New data from the California Department of Tax and Fee Administration shows that annual marijuana sales in the state dropped in 2022. This is the first time since the state launched its recreational market five years ago that sales have fallen.
Last year, retailers raked in $5.3 billion in taxable sales of medical and recreational cannabis. This is quite a drop, in comparison to the $5.8 billion generated in 2021. Taxable sales in the fourth quarter also declined to $1.3 billion, down by almost 12% from the same period in 2021.
Hirsh Jain, Ananda Strategy’s founder, stated that the continued lack of retail outlets in various regions in the state along with low wholesale prices were the main drivers of this trend. Low wholesale prices make marijuana products cheaper for consumers. Ananda Strategy is a consultancy that advises leading marijuana retailers, brands and venture capital funds.
The marijuana industry consultant further observed that the state’s dual-licensing system had also made it harder for new dispensaries to launch since the recreational use of marijuana was permitted. Jain noted that this had limited the size of California’s legal marijuana market, causing it to plateau prematurely and regress.
California was the first state in the country to legalize the medical use of marijuana, after voters approved in the Compassionate Use Act in 1996.
Under California’s law, marijuana enterprises must acquire local authorization from the county/city they operate in before they can submit their application for a state license. This has caused delays in license issuance, which is affecting operators in different parts of the state, including Mendocino County.
In a letter penned earlier this month to Governor Gavin Newsom of California and Director Nicole Elliott of the Department of Cannabis Control, the Mendocino Cannabis Alliance called for regulators to step in as local governments hadn’t succeeded in establishing a process that could move good-faith marijuana operators towards annual licensure in the state.
California’s illegal market may have also affected sales at licensed retailers, a trend which emerged in the years before voters in the state legalized adult-use sales and possession in November 2016. Industry players estimate that the illicit market is twice the size of the regulated marijuana industry.
Marijuana businesses in the state also brought in roughly $1.1 billion in taxes last year, a more than 20% drop from 2021’s $1.4 billion. Experts believe the decrease partly arose from the scrapping of California’s cultivation tax, as well as the aforementioned regulatory and economic challenges.
It would be interesting to look into how this decline in cannabis sales in California is impacting companies such as REZYFi Inc. which specialize in funding marijuana companies in different jurisdictions.
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