*This article first appeared on SFGATE
A license to legally sell cannabis in California was once a coveted item, with some selling for millions of dollars. But now, as the California market’s struggles have left some pot licenses effectively worthless, that exuberance has turned into gloom.
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Case in point: One cannabis company is offering its retail license in the Southern California city of Oxnard for “free” to anyone who will assume responsibility for paying the lease on the retail location, which has not yet opened for business. The listing still prices the license at $35,000, but broker Meilad Rafiei confirmed to SFGATE the seller is willing to walk away without getting any cash.
“From day one I was telling [the license holders], I don’t know if there’s any value here,” Rafiei said.
Rafiei, the CEO of cannabis industry consulting firm WeCann, said the Oxnard license could have once been sold for as much as $3 million, making the current deal a stunning drop in value.
Ryan George, the CEO of 420Property.com, which is a marketplace for cannabis licenses and real estate, said during the early years of legalization, licenses could trade from $500,000 to $3 million, with one Santa Ana license selling for $8 million. Now he’s increasingly seeing licenses trade for free as they become “effectively worthless” in certain areas.
“Fast forward to today, and the picture has changed dramatically. Market saturation, regulatory challenges, and competition from the illicit market have driven values down,” George said in an email.
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The downfall is driven by multiple factors that have all come together in a perfect storm. Entrepreneurs likely overvalued the licenses when the market first opened in 2018, expecting that cannabis retailers would be printing cash. Licensed pot stores across the state are heavily concentrated in the few cities where selling cannabis is allowed, creating extreme local competition.
California’s legal market also continues to underperform, with illegal cannabis stores supplying the majority of cannabis consumed in the state, according to government estimates. That has resulted in California’s low per-capita sales and starved cannabis stores from attracting the customers they expected.
Palm Springs and the surrounding towns, where pot stores initially proliferated but are now rapidly closing, has been one of the hardest-hit areas. Rafiei, who said his company has brokered over $300 million in cannabis deals, said entrepreneurs are taking over cannabis stores in the region without handing over any cash.
“If anyone is interested in going into Palm Springs, they’re looking to steal a business and just get it for nothing,” Rafiei said. “Palm Springs is one of the worst horror stories in terms of what we’re talking about.”
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Rafiei said the biggest hindrance to selling the Oxnard license is the fact that the city charges a $250,000 fee to open a pot store, a cost that any presumptive buyer would have to absorb before opening. He said his clients initially listed the license at $300,000, then dropped the price to $150,000.
“We got a few hits, but no one was serious, especially once they learned about the crazy fee,” Rafiei said.
The seller eventually dropped it to $35,000, before finally telling Rafiei that they could “just walk away” from the Oxnard license. He said dropping the sticker price on the license to zero has finally attracted some viable offers.
“We haven’t gotten a deal done, but we do have some serious people looking now, and it looks like we might make it happen,” Rafiei said.
