Regulations and Taxes Threaten California's Legal Cannabis Market
California's enormous cannabis tax and regulatory burden could drive up marijuana prices and keep consumers in the illicit market legalization was intended to replace
Oakland, Calif. - March 21, 2018 (Investorideas.com Newswire) California's demand for legal cannabis is expected to be three times greater than any other state by 2021, but heavy taxes and restrictive regulation may slow the degree to which the new adult-use market replaces illicit sales, stunting its growth and the state's revenue gains from cannabis taxes, according to the "California: The Golden Opportunity?" report released today by Arcview Market Research, in partnership with BDS Analytics.
The 50+ page report serves as a comprehensive guide to the 52-county investment opportunity of the California cannabis market and the challenges presented by the regulatory and tax burden it bears.
"While California cannabis companies are thrilled with the traffic increase they've seen since January 1, they can't help but worry that regulations and taxes are going to handicap the legal market in the long term," said Troy Dayton, CEO of The Arcview Group. "It's clear that every additional penny of price increase on legal cannabis products only serves to boost the attractiveness of purchasing from the illicit market which has flourished in the state for decades."
California operators need to plan not only for their own cost of operations, but also a bevy of taxes and regulations, that amounts to a 77% tax-and-regulatory handicap vs. prices in the illicit market. Various issues, including California's already high sales taxes plus new cultivation and excise taxes and the costs of navigating 40+ different types of state licenses and varying county and local regulations, all factor into the end price paid by the consumer.
"Rarely does a 20-year-old market undergo as radical a transformation in as short a time as California's cannabis market did on January 1st of this year," said Tom Adams, Editor-in-Chief at Arcview Market Research and Principal Analyst at BDS Analytics. "Suddenly, 29 million adults had access to the cornucopia of the modern cannabis store but were also suffering sticker shock from the state-imposed costs of going legal."
Among other findings, the report reveals:
- In California, by the end of 2017, an estimated 1,150 retail storefronts and 2,000 delivery services were serving approximately 904,200 card-carrying consumers. On January 1, legal cannabis products became available to 29 million adult residents and many million more visitors
- The January 1 jump in potential customers created a huge initial surge in traffic for the handful of stores licensed from the start, but volume gains backed off as the roster of licensed stores grew to 439 by mid-March; 221 of those medical-only licensees. The wealth of products available in legal cannabis shops will drive demand causing California's market to increase at a compound annual growth rate of just under 29% from 2017 to 2021
- California's market will lag the growth seen in earlier states to approve adult-legalization--84% in Washington, 57% in Oregon, and 56% in Colorado
- Tax mandates in California are higher than in Colorado and Oregon, with local jurisdictions adding additional tax loads to product prices
- California's tax and regulatory burdens lead to higher prices, saddling legal storefronts with a 77% "load" as they attempt to compete with the illicit market
- Proposition 64, passed in 2016, reclassified most cannabis offenses as misdemeanors.
New forms of enforcement, like fines for unlicensed operations, could discourage illicit growers, even if criminal penalties are lessened. But unlicensed growers with well-established distribution could potentially siphon customers from licensed retailers and, in turn, stunt the revenue gains expected from cannabis taxes.
About The Arcview Group:
Founded in 2010, The Arcview Group is responsible for a number of groundbreaking ventures in the cannabis industry. The Arcview Investor Network includes more than 600 accredited investors who have put more than $150 million behind 165 companies. Arcview Market Research has published the State of Legal Marijuana Markets since 2011 and it has become the most oft-cited data in the sector. In 2017, Arcview Market Research partnered with BDS Analytics to add more robust point-of-sale data and consumer insights to its offerings. In 2015 Arcview became a partner in Canopy, the first seed-stage mentor-driven business accelerator. Arcview is also co-founder of Cannasure Insurance Services, the leading provider of business insurance to the cannabis industry. Forbes Magazine recently named Arcview among the top 5 financial firms in the cannabis sector.
About BDS Analytics:
Headquartered in Boulder, Colo., BDS Analytics provides cannabis brands, cultivators, producers, dispensaries, and investors with comprehensive, actionable, and accurate industry research. The company provides a holistic understanding of the cannabis market by producing insights from dispensary point-of-sale systems through its market-leading GreenEdgeTM platform, driving consumer research with its Cannabis Insights Group. To learn more about how you can utilize BDS Analytics' superior data and insights, please visit www.bdsanalytics.com.
Media Contact Information:
Arcview Market Research
Robert Vanisko – North 6th Agency
212-334-9753 ext. 112
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