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Two years after Proposition 64 legalized the recreational use of cannabis, many people are worriedly declaring that the cannabis industry in California is failing. According to a recent Los Angeles Times report, things aren’t going too well in Cali.
The downward spiral the California marijuana industry is on is a result of many factors. An increase of taxes on the cultivation of cannabis, illicit cannabis sales that have (for the most part) gone unchecked, and cities across the state that have independently illegalized recreational shops from opening in their areas are three major reasons why California has found itself in this position. And, with no real solutions to any of these three problems, it appears things are at an unfortunate standstill with Cali cannabis experts.
The LA Times questions what should be done next. Should the people of California take it to a vote again? Can the legislators in charge somehow manage to help the potentially failing industry? Or, as Governor Gavin Newsom says, will the industry manage to fix everything itself on the fifth anniversary of Proposition 64?
Illicit Cannabis Sales Make More Money In California Than Legal Sales
The lack of legal cannabis sales has greatly hurt the entire California cannabis market. While the California cannabis industry is poised to make $3.1 billion in sales for 2019, illicit (illegal) cannabis sales are poised to make $8.7 billion. California is the biggest marijuana market in the world — but the illegal market still makes more money.
For the most part, it appears that not enough has been done to crack down on these illicit sales. Only recently was there a massive bust on multiple businesses in Cali that were illegally selling marijuana items without a license. Some say that these crackdowns are far and few between.
Illicit sales will more than likely continue to be on the rise throughout the state. Starting on January 1, 2020, cannabis in California will be taxed a slightly higher rate than before, causing the overall price of marijuana to go up. Those attempting to help the industry have been trying to get the government to reconsider these taxes, to no avail.
Plus, 75% of California cities refuse to open recreational dispensaries. With these factors, it appears that illegal marijuana sales will only grow.
State Laws Hurt Cannabis Company Growth
As mentioned above, only 25% of California is legally allowed to have recreational dispensaries. The rest of California’s cities have made it illegal. Because of this, illicit marijuana sales have grown at a higher rate than legal marijuana. For citizens in the state, it’s probably easier (and cheaper) to by from an illicit source.
California isn’t the only state to have certain areas illegalize recreational dispensaries. Illinois (whose recreational sales have begun as of January 1, 2020) has certain cities that have voted to not allow recreational sales in their city limits. While Chicago will legally sell recreational cannabis, other areas of Illinois will not.
This could end up having a massive negative impact on the cannabis industry in the long term. Cannabis experts in California are attempting to sway these cities that have banned recreational use to no success. However, they plan to continue to attempt to change their minds. If they cannot, illicit marijuana sales will grow faster than legal sales will.
Cannabis Industry Is Down Across the Board
California isn’t the only cannabis market that is down. Across the board, the whole cannabis industry has reached an uncomfortable position. Jobs in the marijuana industry are being lost and many companies are struggling to understand what their next move should be.
Much like California’s industry, there are many reasons as to why the cannabis industry as a whole is down at the moment. Market capitalization for cannabis businesses isn’t great (and has dropped quite a bit). This has left many industry experts feeling a little uncertain about cannabis’ future, though many still are optimistic.
Plus, federal regulations continue to be a pain in the cannabis industry’s side. Businesses have consistently tried to get backing from banks, yet are unable to because federal banks cannot work with marijuana companies as, federally, marijuana is still illegal. State factors (such as California taxes and individual cities making recreational dispensaries illegal) also create difficulties for the industry.
Cannabis Industry Experts Remain Positive
While there are many factors going against the cannabis industry as a whole at the moment, many marijuana experts are continuing to remain positive. Sure, everyone is in a tough spot. But some believe that the industry will figure these issues out soon enough.
More and more states are legalizing recreational marijuana, which will only help the industry as a whole. Plus, as more states become legalized, more federal regulations could potentially (potentially!) be done away with.
Even California cannabis experts are somewhat positive, though they face larger issues than the whole legal marijuana industry. California Governor Newsom believes that things will even out on the fifth anniversary of Proposition 64, and many experts echo this statement. However, things still may have to change (sooner rather than later) in the state as they fight illicit marijuana sales.
The cannabis industry is down. However, this doesn’t mean that it will stay down. Experts are optimistic as more states successfully push for legalization.
Unfortunately, federal regulations will continue to make the industry struggle to grow as it would like. Finding accurate banking looks like it will always be an issue for legal marijuana businesses (as long as it remains illegal federally). However, businesses have continued to find ways around using a federal bank — so they will simply continue to follow these methods.
Overall, the legal cannabis industry appears to still be in it’s growing pains phase. States are figuring out what works for them as cannabis companies attempt to understand different state laws. While situations may appear dire, it may be worthwhile to listen to the experts — and they seem to say that everything will be alright.
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