The Department of Cannabis Control engaged ERA Economics to prepare a report summarizing current market conditions and outlook for the California cannabis industry. The report provides a snapshot of current industry conditions (i.e., economics of the cannabis market) and recent trends.
Data come primarily from the California Cannabis Track and Trace (CCTT) system, the cannabis Unified License Search (ULS), the National Survey on Drug Use and Health (NSDUH), and other publicly available sources, in addition to confidential business outreach efforts conducted by ERA and data from other states' cannabis markets. This report describes the economic analysis of the California cannabis market, hemp market overview, and markets in other states. It focuses on the period since passage of the Medicinal and Adult Use Cannabis Regulation and Safety Act (MAUCRSA1 ) in 2018, through late 2024. The analyses for the first year following MAUCRSA have limited data (e.g., CCTT was just established), and analyses for 2024 are also limited by data availability (e.g., some data are released on a lagged schedule of up to one year). The report is based on the best available data through 2023/24.
Market challenges in 2024
In general, market conditions for licensed cannabis businesses in California have been challenging since 2021, through 2024. Wholesale licensed cannabis prices peaked in Q4 2020 and have declined since. As of Q4 2024, wholesale cannabis inflation-adjusted prices are down 57 percent on average from that peak. Wholesale price changes vary by cultivation method: indoor prices are down 46 percent, outdoor prices are down 74 percent, and mixed-light prices are down 60 percent. Inflation-adjusted retail prices have also been decreasing since late 2020 through the first half of 2024.
Despite challenges the California licensed market continues to grow. California produced more cannabis for the licensed market in 2024 than any year since MAUCRSA. Consumption of cannabis produced for the licensed market also continued to increase in 2024. The share of total consumption supplied by the licensed market continues to be stable at about 40 percent. Statewide efforts to eradicate unlicensed cannabis production are having some effect as unlicensed production is around the same levels compared with pre-MAUCRSA. That is, cannabis consumption has modestly increased and many of those consumers are purchasing cannabis from licensed cannabis businesses, but there is still a substantial illicit market in California. Careful analysis of the data does not show an explosion of illicit market production.
How much cannabis?
As of 2024, around an estimated 1.4 million pounds of licensed cannabis are produced and consumed in California. California consumption is around 3.8 million pounds, meaning that 2.4 million pounds are supplied from unlicensed cannabis operations and consumed in California.
The total value of retail sales in the licensed market is down, leading some to conclude that the licensed market is failing or shrinking. The total volume of retail sales for nearly all product categories is up. That is, the decrease in the total dollar amount of retail sales is driven by lower prices, not less production or a contraction in the licensed market. The licensed market is continuing to grow.
Wholesale flower prices dropped dramatically from the peak in 2020. This put substantial financial stress on cultivation and other cannabis businesses. The downward price trends in California are also seen in other states. However, prices have been relatively stable in 2023 and 2024. Nominal wholesale prices increased slightly in 2024, by about 4.8 percent from Q4 2023 to Q4 2024, driven by increasing indoor and mixed-light prices
Competition from the illicit market contributes to lower prices in the licensed market. Some consumers still purchase cannabis from illicit operations and illicit cannabis. production moves across state lines into different markets. It is not possible to empirically measure the impact of the illicit market on licensed market prices due to current limitations in illicit and licensed market data.
In contrast to distributor, cultivator, and manufacturer licenses, the number of retail licenses has been increasing.
What lies ahead
The short-run market outlook for 2024/25 is similar to 2023/24, namely a period of continued adjustment. Department changes (from legislative mandates and potential regulatory updates) planned in 2024/25 may help to lower costs for many licensed producers, improve cannabis product safety and transparency to the benefit of human and environmental health, and aid in the enforcement of illicit cannabis production and diversions. Additional opportunities to reduce costs at the state and local levels could further benefit the licensed industry.
Increasing enforcement of illicit operations would support the licensed market. Increasing consumer demand for cannabis will put upward pressure on prices. The Department is evaluating options for introducing cannabis products for animals into the market. It has also provided a proposal outlining potential regulation of hemp cannabinoids, but this ultimately requires legislative action for the Department to regulate cannabinoid hemp products. These and other changes may increase demand for licensed cannabis. This should continue to make the licensed market more competitive with the unlicensed market and guide the market towards less volatility than experienced in recent years.