Local cannabis industry expected to go up in smoke

Metro Silicon Valley's pot economist Dan Mitchell spotlights California's suffering cannabis market. While Prop 64 legalized weed back in '16, dispensaries still struggle to operate under onerous state regulations and taxes, which are forcing many locations across CA into exorbitant debt. Then, it may not blow anyone's mind that cannabis sellers are heading back to the black market, where revenue is more promising.

California’s legal-pot industry has struggled since it began in 2018. High taxes, burdensome regulations, the refusal of many local governments to issue licenses and the continued dominance of the illicit trade have all kept what should be a large, thriving business from reaching its potential....

First, there’s the problem of money. There isn’t enough of it, despite all the dollars consumers spend on legal weed. Retailers have worked with ultra-thin margins all along, so anything that adds to their costs hurts. Dispensaries in general have taken on large amounts of debt during the six-plus years since legalization.

That problem became worse this year when the tax law was changed to make retailers responsible for paying the state’s cannabis excise tax—previously, distributors were responsible for making those payments. Over time it doesn’t much matter who pays those taxes, which of course are ultimately paid by consumers, but in the short term it puts a heavy burden on cash-strapped dispensaries....

Meanwhile, pot growers continue to flee the legal market in droves, thanks again to costs as well as persistently low wholesale prices. The state’s “canopy”—the total acreage devoted to growing weed—shrank by about 23% since January of 2022, according to one analysis. During the same period, 1,766 cultivation licenses went inactive, 845 of them just this year, according to the California Department of Cannabis Control.

This article originally appeared in Metro Silicon Valley. Read the whole thing here.

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