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California cannabis sales continue to tumble

Getting cannabis policy right is about delicate trade-offs

Tuesday, June 4, 2024

Good morning.

Hello and happy Tuesday to all of you. In this one, we take a look at California cannabis sales, New York City’s illicit market crackdown, and more. 

Let’s get to it.

-JB & JR

This newsletter is 777  words or about a 4-minute read. 

💡What’s the big deal?

California posted its lowest quarter for cannabis sales since 2020

What happened: California posted its lowest quarter for cannabis sales since the second quarter of 2020, at the height of the pandemic. The state reported only $1.2 billion of taxable cannabis sales, which includes accessories like pipes and bongs. 

Total cannabis sales for the quarter were just over $1 billion — meaning that California, once the epicenter of the cannabis industry with a population of nearly 40 million, is now just a $4 billion market. 

Compare that to Michigan, which sold $3 billion worth of cannabis in 2023 with a population about a quarter of the size of California’s. 

Why it matters: California is the cultural and spiritual epicenter of cannabis. But the financial locus of the industry seems to have moved on to more business-friendly jurisdictions.

The declining sales numbers are a symptom of the financial turmoil that many dispensaries find themselves in, as they struggle to maintain their margins.

Countless small cannabis businesses are at risk of failing in the near future. 

The tax man cometh: Excise taxes on cannabis products are set to increase from 15% to 19% in 2025. 

But last year, nearly 15% of California cannabis businesses were in default of their taxes, amounting to nearly a quarter-of-a-billion dollars.

The tax increase could potentially accelerate cannabis business bankruptcy across the state. 

What they’re saying:The fact that California, which has 4x Michigan's population, is in danger of being overtaken by Michigan's legal cannabis market illustrates how dire the situation in California is,” Hirsh Jain, an industry consultant and the founder of Ananda Strategy said.

“This will further exacerbate the devastation of California's legal cannabis market."

Our take: Getting cannabis policy right is a careful balance between promoting economic fairness and social equity — with an eye toward the past injustices of the War on Drugs — with a business-friendly tax and regulatory structure.

It’s a careful needle to thread that involves tradeoffs on both sides. California hasn’t gotten it right, nearly eight years after voters legalized cannabis in the state.

Other states should heed California’s warning. 


💬 Quote of the day

“This is restarting the war on drugs under the guise of a civil process,” Steve Zissou, a lawyer for a New York City shopkeeper who was raided under Mayor Eric Adams’ new task force to clamp down illicit cannabis sales, told The City.

Read the full article here, and watch the interaction between police officers and the shopkeeper. 

It’s worth noting that the attorney, Zissou, also represented Empire Cannabis Club owners Lenore and Jonathan Elfand when two of the club’s locations in New York City were raided by state officials last year.

Quick hits

South Dakotans will vote on cannabis legalization in November, after advocates collected enough signatures for the issue to appear on the ballot. 

Investor Doug Kass of Seabreeze Capital Management says he’s going long on cannabis stocks again, according to a blog post on his firm’s site. Kass says he’s reestablished long positions in Trulieve, Green Thumb Industries, and Curaleaf.

📊 Earnings round-up

Acreage Holdings reported its first-quarter results on Friday. The company posted a $33.3 million net loss on $45.3 million of revenue. The firm also reported $365 million in debt. Canadian cannabis firm Canopy Growth has an option to acquire Acreage as part of its Canopy USA division — it remains to be seen whether Canopy can manage Acreage out of its financial hole. 

Cannabis processing company Nextleaf posted a $1.1 million (CAD) loss on $3.4 million of revenue for its fiscal second-quarter. 

📈 Deals, launches, partnerships

Higher Collective will open its fifth location in Torrington, Connecticut.

📰 What we’re reading

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