California officials have unveiled a new report on the current status and future of the state’s marijuana market—with independent analysts hired by regulators concluding that the federal prohibition on cannabis that prevents interstate commerce is meaningfully bolstering the illicit market.
The California Cannabis Market Outlook 2024 report—commissioned by the state Department of Cannabis Control (DCC) and carried out by ERA Economics—looked at consumer trends, industry data, regulatory enforcement actions and more.
According to the report, the conditions in which licensed businesses market their products have “been challenging” since the year 2021. This is due to declining wholesale prices of cannabis and stagnation with the transition from the unregulated adult market. In the years since legalization, only about 40% of cannabis consumers buy from legal businesses.
The report states that the competition from the illicit markets contributes to the reduction of prices on the licensed market. Some consumers continue to purchase cannabis through illicit operations, and the illicit production of cannabis crosses state borders into other markets.
“[C]”While cannabis consumption in California has been modestly increasing, many consumers still purchase their cannabis from cannabis retailers licensed by the state. There is however a large illicit cannabis market that exists,” says it. A careful analysis of data shows that there is no explosion in the illicit market.
According to an analysis, the federal ban on marijuana is a major problem.
It says that “federal legalization and the facilitation of commerce between states licensed to sell cannabis would help reduce illicit trade and lead to more stability in California, and possibly other states.”
According to the report, “wholesale price data showed that the prices of the licensed cannabis market in California and Colorado were related,” with this link increasing over time.
The link, it states, is “the unlicensed markets.”
The statistical analysis shows that the prices in these countries have converged. The co-integration in markets occurs when trade is conducted between states (or nations, as the case may be). This result is also true without legal trade between states. It indicates the illicit market as a factor driving prices to connect across states.
It’s important to note that interstate commerce does not constitute the only factor in the industry’s stagnation. The report also identifies the unregulated market for intoxicating hemp products—as well as local bans on marijuana businesses—as contributing factors.
As the state legal markets grow and mature, federal laws that prohibit interstate trade are having a major impact on the market.
In the end, the prices of adult use products are likely to be similar in California and the other states where there is a licensed market. This will happen as both the licensed and the unlicensed markets reach a state of equilibrium. As long as interstate trading remains illegal at the federal level, however, licensed market players are at an unfair competitive disadvantage compared to illegal market participants.
Gov. Gov.
In 2023, after reviewing the proposal, California’s Attorney General Rob Bonta’s (D), office concluded that allowing interstate cannabis commerce would put the state, its employees, and itself at “significant” legal risk of federal enforcement.
The bill was filed by a Republican, Rep. Dave Joyce of Ohio, last year. It would have lifted the federal ban on cannabis in states that allow it and allowed interstate marijuana commerce. But, this legislation did not progress.
The nwq California Report does not suggest, however, that lifting the interstate export and import ban would be sufficient to solve all the problems of the market.
It also states that local bans or restrictions on the sector “stifle innovation and growth, giving a competitive edge to illegal businesses.”
It says that “the share of consumption coming from licensed markets has been about the same (after increasing in 2018 and 2020 after legalization)”. The illicit market is supported by local (e.g. county and city regulations) that restrict consumer access to authorized retailers. Other regulatory burdens on licensed producers and federal restrictions against interstate trade.
One of those “regulatory burdens” concerns the unregulated hemp market—and specifically the sale of intoxicating products such as delta-8 THC that regulators say undermine the legal marijuana industry.
Newsom issued emergency regulations in late 2017 that banned hemp products containing “any detectable amount of THC”. Hemp products with no THC would also be limited to only five servings each, and the sale of hemp products to anyone over 21 will be prohibited.
According to the report, “Blocking intoxicating hemp cannabinoids would benefit licensed cannabis retailers and cultivators by decreasing the availability of alternatives.” Consumers of hemp products would move to the illicit and licensed cannabis market. The demand for cannabis will rise, and prices may increase in the future.
Californian officials have begun accepting comments on their plan to remove medical marijuana treatment from workers compensation cases. The public can comment until the middle of March. In such cases, doctors would be prevented from recommending cannabis and any compensation payments for cannabis medicines.
In California, the new law authorizing marijuana cafes took effect in January. This allows local governments across the state to authorize the opening of cannabis cafes.
Last September the governor also signed a series of modest reform proposals, including a bill to make it so medical marijuana donated to low-income patients is tax-exempt and another measure to prevent what advocates call the “double taxation” of marijuana by restricting the ability of local governments to calculate their cannabis levies after state taxes are already applied.
While the governor supports cannabis legalization, he’s been notably reserved about various drug policy proposals in recent years, for example vetoing legislation to legalize psychedelics and allow safe consumption sites for illegal drugs, in addition to nixing legislation to allow small marijuana growers to sell their products directly to consumers at state-organized farmers markets.
Meanwhile, a recent report released by a panel of experts convened by California’s Department of Public Health (CDPH) made a number of major policy recommendations that would radically alter the landscape of the state’s marijuana market, for example by limiting the THC potency of cannabis flower and concentrates, requiring products be sold in plain packaging and setting up a government-run cannabis monopoly along the lines of how stores work in Quebec, Canada.
Separately, in October, an industry effort to halt California’s enforcement of new emergency regulations banning consumable hemp products fell short, with a state judge denying a request for a temporary restraining order.
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