Legal California cannabis production increases by double digits, report says

Legal cannabis production in California increased by 11.8% to 1.4 million pounds in 2024, according to a new report commissioned by the state’s Department of Cannabis Control and released late Monday.

However, an enormous illicit marijuana market continues to thrive despite the efforts of regulators and law enforcement, with illegal production totaling an estimated 11.4 million pounds, according to the analysis from Davis, California-based ERA Economics.

Most of that illicit cannabis is still shipped out of state to destinations unknown, according to the report.

And while licensed production in the state is 1.4 million pounds, overall cannabis consumption in California is 3.8 million pounds.

With in-state illicit sales totaling nearly twice California’s legal sales, those numbers suggest that while the legal market still has potential to grow, major interventions will be needed to convince consumers to stop patronizing unlicensed operators.

Regulator reiterates ‘commitment’ to MJ industry

In response to the report, Nicole Elliott, director of the Department of Cannabis Control (DCC), said regulators and lawmakers have made “tremendous strides in strengthening California’s legal cannabis market.”

“By reducing costs, expanding access, and strengthening enforcement, we’re creating a fairer, safer, and more resilient industry,” Elliott added in her statement.

“Our commitment to supporting the legal market and protecting public health is unwavering.”

Yet, the report from ERA Economics – a consultancy that offers insights on agriculture and water – underscores some of the fundamental contradictions in California’s roughly $5 billion legal marijuana market.

The market remains the largest in the United States and continues to grow overall.

That’s despite clear signs of a burst bubble such as inactive or surrendered business licenses outnumbering active permits, according to a recent, separate analysis.

“There are some positive trends heading into 2025,” according to the executive summary in the Department of Cannabis Control-commissioned report.

Those positive trends include:

• An increase of nearly 5% in “nominal wholesale prices.”
• A hike of 7.5% in the “gross value of the industry.”
• An 11.8% increase in licensed production.

However, only a few paragraphs later comes a sobering reality check: “Prices remain low and business conditions are tough.”

And conditions might become even more difficult if a scheduled increase in the state’s excise tax from its current 15% to as much as 19% takes effect by July 1.

For example, the state’s increase in cannabis production value to $1 billion in 2024 comes after production value plummeted from $1.2 billion in 2021 to $881 million in 2022.

Meanwhile, the wholesale value of illicit production might be as high as $7.9 billion, the report notes.

Retail sales down in select counties

While the overall number of retail licenses statewide increased from 1,544 in September 2022 to October 2024, that number doesn’t immediately show how retailers fled certain markets.

The number of licensed retailers in Alameda County in Northern California, for example, declined from 157 licensed retailers in 2022 to 100 in 2024.

Meanwhile, sales statewide declined 4% from 2022 to 2023, according to the most recent annual data available.

Those numbers are even more bleak at the county level, where sales declined in most established markets across the board.

• Los Angeles County: $1.5 billion to $1.3 billion.
• San Diego County: $567.5 million to $550.3 million.
• Alameda County: $296.95 million to $263.11 million.
• Sacramento County: $292.33 million to $275.50 million.
• San Francisco County: $232 million to $215.83 million.

Orange County, meanwhile, remained relatively stable at $279 million.

Hope for marijuana producers as hemp ban effects felt

For marijuana producers, wholesale prices appear to have stabilized or even recovered slightly after years of double-digit declines.

Adjusted for inflation, wholesale flower prices plummeted 43% in 2022 and another 10% in 2023 before increasing to roughly 11.7% from the first quarter of 2024 to the fourth quarter, the ERA Economics report found.

However, both the exit of some licensed producers and retailers as well as a ban on hemp-derived THC products imposed last fall by Gov. Gavin Newsom bodes well for operators that can survive, the report noted.

“Strong demand and reduced supply as licensed cultivators exit the market while restrictions on hemp-derived cannabinoids take effect should put upward pressure on price,” according to the report.

Chris Roberts can be reached at chris.roberts@mjbizdaily.com.