- The Washington Times - Tuesday, August 20, 2019

California is expected to post $3.1 billion in licensed cannabis sales this year, solidifying the Golden State’s status as the world’s largest legal marijuana market, according to a study by financial analysts tracking the industry.

But California’s marijuana black market is even larger, about $8.7 billion annually, as tough licensing, testing and packaging regulations have made opening a dispensary a struggle.

“Consumers have no shortage of cheap, illicit sources,” said a report from industry advisers Arcview Market Research and BDS Analytics.

Golden State consumers are still spending roughly $3 in the underground marijuana economy for every $1 in the legal one, according to the report titled “California: Lessons From the World’s Largest Cannabis Market.”

Cannabis advocates blame the 15% excise tax and cultivation taxes that state officials imposed after California voters legalized recreational marijuana in 2016 under Proposition 64.



The state Bureau of Cannabis Control began requiring stringent testing and packaging regulations during the transition from medical to recreational regulation in January 2018.

Since then the number of retailers has shrunk from the nearly 1,790 medical marijuana stores and dispensaries that were paying taxes on medicinal sales to roughly 580 licensed shops and 260 licensed home-delivery firms.

The Arcview Market report notes that California now has only one licensed retailer for every 35,147 adults over the age of 21. That ratio is much lower than other states with legal use markets, like Oregon, which has one dispensary for every 5,567 adults, and Colorado, which has one per every 4,240.

Dale Gieringer, director of the pro-legalization group California NORML said “the cannabis industry is being choked by California’s penchant for overregulation.”

Advocates say the rules were so tight in the first year of licensed cannabis sales that actual spending on legal marijuana in California dropped from $3 billion to $2.5 billion as many shops unable to meet the licensing requirements simply closed. Consumers also turned to the underground economy for tax-free weed.

The size of California’s underground market worries many who campaigned for legalized sales, including Mr. Gieringer.

“The illegal market is competitive because legal marijuana is so expensive to produce under Prop 64,” he said.

The report, however, notes that the dynamic between illegal and legal could flip within five years, with 2024 legal marijuana sales forecast to reach $7.2 billion and surpass a projected $6.4 billion in illicit sales.

Retailers who have survived the rocky start of official licensing “are battle-hardened” and in prime position “to leverage their positions in California to compete across the country,” said Troy Dayton, CEO of the Arcview Group, which produced the report.

Legal market supporters add that a “long-term view” of the industry’s evolution is needed. California, they say, already has come a long way since it began experimenting with medical marijuana sales more than 20 years ago.

For 2019, legal sales are projected to grow more than 20%, according to multiple estimates.

California lawmakers have also just returned to work after their summer recess with pundits expecting them to consider a number of proposals aimed at bolstering the legal market and reducing illegal sales. Those proposals include a potential cut to the cannabis excise tax from 15% to 11%.

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