‘Warning signal’: Calif. legal cannabis sales see unprecedented drop

Legal pot sales in California shrank last year, falling 8% compared with 2021. This is the first time cannabis revenue has dropped since the sale of cannabis became legal in 2018.

Customers purchased $5.3 billion worth of legal pot products in 2022, according to data released Wednesday by the California Department of Tax and Fee Administration. That represents an 8% drop, or a decrease of $473 million, from what customers purchased in 2021.

The falling sales come as the legal cannabis industry faces multiple headwinds, including competition from a booming illegal market, crashing wholesale prices and yearslong licensing delays.

Hirsh Jain, a cannabis consultant at Ananda Strategy and the vice chair of the California Cannabis Chamber of Commerce, said in an email to SFGATE that the drop in sales is “a warning signal” that “the state’s legal market is on the brink of collapse.”

California’s drop in pot revenue last year follows a pattern seen in other states with legal cannabis: Sales balloon during the first years of legal pot, and then eventually, growth levels off. California’s cannabis market expanded from almost $2 billion in legal sales in 2018 to over $5.7 billion in 2021. Four other states, Washington, Oregon, Colorado and Nevada, have also seen their cannabis sales plateau after early growth.

However, California has hit its plateau far earlier than other states with legal pot. Washington state did not see a reduction in cannabis sales until eight years after legal cannabis sales began. Jain said this makes California’s drop in sales unique.

“For a fairly immature market like California to experience such a decline in sales so early in its tenure as an adult use state is unprecedented,” Jain wrote in an email to SFGATE.

Jain attributed the drop in sales to licensing problems with the local governments, which have been slow to give licenses to legal pot entrepreneurs. Jain estimated that 700 retail cannabis stores have been unable to open because they lack licenses from local governments.

The illegal cannabis market has also hampered California’s pot industry. Illegal cannabis farms have proliferated across the state, and San Diego officials said this month that cannabis tax revenue is expected to drop 23% due, in part, to illegal cannabis delivery services. Gov. Gavin Newsom and the California Department of Cannabis Control launched a new task force last year to try to crack down on illegal cannabis operations in the state.

Lester Black