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CA’s Legal Weed Market Is Worth $5 billion — There’s a Catch

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CA’s Legal Weed Market Is Worth $5 billion — There’s a Catch

California already accounts for roughly a quarter of all legal cannabis sales in the United States and is poised to be an economic powerhouse in a decriminalized national industry — if it can introduce regulation without empowering a new illicit market.

By sheer numbers, California is easily the nation’s largest market for legal marijuana — which means the state is the biggest bonanza for cannabis sales on the planet.

Once legal commercial sales of recreational cannabis begin sometime next year, California will play host to a $5 billion legal marijuana market, according to a recently released state-sponsored study from UC Davis.

That’s big! Huge, even, when you consider Colorado’s cannabis economy — as of now the model for the rest of us to follow — is a “mere” $1.2 billion a year.

But! It’ll be even bigger if regulators can figure out how to keep regulations manageable and costs low. If they can’t, California will still have a marijuana black market worth billions more — it currently accounts for about 75 percent of all sales in the state: California rings up about $2 billion in annual legal marijuana sales, which accounts only for roughly 25 percent of the weed bought in the state.

The rest, $5.7 billion worth, is all black-market pot.

California voters legalized recreational marijuana at the November ballot, but legal sales under Prop. 64 can’t begin until state lawmakers hammer out rules for the industry. That process is currently underway, but according to an early estimate, the cost of state-mandated lab testing and other fees imposed by regulation could run to more than $400 per pound of processed pot.

Considering the wholesale price of a pound is $1,500 to $2,000 — sometimes higher, but quite often much lower — it’s no surprise that 29 percent of the domestic cannabis market is expected to stay illegal, as per UC Davis’s forecast.

“It’s going to take some time” to convince marijuana users to ditch their dealers and buy a regulated, taxed product, said Lori Ajax, the state’s appointed pot czar, in comments to the LA Times. “While it’s unlikely that everyone will come into the regulated market on day one, we plan to continue working with stakeholders as we move forward to increase participation over time.”

This same story has played out in other states, including Colorado and Washington, and is being pounced upon by anti-legalization forces as proof that the benefits of legal weed are overblown.

Critics also point out that medical cannabis is expected to evaporate. Medical marijuana sales are expected to account for only 9 percent of legal sales..

The UC Davis report was released prior to Monday’s most-recent proposal for the state’s marijuana regulations, which would allow for both recreational and medical marijuana to be sold under the same regulatory framework. Medical cannabis patients could still form collectives, but any commercial marijuana sales would require a state license.

Since licensed marijuana sellers would have to pay taxes and adhere to quality standards, it is suggested that the cost of their product will be more expensive than unregulated black-market weed.

However, this may not matter much once California adds cannabis to its long list of tourist attractions.

The state currently plays hosts to more than 260 million visitors a year, who spend a combined $122 billion. The wine industry — which is worth much, much less than marijuana, according to some estimates — rakes in $7.2 billion a year from tourists. Since visitors to Colorado openly admit going there because of the legal weed, it stands to reason California’s marijuana retailers will enjoy similar tourist traffic.

Either way, the state expects to capture most of the existing illegal marijuana trade. Where cash once flowed under the table, taxes will be paid and schools will be funded. It’s exactly what they promised us would happen.

TELL US, do you think California will be able to rein in its illicit cannabis market in 2018?

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