California Cannabis Sales: A Midyear Review

California’s adult-use cannabis dispensaries reported more than $1.3 billion in taxable sales during the second quarter of 2023, representing a 3% increase over Q1 to offer a glimpse of stabilization for the industry.

This slight uptick in sales for Q2 comes after the first three months of the year yielded the lowest quarterly sales total in California since the beginning of 2020, according to the most recent data released Aug. 30 by the state’s Department of Tax and Fee Administration (CDTFA).

Specifically, California’s taxable sales in Q1 2023 marked an 11-quarter low for the state, going back to Q2 2020.

The modest rebound in the most recent quarter ending June 30, 2023, in part reflects recent stabilization in cannabis prices in California following a steady two-year decline, said Hirsh Jain, founder of Ananda Strategy, a consultancy that represents many of California’s cannabis retailers and advises operators across the supply chain.

“It also owes to the fact that California tends to generate more cannabis sales in Q2 than in Q1 or Q3, as has been the case in recent years,” he said.

California’s Q2 uptick has in fact been the going trend the last two years, including a 6.3% quarter-over-quarter increase in 2022 and a 16.7% quarter-over-quarter increase in 2021, according to CDTFA data.

Overall, California’s adult-use retailers have reported nearly $2.6 billion in “taxable cannabis sales” through the first half of 2023, which equates to roughly $432.6 million per month on average—the largest market in the nation.

However, the taxable sales figure also includes other retail sales at adult-use dispensaries, such as rolling papers, pipes, lighters or tangible personal property (like a cannabis-branded T-shirt) reported on tax returns.

Providing a more accurate depiction of the actual cannabis sold, California’s adult-use dispensaries reported nearly $2.2 billion in sales subject to the state’s 15% cannabis excise tax in the first half of 2023, or roughly $361.6 million per month on average. This figure provides more of an apple-to-apples comparison to the nation’s second largest market: Michigan, which is averaging nearly $235 million in adult-use cannabis sales per month so far in 2023.

This means Michigan (a state of 10 million people) is selling roughly $23 of legal adult-use cannabis per state resident each month in 2023, while California (a state of approximately 39 million people) is selling roughly $9 of legal adult-use cannabis per state resident each month.

“Michigan, a younger market which has just 25 percent of California’s population, is generating almost 70 percent of California’s total cannabis sales,” Jain said.

And this per capita comparison isn’t only limited to Michigan. California lags behind all of its legalization peers in this regard.

Source: Cannabis Business Times research and analytics

California’s illicit market has a large part to play in this per capita sales disparity, with access to retail still lacking in large regions of the state. Not only do 61% of cities and counties outlaw cannabis retail operations in California, according to the state’s Department of Cannabis Control, but only 1,216 dispensary licenses are active as of Sept. 1, 2023. That equates to 3.1 retail locations per 100,000 people, the lowest rate among the most mature markets in the nation.

“The California market remains crippled by an unforgiving tax structure, something Attorney General Rob Bonta candidly acknowledged in comments this week,” Jain said. “Suffocating bureaucracy at the local and state level has also prevented dispensaries from opening in new cities, even years after these cities have passed retail cannabis ordinances. Unless these acute challenges are immediately tackled by the state’s leaders, the California market remains at risk of further regression.”

Since California commenced adult-use sales in January 2018, the state’s licensed industry has provided nearly $5.2 billion in total cannabis tax revenue, including more than $2.6 billion in cannabis excise tax and nearly $2.1 billion in sales tax.

More than $23.2 billion in taxable sales have been reported by the state’s retailers.