As exemplified throughout legal states, while the future of the legal cannabis market has been projected to reach nearly $30 billion by 2025, there are still many problems plaguing businesses from prospering. Some of these issues include competing with the illicit market, being limited by the number of licenses issued by states, navigating workforce reductions and subsequent closure of legalized businesses, and being compliant with hefty state and local taxes, to name a few.
California has emerged as an interesting case study and frontrunner when it comes to the cannabis industry, with the Golden State becoming the first to legalize medical cannabis in the United States (due to 1996's passing of California Proposition 215) and the sixth state to introduce the sale of recreational marijuana (due to 2016's passing of California Proposition 64). While the state has garnered a reputation for being liberal with cannabis andCBD over the years—with its legalization efforts setting a standard for other states keeping a close eye on such progress—the business landscape within the state is still struggling on multiple levels.
Now that California has reached the two-year marker since the state began licensing dispensaries for adult-use recreational sales, politicians are being asked to take a closer look at the obstacles plaguing the legal cannabis business. An annual draft report conducted by the Cannabis Advisory Committee pointed out such issues to Gov. Gavin Newsom and California legislators, noting that officials may need to "consider revisiting the ballot initiative process."
According to the 22-member panel, which is comprised of industry leaders, civil rights activists, local officials, law enforcement and health experts, one of the biggest hurdles that legal businesses are facing is competing with an illegal market that is nearly three times in size. As noted in a forecast from BDS Analytics and Arcview Market Research, black market cannabis operations made an estimated $8.7 billion in 2019, while the legal market made an estimated $3.1 billion. Currently, the ratio of licensed operators to unlicensed operators in the state is 1 to 3. With only 568 licensed recreational cannabis shops currently in the state and less than one-fifth of cities permitting recreational sales in California, the battle to ensure safe, regulated and equal access to cannabis (and the cannabis business) seemingly is becoming increasingly uphill.
Gov. Newsom has long asked constituents to be patient, explaining that he expects it to take at least five years for the legal market to find its footing and fully develop. However, due to increasing pressure from advocates of the cannabis industry, his administration is reportedly planning to consider "substantial system changes" this year in order to nourish the legal market and work to combat the illicit market. Per Nicole Elliot, the governor's senior advisor on cannabis, the efforts will be concentrated on "streamlining the permit process" and "pushing local jurisdiction to understand the benefits of regulation versus continued prohibition."
As of May 2019, 76 percent of California municipalities and 69 percent of counties have voted to ban adult-use recreational cannabis dispensaries in their jurisdiction, with these numbers making up a staggering majority of the state. Additionally, the governor is also facing pressure regarding a tax increase on cannabis cultivation (which went into effect on Jan. 1, 2020). The cultivation tax increase raises the levy on cannabis flower from $9.25 per ounce to $9.65. In response, many are calling for the governor to reconsider having a cultivation tax altogether, let alone increasing it./span>
Given that businesses are struggling to compete against a multitude of issues, including complicated barriers to entry, the thriving illegal market, high taxes, increasing compliance costs, unforeseen complications (such as the illicit vape crisis), delinquent bills, lack of revenue and inconsistent enforcement, drastic systemic changes are needed to give the legal cannabis industry in California a fighting chance in reaching its full--and promised-- potential.