Sign up for our daily Newsletter and stay up to date with all the latest news!

Subscribe I am already a subscriber

You are using software which is blocking our advertisements (adblocker).

As we provide the news for free, we are relying on revenues from our banners. So please disable your adblocker and reload the page to continue using this site.
Thanks!

Click here for a guide on disabling your adblocker.

Sign up for our daily Newsletter and stay up to date with all the latest news!

Subscribe I am already a subscriber

Declining cannabis sales in California: unpacking the trends, controversies, and border-state dynamics

Following a report highlighting the amount of contaminated cannabis products in the California market, one of the authors of the report noted how sales in California are declining as consumer confidence in regulated products has decreased. Kieran Ringgenberg, a partner at the law firm Feuerstein Kulick, points out that it is difficult to make such a claim by simply looking at sales. Focusing on litigation in the cannabis industry, he says there haven't been as many lawsuits concerning contaminated products as one might expect. "I haven't seen any litigation about contaminated cannabis," he says. "There have been some consumer lawsuits and a few class actions. Admittedly, there aren't many of those because many cannabis companies in California are not financially strong enough to afford to pay in the event they are found liable. There's not much economic incentive for lawyers to pursue such suits."

A question still remains: why have cannabis sales in California gone down? "Nationwide, the general trend is that sales peaked during COVID, with the highest per capita sales in 2021. After that, they declined," he explains. While there's a lot of speculation as to why that happened, one may argue that during the lockdown period, people had more free time and disposable income. "However, no one really knows for sure. The only thing certain is that the trend line has declined ever since."

No major shift at retail level
Looking at data from the California tax authority, with a peak quarter of $1.4 billion in sales compared to the current peak of $1.2 billion, it is evident that sales have declined by about 5%. "There's some seasonality, of course. At the same time, people expect sales to stay roughly the same; I don't think anyone expects major shifts at the retail level."

One also has to consider the geography and population distribution in a state like California, where there are large population centers as well as many rural areas with no licensed retail stores at all. "For instance, Bakersville has a population of about 400,000, and there's no dispensary there. In fact, there's really nothing in that area. This means that legal sales are low in such areas. As local authorities approve more stores, they expect the sales trend to rise again."

Returning to the impact of the testing controversy on sales, Kieran is skeptical that it had any measurable effect. "It's counterintuitive for customers to return to the illicit market, considering those products are not tested at all. It might even go the other way. If there's a significant issue with contaminated cannabis raising public awareness, customers may prefer to buy the most tested products, even if legal stores have some problems with contamination."

Border-state dynamics
There is also an often-overlooked factor that impacts sales more than any COVID-19 or testing controversy, and it mainly concerns states with no regulated industry bordering states with a legal market. "In the U.S., legalization is happening state by state," Kieran explains. "California, Washington, Nevada, and Arizona all have legal markets. When a state newly legalizes, sales at stores along its borders see a huge increase. As neighboring states legalize, you see spikes in sales and then declines in border stores."

One of the most common examples illustrating the challenges of the California cannabis market is the comparison with Michigan, a smaller state that recently had higher per capita sales than California. "Michigan borders Ohio, where cannabis is still not legal, and there's a large city right on the border. So, it's reasonable to assume a significant portion of Michigan's sales come from people outside the state. Another example is Nevada, which has a store within two hour's drive from Salt Lake City, where cannabis is still illegal."

With election day now behind us and the new president-elect showing support to the cannabis industry, and even going as far as backing the unfortunately failed adult-use ballot in Florida, market dynamics are expected to shift dramatically, potentially creating a healthier and more mature market. "What we're seeing now is likely not what we'll see after federal legalization. There will certainly be rapid changes, with institutional money and resources entering the market, more scaling, and mergers and acquisitions at unprecedented levels. However, I still believe it's too soon to make any predictions. The joke remains the same: we're always five years away from federal legalization, and that's been the case for the past 15 years."