California’s regulated cannabis market—the one that provides labs-tested products geared toward consumer safety—hasn’t shown signs of benefiting from the state’s recent crackdowns on unlicensed operations.
There are 500 fewer cultivation licenses in the state’s regulated market than at the beginning of the year and sales figures are projected to decrease by 4% compared to 2023, according to the California Department of Cannabis Control (DCC). In addition, California’s licensed cannabis market lost nearly 5,000 jobs, a 6% decrease, compared to the previous year, according to industry staffing platform Vangst.
Furthermore, 15% of California’s cannabis licensees were in default on their tax obligations as of the beginning of the year.
Still, state officials took a victory lap this week in announcing their enforcement actions against unregulated operators.
Gov. Gavin Newsom’s office announced Oct. 22 that the California Unified Cannabis Enforcement Task Force (UCETF) seized $70.7 million worth of cannabis in the third quarter of 2024, increasing its yearly total to $191 million worth of cannabis eradicated across 13 counties since January.
Newsom served as lieutenant governor when California’s regulatory scheme, the Medicinal and Adult Use Cannabis Regulation and Safety Act (MAUCRSA), was enacted following voter approval of Proposition 64 in 2016.
This week, he hailed the state’s ongoing enforcement efforts as continued progress toward protecting public safety, preserving natural resources, and supporting the integrity of the licensed cannabis market.
“Our communities are safer with over 42,000 pounds of illicit cannabis taken off the streets since the beginning of the year,” Newsom said in a press release. “Through the UCETF, California continues the charge in cracking down on the illicit cannabis market for the safety of consumers and the support of the legal cannabis industry.”
The governor’s update on UCEFT’s enforcement actions came a day after California Attorney General Rob Bonta announced that the state’s Eradication and Prevention of Illicit Cannabis (EPIC) program had seized 774,928 cannabis plants and 106,141 pounds of processed cannabis in 36 counties so far in 2024.
Those seizures were valued at roughly $353 million, according to the attorney general.
“California has the largest safe, legal and regulated cannabis market in the world, but unfortunately illegal and unlicensed grows continue to proliferate,” Bonta said. “The EPIC program was forged out of our recognition of the need for a more comprehensive approach that addresses the broader implications of the underground cannabis market. This includes tackling the environmental damage caused by these illicit activities, as well as the economic ramifications that arise from unregulated cultivation.”
In addition to environmental and economic implications, Bonta said there’s a growing concern that California’s thriving unregulated cannabis market provides a hotbed for labor exploitation, with workers facing unsafe conditions and unfair treatment.
However, UCEFT’s $191 million and EPIC’s $353 million in eradications—or $544 million total—represent a small fraction of California’s estimated $10 billion unregulated market, a figure that’s commonly cited by state media outlets.
While it’s difficult to estimate the exact value of the unregulated market, the math is calculated on the premise that two of three cannabis purchases in California are made outside the licensed marketplace. California’s licensed dispensaries are currently on pace to sell $4.7 billion of cannabis in 2024, according to the DCC.
Based on these projections, California’s $544 million in eradication efforts represent roughly 5% of the unlicensed cannabis market.
“The UCETF’s recent seizures of illegal cannabis have continued a pattern of enforcement under Governor Newsom that is big on public optics but limited in actual impact,” Hirsh Jain, founder of industry consultancy Ananda Strategy, told Cannabis Business Times. In addition to representing cannabis operators throughout the supply chain, Jain serves on the Cal NORML Board of Directors and as the vice chair of the California Cannabis Chamber of Commerce.
Jain said unlicensed cannabis activity continues to proliferate across California because government officials have failed to address the underlying causes of the underperforming licensed market, in turn jeopardizing the welfare of the state’s residents.
Specifically, 57% of California cities and counties do not allow cannabis retail businesses to operate in their jurisdictions, according to the DCC. Many residents live more than an hour’s drive from the nearest licensed dispensary while they are surrounded by numerous unlicensed cannabis retailers that generally operate with impunity, Jain said.
“Moreover, the highly questionable methods that the state of California uses to calculate the dollar value of illegal cannabis it has seized suggests that the actual impact of UCETF’s recent seizures may be even more meager than its public pronouncements suggest,” he said.
For example, UCETF’s 42,000 pounds of cannabis seized in 2024 has an estimated value of $191 million, according to the governor’s office. That’s the equivalent of roughly $4,550 per pound, which is five times the wholesale price cannabis flower commands for many licensed operators.
“Any serious attempt to deal with the illicit cannabis market in California would start with lowering the onerous regulatory burden on licensed cannabis businesses, but with the Newsom administration poised to further raise the state excise tax from 15% to 19% next year, one can only conclude they are not serious about addressing California’s illegal cannabis market,” Jain said.
That pending tax hike comes as a result of Newsom signing Assembly Bill 195, which was attached as a trailer to the California 2021-2022 budget. Although A.B. 195 eliminated the state’s weight-based cultivation tax, it included a compromise with various beneficiaries of cannabis tax money to raise the cannabis excise tax rate to as much as 19% on Jan. 1, 2025, to make up for any losses from the cultivation tax being eliminated.
RELATED: 15% of California Cannabis Businesses Default on Taxes as 2025 Hike Comes Knocking
In addition to the state’s cannabis excise tax, California levies a 7.25% to 10.75% state sales tax, depending on the region, as well as allows for various local tax structures. For example, Sonoma County levies a per-square-foot tax on cultivators, including $7.58 per square foot for indoor growers, $2.58 for mixed-light growers and $0.69 for outdoor operators. The county also levies a 1.5% tax on cannabis manufacturing operations and a 3% tax on dispensary sales.
Monterey, Mendocino, Ventura, Santa Barbara and Yolo are some of the other counties that have levied additional taxes on licensed cultivators.
While Newsom’s UCETF is co-chaired by the DCC and the California Department of Fish and Wildlife, it also includes local, state and federal partners.
EPIC, meanwhile, is a multiagency collaboration led by the Department of Justice in partnership with the U.S. Department of Agriculture’s U.S. Forest Service, the U.S. Department of the Interior’s Bureau of Land Management and National Park Service, and various other federal and state agencies.
“California has the largest state park system in the country with 1.59 million acres of park land to protect,” California State Parks Law Enforcement Assistant Chief Jeremy Stinson said in the attorney general’s press release. “Unfortunately, illegal cannabis cultivation is a serious threat to that land with more than 400 sites documented.”
Particular to EPIC’s enforcement efforts, officials eradicated 136,601 plants at 79 sites in Riverside County and 133,702 plants at 116 sites in Mendocino County—both jurisdictions allow for licensed cultivation in unincorporated areas.
Enforcement officials have also targeted counties that prohibit licensed cannabis cultivation altogether, including Kern (89,919 plants at 60 sites), Siskiyou (67,943 plants at 98 sites), Fresno (52,796 plants at 31 sites) and Shasta (51,289 plants at 67 sites).
Still, California’s unregulated cannabis market dwarfs the shrinking regulated market, where sales, license numbers and jobs continue to decline in 2024.
