What’s Causing Cannabis Sales in California to Slump

For the cultural and legislative mecca of cannabis that California has steadily been since the 1960’s at least, one would naturally expect California to be the highest-grossing state for recreational cannabis sales and tax revenue. And those assumptions have proven to be obviously true as during 2018 which was the very first year of recreational sales, California sold a staggering $1,980,400,456 worth of taxable cannabis sales. The very following year, total taxable sales increased by nearly a full 50 percent, up to an unbelievable $2.8 billion in 2019. What’s worth noting about when looking at the California Department of Tax and Fee Administration is that the outbreak of the recent pandemic skyrocketed total cannabis sales over the matter of a single fiscal quarter.

Q1 2020 total cannabis sales are listed as a still astronomical amount of $877 million. However when lockdowns and quarantining began during the initial outbreak of COVID-19 and people across the world were isolating around Q2 of 2020, total cannabis sales increased exponentially by an amount not seen previously in the already quickly rising dollar amount of total sales. While no industry is truthfully recession or pandemic-proof, the large jump in sales may give credence to that argument in favor of the cannabis industry.

From $877 million in Q1, sales shot up like a rocket all the way to a total of $1.3 billion in Q2. It’s clearly obvious that cannabis consumers’ rate of consumption likely increased when they weren’t allowed to leave their homes unless for the essentials and I can certainly attest to that statement, but a $423 million dollar rise in sales in a single fiscal quarter is almost unheard of among other industries. From Q2 2020, the dollar amount of total taxable cannabis sales only kept growing larger and larger every single quarter and the sales reached their absolute peak in Q2 of 2021 at $1.55 billion in only a 3-month period.

Although something notable happened after Q2 of 2021. In the state that is globally known for cannabis cultivation, history, culture and industry, total taxable cannabis sales in California dropped by approximately $140 million in Q3 of 2021. From that sudden drop, the dollar amount of total taxable cannabis sales began going on a financial roller coaster every quarter. Total taxable sales increased slightly by $16 million in Q4 of 2021 but then fell a drastic $117.6 million in Q1 of 2022.

Q2 saw a decent increase in total taxable sales of $84 million before the dollar amount of total taxable sales fell to its two lowest points since the beginning of the pandemic. Coincidentally, the drop of total sales in between Q2 and Q3 of 2022 was also approximately $117 million. From that steep drop off, total sales decreased a further $21 million for Q4 of 2022. All these sudden financial drops of several million dollars every quarter have caused an overall sales drop that can’t be ignored and a deficit that is leading to significant hardships and startling unemployment throughout California’s cannabis industry, once thought to be the most vast and successfully lucrative of all statewide cannabis industries.

In total, cannabis sales in California have dropped an alarming 8 percent for 2022 which averages up to a total of $473 million throughout the year. For sales in a state industry as otherwise profitable as California cannabis to drop by that colossal figure so suddenly, there have to be several reasons far more nuanced than consumers simply aren’t buying the products. If customers could purchase a total of $423 million more during the fiscal quarter which hosted one of the most uncertain and daunting periods in our country’s history, then they could surely purchase even more two years removed from the height of the pandemic. However, the many factors that are contributing to the current shortcomings of California cannabis are as numerous as dispensaries in the Golden State.

One of the biggest issues that the California cannabis industry currently faces is a widespread issue impacting the entire state and cutting considerably into the dollar amount of total retail sales. The almost endless amount of illegal cannabis growing operations, or those not properly regulated and licensed by the state, are being raided by authorities across California. The total dollar amount of cannabis found in these illegal facilities are on par with figures that dispensaries sell in a considerable amount of time.

One illegal operation being run out of two different warehouses in Oakland which were raided by Almeda County Police just a couple weeks ago had a seized total of “30,000 marijuana plants, 2,720 pounds of marijuana and multiple firearms”.  The combined total of all the seized plans and processed cannabis adds up to nearly $34 million when counted. Just two weeks prior to this multi-million dollar raid, law enforcement in Livermore raided an illegal grow worth over $3 million. These two raids of multi-million dollar yet entirely illegal grows are far from isolated incidents for California law enforcement. The problem of illegal grows in California is so rampant that Governor Newsom has created the Eradication and Prevention of Illicit Cannabis (EPIC) task force which has come to replace the more annually temporary Campaign Against Marijuana Planting (CAMP) started under Republican Gov. George Deukmejian in 1983. No, I’m not sure who’s coming up with these acronyms either.

“For example,” PBS reported, “about 80% of the 44 illegal grow sites found on and around Bureau of Land Management properties this year were connected to drug trafficking organizations, said Karen Mouritsen, the bureau’s California state director.”

Another detrimental factor that’s surely led to alarmingly decreased sales is the economic freefall of overall price per pound of wholesale cannabis. SFGate estimates that wholesale cannabis prices per pound have dropped as much as 95 percent since recreational cannabis was first legalized in 2016, from $2,000 a pound at first down to about $400 a pound and some longtime growers in Humboldt and Mendocino counties have seen a pound of wholesale cannabis go for as low as $100. This drastic drop in price can be attributed to a number of factors, with several farmers interviewed by SFGate mentioning how high the compliance and regulatory costs are for their farms to be entirely compliant with the Department of Cannabis Control.

Natalynne DeLapp, the executive director of the Humboldt County Growers Alliance, mentioned that about 60 percent of cannabis farms in the Emerald Triangle have shuttered and permanently ceased operations since recreational cannabis became legal in 2016.

Hirsh Jain, a cannabis consultant at Ananda Strategy and the vice chair of the California Cannabis Chamber of Commerce, described the current state of the California cannabis industry as “on the brink of collapse.” Jain mentioned a huge backlog of retail cannabis licenses that have yet to be fulfilled by the state government. The vice chair of California Chamber of Commerce estimated that a total of 700 prospective dispensaries have yet to be opened due to their lack of approved state licensing.

On top of all these chaotic issues that are impacting the operations and total finances of the California cannabis industry, one must take into consideration the economic downturn that America is currently in the midst of. As this is the first economic recession of this scale that the American cannabis industry has had to endure, the effects of the current recession on an industry still very much in its infancy are entirely uncharted and can only be hypothesized currently.