According to the report titled “California: Lessons From the World’s Largest Cannabis Market,” California was the first state to experience a decrease in legal sales following the launch of its adult-use cannabis market. Regulated sales fell from about $3 billion in 2017 to $2.5 billion in 2018, the year that adult-use sales launched in the state — every other state-legal cannabis market, however, has seen a post-legalization increase in regulated cannabis spending.
The California industry’s rough start can be blamed on multiple factors, including strict product testing regulations, a severe lack of licensing for industry operators, local bans on the adult-use industry throughout the state, and a thriving illicit marketplace that continues to compete with legal sales.
“California companies that survived the dual ‘extinction events’ of 2018 have emerged stronger and well-positioned to grow their market share going forward. More than that, they are battle hardened, and kicked off a merger and acquisition flurry in the first half of 2019 that will allow them to leverage their positions in California to compete across the country.” — Tom Adams, Managing Director and Principal Analyst for BDS Analytics’ Industry Intelligence group and Editor-in-Chief for Arcview Market Research, in a statement
According to the report, California’s illicit market is expected to maintain more than 50 percent of the state’s cannabis sales through 2024 — other legal states with more supportive regulatory regimes, meanwhile, are expected to see illegal sales drop to just 30 percent of total transactions.
In May, California officials made adjustments to the state’s expected tax revenue, subtracting some $223 million.
Troy Dayton, CEO of the Arcview Group, said that despite the industry’s many burdens, “California has the world’s largest legal cannabis market and will continue to until federal legalization makes it merely a part of the larger U.S. market.”
“At that point,” Dayton said, “California will assume its usual place in the world economy as a major exporter of agricultural commodities and their derivative products, a technology mecca, and consumer product trendsetter.”
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