According to state data, annual cannabis sales in the state of California saw a decline in 2022. It was the first time since the state opened up its adult-use market about five years ago.
The latest statistics by the California Department of Tax and Fee Administration show that retailers generated just over $5.3 billion in taxable sales of both recreational and medical marijuana last year. This means a decrease of 8,6 percent from about $5.6 billion, as recorded in 2021.
Undoubtedly, the decrease in adult-use marijuana sales has harmed cultivators who labor under the onerous tax system and grow weary as they suffer major economic losses. Considering all this, it’s not all gloomy. Read on as we unpack how the fall in sales could prompt definitive action from the powers that be to ease up on the industry in the name of mitigating loss.
The Problem Of Licensing For Adult-Use Marijuana Sales
The picture for California’s formerly thriving marijuana industry looks increasingly bleak considering the fall in sales, with taxable sales in the fourth quarter dipping to about $1.3 billion- a third straight quarterly decline. Notably, this is down by nearly 12 percent from the year before.
With dwindling wholesale prices making products cheaper for consumers, and a continued lack of physical retailers across the state, California cannabis industry consultant Hirsh Jain believes the two are major drivers of steadily falling sales.
To add fuel to the fire, Jain, the principal of Los Angeles-based Ananda Strategy, believes that since adult-use marijuana sales were approved, California’s dual-licensing scheme has made it difficult for new dispensaries to start.
Under state rules, marijuana businesses must obtain local authorization from the city or country in which they operate before seeking a state license, posing a gross administrative and ultimately costly burden. The complicated system has resulted in major delays in issuing annual
licenses since the onset of adult-use sales in 2018.
Agents Of Their Own Demise
Naturally, the steep decrease in revenue didn’t come about via osmosis and can be largely attributed to a problematic tax system that disproportionately affects the marijuana industry. It is no surprise that growers are hesitant to break into the industry since the likelihood of breaking even from a business perspective is so unlikely, with legislation working so heavily against them.
However, this could prove a significant turning point in the state revisiting tax policies regulating the cannabis industry, blowing wide open the conversation on tax policy revision to make licensing and equitable tax practices a reality for marijuana cultivators nationwide.
As long as the state continues to lose out on revenue, there remains hope for a change in the legislative discourse.
Growers Growing Weary
To date, licensing delays continue to plague operators throughout California, including in Mendocino County.
There, marijuana growers continue to engage state regulators to intervene due to local government failure to establish a process capable of moving good-faith cannabis operators towards state annual licensure. This is according to the Mendocino Cannabis Alliance’s letter to California Gov. Gavin Newsom and Department of Cannabis Control Director, Nicole Elliott.
Jain also added that the current apathy around state licensure for marijuana had limited the size of the state’s legal cannabis market, causing it to prematurely regress.
It is also no secret that the state’s illicit market has also had a significant impact on slumping sales at licensed marijuana stockists. Some industry insiders estimate the illicit industry to be double the size of the regulated industry. Due to greater accessibility, is turned to as opposed to more regulated outlets. This is a trend that came about during the medical marijuana era, years before California voters sought to legalize possession and adult-use sales in November of 2016.
California marijuana businesses were found to have generated nearly $1.1 billion in taxes in 2022. This is down from around $1.4 billion in 2021.
While the continued drop in adult-use marijuana sales continues to plague the state of California, the hope for more equitable tax regulations beckons bright. We’re hopeful that growers and cultivators can finally have access to a tax structure that works to enrich them and the public they serve. More than this, perhaps the drop in sales will be a springboard for the powers that be to address the licensing backlog so that the marijuana industry in California can bounce back to its former glory.
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