Cannabis Analysts Predict that "There Will Shortly be Thousands of Retail Stores in California"
It’s no secret that California is the cannabis capital of the world. That’s not to say that people can’t or don’t grow good weed elsewhere, but when you look at the big picture, Cali offers the lucrative blend of ideal growing environments and climates, a deeply rooted culture surrounding the plant established through decades of prohibition, and the 5th largest economy in the world full of hundreds of thousands of people who have some spare cash – and their favorite pipe or rolling papers - in their pockets.
It’s also no secret, however, that so far, California’s regulated cannabis market has failed drastically to even approach the revenues that were projected as everyone involved – from the Governor’s office to the legacy grower – is feeling the pinch these days.
The reasons for California’s crippled roll out of its “legal” weed market are many. So called “extinction events” have become as common as wildfires in the state, where shortsighted regulations threaten to totally eliminate large numbers of applicants and licensees before their startup businesses even get off the ground. Restricting the potency and labeling options for edibles was one such example, then came the mass expiration of cultivation licenses as the state struggled to process them in time, and of course, VapeGate came and went like a puff of distillate in the breeze, but not before forcing manufacturers and retailers out of business.
But perhaps one of the most detrimental bottlenecks in the entire system here in California has been the pathetic number of retail cannabis dispensary licenses that have been issued statewide, but according to a leading industry watchdog group, that may be about to change dramatically.
Over 2/3rds of all of the counties in California saw majority support for Proposition 64 at the polls on Election Day in November of 2016 as the bill passed easily, forever changing the cannabis landscape in the state. Despite this overwhelming support, roughly that same ratio of counties and cities in Cali have banned ALL legal commercial cannabis business within their jurisdiction. Prop 64 made it so that all applicants seeking entry into the industry needed local approval before they could get their annual license from the state. Now weed-hating city councilmembers and Podunk powerbrokers are pulling the strings as to just how successful the world’s largest weed market can become.
The result is that massive spans of the state are so devoid of legal weed that adults interested in scoring some are forced to drive an hour or more to reach a legal, licensed dispensary. The further you get from the coast, the worse the problem gets.
Of the 11 states that have passed recreational cannabis laws so far, California has the lowest ratio of retail licenses to potential cannabis consumers, with less than one dispensary for every 100,000 adults aged 21 and up.
Compare that to a place like Oregon where there are over 14 pot shops for the same amount of potential custies – outpacing both Starbucks and McDonald’s locations in that places like Portland.
Adding insult to injury, many dispensaries are well aware of their lack of legal competition and that is reflected in their $75-80 pre-tax price tags on 8ths of flower. Some have gone so far as to charge “slotting fees” if a brand wants its products on their shelves. Slotting fees might be an everyday practice in grocery stores but it’s a wack new tactic in weed stores and it cannot benefit consumers in any way, shape, or form.
DON’T SHOOT THE MESSENGER
It would be naïve to blame California’s meager reefer revenues squarely on the stores themselves. The reality is, the costs involved in opening and keeping open a legal weed dispensary in California are outrageously high. The clusterfuck surrounding IRS tax laws like 280e typically hit dispensaries the hardest of the entire supply chain, as they are unable to take the regular business related deductions that every other industry in America is afforded.
These financial burdens are deterrents for the mom & pop legacy operators who fueled the lucrative Prop215 era in Cali’s cannabis history, and the high barrier of entry leads to corporate cucks like MedMen being able to set up shop before/instead of everyone else.
One report estimated that only 20% of California’s cannabis consumers utilize the legal market. That estimate is likely way too high! Until the state makes it cheaper to get in the game and until local pot-prohibiting municipalities get their heads out of their asses, legal dispensaries will continue to play second fiddle to the unregulated market.
Though both of those prospects may seem like a pipe dream, the nerds over at BDS Analytics and ArcView Market Research released a report this week that sheds an optimistic light on the future of buying legal cannabis in California.
FOLLOW THE MONEY
As the state clarified some debated portions of Proposition 64, the argument was made that municipalities might be able to ban brick & mortar cannabis activity (grow ops, dispensaries, test labs, etc) but that they should have no say in whether or not legal weed gets legally delivered to legal consumers within their city or county limits.
Of course, lots of cranky ass old weed hating city councilmembers raised their bony fists to the sky and vowed to never let it happen. Well, it happened. Just like pizza or an Amazon package, your local authorities cannot tell you that you have to leave town to go get it in person.
While they may have been able to ignore the revenues flowing into neighboring communities who had embraced the new law, it is becoming much harder for them to whistle past the delivery vans full of cash and chronic that are now popping in and out of their towns just long enough to leave some weed and take the taxes elsewhere.
This is a main reason why BDS/ArcView is predicting that by 2024 cannabis sales growth in the Golden State will account for nearly 25% of all cannabis-related sales in the U.S., fueled by a major uptick in the number of dispensaries in operation.
At the end of August, California had a pathetic 358 retail stores open; this week’s report predicts that “There will shortly be thousands of retail stores in California.”
What does this mean? Simply put – more competition, and more competition in any retail market tends to benefit consumers. Hopefully, though, the state can find a way to make this whole thing start to benefit the grassroots operators as well.