the total state demand more than 4.5 times. This kind of oversupply hasn't been seen in any other state.
What does this mean for us? Well, as which any (mostly) free market, when supply exceeds demand, prices decline, businesses go out of business and the market moves
toward equilibrium. This clearly could affect property values, rental rates, and lease terms for cannabis-related properties. But it could also open doors for savvy real estate investors to repurpose these facilities for alternative uses.
Finally, the study wraps up with some recommendations that could directly impact the commercial real estate sector. They're talking about extending the moratorium on cultivation licenses until 2026, implementing a tiering system of cultivation, using advanced regulatory tech, and beefing up enforcement. They're even suggesting authorizing officers to seize and destroy cannabis products that can't be accounted for, and allowing unscheduled inspections. But they don’t mention anything about additional qualifications or costs for procuring a new license…interesting.
This is clearly not a young market, but the economics give it far more visibility. This is a bubble that is using regulatory action to curtail the ‘burst’ and help the industry find equilibrium. I favor a free market economy but there is still a long way to go for this sector to course correct. If you are a landlord for a cannabis business - it may be a good time to check in with your tenant and see how business is going.
Read the full report here.