If California were a country, it would be the sixth largest economy in the world. The California Department of Finance places its economy above that of France, Russia, Italy, India, and Canada. Its Gross Domestic Product of $2.6 trillion is 14% of the United States’ GDP. That’s a huge customer base for all products — including cannabis.
The Biggest Market
Every demographic in California makes it the largest and most promising market for medical and recreational-use cannabis in the country. The BDS Analytics report notes:
- Consumers who have used cannabis within the past six months earn on average, $93,800. Those who vow not to touch cannabis average $75,900.
- Cannabis users are better educated. A total of 20% hold master’s degrees.
- California consumers are more likely to be parents than not. A total of 64% have children and 37% have children under 10.
Jeremy Berke’s take on the same BDS Analytics report is that, “sales of cannabis [is poised] to hit $3.7 billion in 2018 alone,” adding that there are predictions “that number will increase to $5.1 billion in 2019 as more dispensaries come online.” He also references research by the IBIS World that predicts cannabis industry revenue of $13.4 billion by 2020.
That’s not to mention Arcview Market Research editor-in-chief, Tom Adams, apparently “projects legal sales — which he pegged at $1.8 billion last year — will hit $5.8 billion by 2021.” Arcview Medical Research is a part of the Oakland-based Arcview Group, a cannabis investment firm.
In California, the cannabis industry will be worth $5.8 billion in 2021 pic.twitter.com/3YelFX27xo
— AFP news agency (@AFP) December 30, 2017
In short, there are more forecasts than you can swallow. All things being equal, California is a huge market for cannabis.
Ways the State Is Approaching Legalization Differently
Despite its experience with medical marijuana, California is less than well prepared for its first year of recreational-use sales. Why? The reason is partly due to the complexity of the state and its many interests.
The San Diego, Los Angeles and San Francisco areas represent the largest population pools. These are sophisticated and cosmopolitan regions rich with university sectors, liberal politics and a culture predisposed to acceptance.
Sacramento is aware of its state’s potential for screwing up the cannabis economy and negatively affecting advocacy potential in other states. They worry that criminal elements in the biggest cities and border counties will subvert legalization’s intent. So, they have set about such an administrative task that they are falling behind.
The state’s attempt to take a high road has spawned some high style dispensaries with impressive décor and ambiance. At the same time, that means dispensaries are receiving licenses too slow to meet the first quarter 2018 window.
Sacramento has conceded a lot of power to local jurisdictions. For example, Oakland’s city council has voted to allow citizens to apply for licenses even though they have been convicted of marijuana infractions. They argue that, because prosecution has unfairly targeted minorities, they should have a shot at the business.
The California Tax Guide for Cannabis Business expects:
- 15% excise tax upon purchasers of cannabis products. Retailers of cannabis as well as cannabis products must pay the 15% to their cannabis distributor.
- A cultivation tax is imposed on cultivators of $9.25/dry weight ounce of flowers and $2.75/dry weight of leaves.
- Totals vary among jurisdictions. CBS SFBay Area reported the sticker shock customers faced on January 1st explaining that in Harborside [Oakland], “There is the regular state sales tax of 6 percent, and the regular Alameda County sales tax of 3.25 percent. Then there is a 15 percent state tax on marijuana, and a 10 percent Oakland tax on recreational marijuana.” That totals 34.25%.
Water is precious in California and air pollution influences its every decision. So, legalization has come with strict water processing and reporting requirements for cultivators. And, any delivery process must be air-quality friendly.
What to Expect
The rollout of marijuana legalization will see fits and starts as providers get used to rules and even more rules to come. The first days will exceed expectations, but the price will do little damage to the black market.
By the third quarter, stores and state will have a grasp of the trending and analytics to make firmer forecasts for 2019 and to catch the attention of legislators looking to make more sense of the market and the state’s management. But, by mid-2019, California should replace Colorado, Washington, and Oregon as the business model and take over leadership of advocacy and legislative design.