The first year of legal recreational marijuana in California has come to a close. It’s time to breakdown the trends and see what the future holds.

A Breakdown of California’s Marijuana Industry

Recreational marijuana, or “adult-use” cannabis, as it has been coined by the industry, has become legal in the state of California as of January 1st, 2018. During this year close to 3,000 cultivation licenses were issued in 26 counties. The majority of which being in the counties of Santa Barbara (22%), Humboldt (20.4%) and Monterey (12.6%).

The golden state’s annual production capacity is estimated to be just over 4 million pounds. Around half came from greenhouse growers, a third from indoor operations, and the rest from outdoor sun-grown farms.

Booming black market

Despite stepping out of the prohibition shadow, the cultivation and sale of weed remains firmly rooted in the illegal market. This is due to several factors that inhibit long time consumers and cultivators from switching over to the regulated market.

High retail prices for recreational cannabis

First and foremost is the costly retail price of regulated cannabis. Regulated prices can reach 2 to 4 times the price of their unregulated counterparts. They are also around double the prices in other post-legalization states, such as Colorado and Oregon. The high price point can be traced back to several factors: taxing, local regulations and cultivation practices.

Excessive taxing on legal marijuana

Californian weed is taxed at several points. The first point is a tax on cultivation. This tax currently amounts to $9.25 per ounce of dry-weight flowers and $2.25 per ounce of dry-weight leaves. A 15% excise tax accompanies any retail purchase of cannabis or cannabis related products. Local tax varies but can reach as much as 20% of sales receipts. Add in the sales tax, and the result is a product which costs much more than the price to which consumers are accustomed.

Local authorities hard on outdoor cannabis cultivation

An additional factor which can affect bud prices is the limitations placed on outdoor cultivation. Only 12 of the 26 counties allowing cultivation granted outdoor licenses.

Outdoor cultivation is by far the cheapest production method. Though sun-grown cannabis usually provides only one harvest per year, of relatively lower quality flowers, it does drastically reduce the average retail price by providing a large volume of product, as well as a wider variety of strains and price ranges, contributing to competition.

Legal recreational marijuana? Not everywhere

Perhaps the biggest factor limiting the growth of the regulated market, especially outside of major cities, is the fact that it is simply not permitted in much of the state.

As local authorities have the power to decide if and how cannabis related businesses can operate, many have decided to ban the trade altogether. According to the Bureau of Cannabis Control, 70% of cities in state have done so. In fact, 80% of Californian cities do not currently have legal marijuana retail options for recreational users.

There’s still hope for legal marijuana in California

The current situation creates a market where consumers face higher prices than the black market provides, while growers get paid less for their product.

This has created a situation in which growers which have chosen to go legal, will be forced to become leaner, and more efficient to remain profitable. While consumers will either retain their illegal dealer or face a premium for risk-free purchase.

These trends are not entirely unique to California. Washington has also seen a rise in retail price following the first year after legalization. Though in the case of WA, the rise has plateaued at around $25 per gram and eventually dropped as low as $5 once the market grew to more competitive proportions.

California could follow in Washington’s path, if taxing is eased, and local authorities allow the growth of the market to reach state-wide spread. The alternative may be the nation’s first failure to drastically reduce the black market weed trade by regulating the market.