The California cannabis market was supposed to herald a new dawn in the industry. A state the size of California had so much potential. Many thought adding recreational use would make it one of the biggest and most successful markets. The West Coast’s markets aren’t exactly failing, but they certainly are struggling amidst high taxes and flourishing illegal grows and unlicensed stores and dispensaries.

Take Oregon, for example. After it passed recreational marijuana in 2014, most cities welcomed cannabis-related businesses. (Of course, one might suggest that they were a bit too open, because Oregon then did suffer from an incredible glut in cannabis that brought prices down and caused some grows to rot from being unsold).

So, when compared to Oregon, California hid its keys to the city and offered them to precious few businesses. Less than 20 percent of cities in California agreed to allow recreational cannabis. Just in Los Angeles county alone, you can see the major gap: There are 88 cities in LA County. Of those, only six currently allow sales.

Then There are California Cannabis Sales…Or Are There?

Oregon is doing pretty well in recreational sales. Cannabis tax collection consistently surges. But the California cannabis market is not meeting the tax collection projections experts predicted when recreational sales began at the start of this year. Gov. Jerry Brown’s budget had predicted around $630 million to be collected. But current numbers are looking more like $471 million in revenue.

Oregon’s Black-Market Solution

The cannabis glut in Oregon did actually help cultivate the black market in the state too. Oregon’s solution? Low-taxes. California’s decision to immediately start with high taxes has only contributed more and more to slower sales. Taxes and fees for cannabis in California drive up the cost as much as 45%. Oregon also capped its taxes at 20%. Doing so has kept sales steady and is a defining reason for why it has many more licensed shops than California. Since Oregon has only about one-tenth the population of California.

To put this into perspective, officials in the state previously estimated that around 6,000 marijuana shops could be licensed and open within the first few years of legalization under Proposition 64. The state Bureau of Cannabis Control has only issued 547 temporary and annual licenses to retail stores and dispensaries. On Jan. 1, licenses were officially required in the state. Before this, 1,790 dispensaries and stores had been paying taxes on medical marijuana sales.

High Markups in the California Cannabis Market

In Wilmington, an example of the high taxes that discourage consumers and shutter businesses: a 15% state excise tax, a 10% recreational marijuana tax by the city of Los Angeles and a 9.5% county and state sales tax — a markup of more than 34%.

NIMBY

A recent report done by the Los Angeles Times suggests another reason that the California cannabis market is struggling: NIMBY – The old, Not in My Backyard adage.

Regardless of whether a majority of the population voted for recreational use, not everyone is in favor. Groups like Save Our Sonoma Neighborhoods have obtained a preliminary court ruling against a cannabis farm that operates too close to homes in their opinion. Other groups have filed similar injunctions hoping to relocate cannabis operations.

Sanjay Bagai is the leader of the Save Our Sonoma Neighborhoods group. He doesn’t actually consider himself anti-marijuana. But he says cannabis operations and cultivation fit some neighborhoods, but not others.

Newsom Has His Work Cut Out for Him

Gov. elect Gavin Newsom takes office in 2019. Legislators are already planning on sending him various bills to help California cope with the decline in the cannabis industry in the state. Other bills include ones for banking for marijuana-based businesses, easing retailer tax burdens, and bills to reduce cannabis sales to minors.

What the State Needs are New Laws

To many in the industry, the only real solution for the California cannabis market problem is to get rid of the over-regulation – which seems to be a specialty in the state. “The cannabis industry is being choked by California’s penchant for over-regulation,” said Dale Gieringer, director of California NORML, a pro-legalization group. But to do that would require a complete overhaul of the program. Gieringer adds, that “It’s impossible to solve all of the problems without a drastic rewrite of the law, which is not in the cards for the foreseeable future.”

Cultivators are Also Staying Illegal

Cultivation licenses are also few and far between. Before Proposition 64, the California Growers Association estimated around 50,000 commercial marijuana operations existed. Now, only 2,160 growers have registered with the state.

But Other States Have Faced Problems Too

Officials think the current marijuana situation in California is temporary. They point to other states that are now well into their legalization faced hurdles too but are now going relatively strong. Licensed retail businesses, dispensaries, cultivators, and consumers are all hoping the state will start enforcing cannabis regulations more strongly and seriously tackling the black market. Those who desire to operate and purchase within the law should truly be the focus of the state. It is these individuals who will actually keep the industry going and make it strong and sustainable.

Pinnacle Knows the Law Too

Pinnacle knows the law – for growing, selling, consulting, and more, nationally and globally. We’re the go-to source and you can have cannabis confidence in the advice we offer. We know the markets to enter and which ones to wait on, as well as those yet to open. Call to schedule a sit-down consultation today – (719) 330-5301.