California Legal Cannabis Sales Drop 8% In 2022

Regulated sales of cannabis in

Cannabis sales in the fourth quarter of 2022 dropped by about 12% to approximately $1.3 billion for the three-month period. The figure marked the third consecutive quarterly decline in California’s regulated cannabis market. Legal sales of marijuana in 2022 generated almost $1.1 billion in taxes, a drop of about 21% from the year before. 

Adult-Use Cannabis Legalized In 2016

California legalized cannabis for adults in 2016 with the passage of Proposition 64, a ballot measure that was approved with 57% of the vote in the November general election that year. Regulated sales of recreational began at licensed dispensaries on January 1, 2018.

Hirsh Jain, a cannabis consultant at Ananda Strategy and the vice chair of the California Cannabis Chamber of Commerce, wrote in an email to the online news site SFGATE that the decline in sales is “a warning signal” that “the state’s legal market is on the brink of collapse.”

Jain said that California’s cannabis market showed strong growth in its first several years, but the expansion of the regulated marijuana economy has since leveled off. The trend is similar to the experience of other states that have legalized recreational marijuana, including Washington, Oregon, Colorado and Nevada. 

But California has seen cannabis sales level off sooner than other states, making it an anomaly among states that have legalized adult-use cannabis. The state of Washington, for example, did not see a drop in regulated cannabis sales until eight years after recreational marijuana sales began in 2014.

“For a fairly immature market like California to experience such a decline in sales so early in its tenure as an adult use state is unprecedented,”

Several Factors Limit California Legal Cannabis Sales

Two factors have played a major role in the declining sales of California’s legal cannabis market, according to Jain. A significant drop in wholesale cannabis prices statewide has reverberated throughout the market and made cannabis products less expensive for consumers. Additionally, the state’s dual system for licensing that requires local approval of cannabis business licenses has hampered the growth of retail outlets.

Local control of cannabis businesses has resulted in a state market where 60% of local governments have banned retail sales of cannabis within their jurisdictions. In counties and cities that have given approval for retail cannabis establishments, the extra layer of regulation has drawn out the licensing process, delaying the opening of new businesses.

“California’s ‘dual-licensing’ system has made it very difficult for new dispensaries to open in the years since adult-use sales began,”

The local control provisions of California’s cannabis laws have also delayed licensing for cannabis producers. Earlier this month, the Mendocino Cannabis Alliance wrote a letter to California Gov. Gavin Newsom and Department of Cannabis Control Director Nicole Elliott, asking state regulators to intervene, saying that the local government in Mendocino County has failed to “establish a process capable of moving good-faith cannabis operators towards state annual licensure.”

“This has artificially limited the size of the state’s legal cannabis market, causing it to prematurely plateau and now regress,” Jain added.

Cannabis industry insiders including Phil Rath, executive director of the San Diego-area industry group the United Medical Marijuana Coalition, also cite the persistent illicit cannabis market in California as a factor limiting the expansion of the legal industry.

“The legal industry is facing huge competition from the non-legal industry,”