Legal cannabis captures just 40% of California sales, with an estimated $5.8 billion flowing through the illicit market last year.
New DCC Director Clint Kellum is pursuing a four-part strategy to fix it: licensing compliance, illicit market enforcement, consumer education, and regulatory burden reduction.
Kellum also addressed pesticide testing, hemp integration, and the agency's ongoing effort to improve industry transparency.
California Department of Cannabis Control Director Clint Kellum.
Clint Kellum has one of the most difficult jobs in the cannabis industry.
The 18-year California government insider, who most recently served as chief deputy director at the state’s Department of Cannabis Control (DCC), was appointed in January by Gov. Gavin Newsom to lead the agency, replacing Nicole Elliott, who held the position since 2021.
The DCC is the largest cannabis regulator in the country with nearly 600 employees and an annual budget of about $200 million.
His agency’s oversight is immense: nearly 8,000 license holders, including 4,600 cultivators and 1,450 retailers and delivery providers sprawled across 163,000 square miles. The state’s enormity, coupled with years of lax enforcement against unlicensed growers and sellers following the launch of recreational cannabis sales in 2018, has exacerbated a deep-rooted challenge to rein in illicit operators while attracting consumers to licensed retailers.
Kellum’s top priority is reversing the trend.
“Based on information and estimates we have from our economists, about 40% of the cannabis consumed in the state comes from the legal market,” the DCC director said in an exclusive interview with Cultivated.
The stark admission is an eye-opener, considering some market watchers have long estimated California's illicit market is roughly twice the size of the regulated one. Last year, licensed retailers generated $3.9 billion in sales, down 7.1% from 2024 and a third straight yearly drop.
Based on DCC’s assessment, an astronomical $5.8 billion in cannabis sales last year were filtered through the underground market.
The long-term effects have been devastating for license holders, which pay high taxes, fees and other premium business expenses in the highly regulated sector. Hundreds have shuttered over the last few years, most leaving behind massive debt and unpaid invoices.
Kellum aims to close the sales gap through a four-tiered approach:
Trusted and safe products through traditional licensing and compliance work
Sustained enforcement on the illicit market
Public awareness campaigns steering consumers to licensed retailers
Reducing regulatory burdens on compliant operators
“There really isn't a silver bullet,” he told Cultivated.
Other foundational challenges linger.
Kellum inherits an agency that's been embroiled in a four-year lawsuit pressed by retailer Catalyst, which contends the department has failed to mitigate diversion in the market. A judge in December ruled that DCC reports from track-and-trace software maker Metrc failed to meet legal obligations to flag irregular activity, WeedWeek, a cannabis industry publication, reports.
Kellum, during the wide-ranging discussion, touted several positive developments, including DCC’s recently released guidance on the allowance of multi-pack products, a win for consumers, brands and retailers, as well as agency efforts that negated a significant licensing fee increase in last year’s budget. The agency is also weighing proposals for batch tags and a combined operations license to ease vertical integration pain points.
He underscored the department’s push to improve engagement and transparency with various constituencies, a shortfall that drew the ire of industry operators and other stakeholders in recent years.
“Every given day, we're trying to put forth our best effort to make improvements, even if it may not feel like that, and if it doesn't feel like that, like let's talk about it, and maybe we can help,” said Kellum, a former budget analyst and manager at the state’s Department of Finance and Department of Corrections and Rehabilitation.
“That may not allow for perfect alignment, but it should allow for more open communication with each other.”
Here’s more insights from Kellum in this exclusive Q&A with Cultivated:
How do you view your role at DCC?
I'm engaging with industry to understand their challenges and strains and figuring out where, systematically, we can make adjustments to improve the conditions as well. There's policymaker engagement, public health engagement and working across all those parties so we can make steady progress on keeping California consumers safe, making sure they have legal access, and making this a functional market long term.
You recently visited a distributor in Woodlake. What were your takeaways?
It was helpful for me to go out there and see what that's like and get a good understanding to see the boots on the ground doing the work and how they're handling inventory control and how they're working across three systems at once.
They have their own IT platform, they have a warehouse management platform, they have a Metrc platform, and sort of keeping those all reconciled at various points in the supply chain. I found it to be enlightening and instructive, and I have been making a concerted effort to engage with different industry partners, partners across the supply chain, to get a better understanding of their challenges.
How concerned are you that California regulated cannabis sales are declining and the industry is facing numerous headwinds, particularly a robust unlicensed market?
I don't want to diminish the challenge out there and the challenge before us. Folks will point at the declining sales figure, yet units sold continue to increase, so that's a good demarcation.
Over the last two years, we've seen wholesale prices start to increase slightly, so seeing some stabilization after a steep decrease in the early 2020 years. I see those markers as good progress. Certainly would love to see them accelerate but we can control what we can control.
Talking with DCC employees over the last year and keeping tabs of regulatory actions, it seems the agency is ramping up enforcement actions against the industry. Is that an accurate assessment, and if so, what’s driving that change?
There definitely has been a transition from full education to a more traditional regulatory compliance approach over the last couple of years. We are focused on the areas of inversion, diversion, testing, accuracy. We're also trying to do more education with licensees as well.
Does the agency have a better handle on pesticide product contamination, earlier detection and recalls?
Yes. Our reference laboratory is testing for all 66 pesticides in flower and concentrates. We also have ancillary and other lab resources to help in some of the other forms of flower and concentrates. UC San Diego and the Department of Food and Agriculture's labs help us out as well. They're actually in the process of building their capabilities to test for the 14 additional pesticides.
How is DCC integrating intoxicating hemp into regulations, rules etc.?
We're allowing hemp biomass that is tested at the point of entry to come into the cannabis supply chain and be regulated and treated like all other cannabinoids within the state, which we think makes a lot of sense for safety reasons, for reduced consumer confusion reasons, and just creating parity within that market. The actual regulations for the integration have yet to be developed. That's something we'll be undertaking this year. We still don't know what will happen at the federal level.
This interview was edited for clarity and length.