Despite Slow Rollout, California Pot Could Sell $2.5 Billion in First Year

California Pot

California’s initial slow rollout has done a dramatic about turn. Sales of $250,000 per month, per retailer, are roughly how much weed is selling in the state on average. This emerges as the state celebrates the halfway mark of in its first year of legal pot sales. Cities are making their own cannabis rules, but regulatory debates and implementation delays hampered any chance of a quick rollout of the industry.

Some cities are banning pot shops and other marijuana-related activities in their jurisdictions completely, while others are welcoming them as a possible way to boost their local tax bases. Despite this, the growth is grabbing much attention. California released its weed sales tax data for the second quarter of 2018 this week, and figures are lucrative indeed.

The latest tax data implies that recreational retail profits have grown 36 percent from the year’s first quarter, which according to founder of GreenWave Advisors, LLC, Matt Karnes, is around $290 million. This is just for recreational weed. Data does not include any sales of medical pot. This is because medical sales are not subject to excise and sales taxes.

In estimation, Karnes thinks the total market, with medical marijuana, could be around $600 million for the second quarter and more than $1 billion for the first half of California’s first year. There is a pent-up demand for weed in the state. A backlog of licensing applications proves this. Per capita, California has fewer licensed outlets than other states with legal weed laws, such as Colorado, for example.

According to Karnes, for 40 billion Californians, only around 400 dispensaries have licenses to supply them, with approximately 15 percent for medical patients only, 80 percent for medical and recreational users, and only five percent for recreational sales alone. In contrast, Colorado supplies 5.6 million people with 485 medical dispensaries and 530 recreational outlets.

As of 1 July, the state consolidated regulatory oversight of its medical and recreational markets, which will help to streamline some industry activities, such as issuing of licenses, to reduce the backlog of applications. Laws are still in flux, though. For example, the Bureau of Cannabis Control is considering whether to review and clarify rules for weed delivery in cities that prohibit dispensaries.

As the industry expands, entrepreneurs are continuing to jump in at every opportunity, from cultivation to distribution, testing, retail, ancillary products, even services. Karnes estimates that by the end of 2018, consumers would have spent roughly $2.5 billion on legal weed. Many watching the industry believe that, over the next five years, as the state fixes regulatory glitches, it will jump to $7 billion.

The black market remains the largest competitor for legal trade. Legal weed goes through testing and labeling. Consumers know exactly what they are buying. However, costs associated with upholding testing, packaging, and other regulations makes store-bought weed much pricier than that available on the illegal underground.

Since illegal trade is robbing the state of tax monies, Karnes expects that law enforcement will crack down in illicit dealers soon. California will likely become the biggest recreational market in the country. The United States has the largest market in dollar volume, but there is huge growth happening in the international marketplace too.

The latest report from MJBizDaily, “International Countries to Watch – An Overview of Cannabis Legalization Around the World,” estimates that by 2018’s end, the global weed market will reach well beyond $10 billion, even possibly exceeding $12 billion. With Canada’s federal government legalizing recreational pot, the report believes that number could easily double.

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