Regulations And Taxes Threaten California’s Legal Cannabis Market
Thursday, Mar 22, 2018

California’s demand for legal cannabis is expected to be three times greater than any other state by 2021, but heavy taxes and restrictive regulation may slow the degree to which the new adult-use market replaces illicit sales, stunting its growth and the state’s revenue gains from cannabis taxes, according to the “California: The Golden Opportunity?” report released today by Arcview Market Research, in partnership with BDS Analytics.

The 50+ page report serves as a comprehensive guide to the 52-county investment opportunity of the California cannabis market and the challenges presented by the regulatory and tax burden it bears.

“While California cannabis companies are thrilled with the traffic increase they’ve seen since January 1, they can’t help but worry that regulations and taxes are going to handicap the legal market in the long term,” said Troy Dayton, CEO of The Arcview Group. “It’s clear that every additional penny of price increase on legal cannabis products only serves to boost the attractiveness of purchasing from the illicit market which has flourished in the state for decades.”

In California, by the end of 2017, an estimated 1,150 retail storefronts and 2,000 delivery services were serving approximately 904,200 card-carrying consumers. On January 1, legal cannabis products became available to 29 million adult residents and many million more visitors. The January 1 jump in potential customers created a huge initial surge in traffic for the handful of stores licensed from the start, but volume gains backed off as the roster of licensed stores grew to 439 by mid-March; 221 of those medical-only licensees. The wealth of products available in legal cannabis shops will drive demand causing California’s market to increase at a compound annual growth rate of just under 29% from 2017 to 2021. California’s market will lag the growth seen in earlier states to approve adult-legalization–84% in Washington, 57% in Oregon, and 56% in Colorado. Tax mandates in California are higher than in Colorado and Oregon, with local jurisdictions adding additional tax loads to product prices. California’s tax and regulatory burdens lead to higher prices, saddling legal storefronts with a 77% “load” as they attempt to compete with the illicit market. Proposition 64, passed in 2016, reclassified most cannabis offenses as misdemeanors.