California cannabis market may grow at a compounded annual rate of 18.5% to $5.6 billion by 2020. California’s cannabis industry reported $2,692 million in retail sales via nearly 2,800 dispensaries in 2016, that is 10% more than all other medical cannabis states combined as of 2016.
https://cannabusinessplans.com/california-cannabis-market/
2. TABLE OF CONTENTS
HISTORY 3
MARKET SITUATION 4
PRICES 7
LEGALIZATION 9
LICENSING 9
TYPES OF LICENSES 10
TAXES 15
TARGET CUSTOMERS 16
COMPETITION 17
3. HISTORY
Long before the passage of Proposition 215 in 1996, California was known around the
world as a leading producer of cannabis. As the first state in the country to allow for
medical use, the state of California also cracked the monolithic war on drugs and set
in motion a nationwide wave of reform.
For nearly 20 years the medical cannabis industry grew in the state with few
rules. Tax payment and regulatory compliance were not the norms, and public
safety impacts became increasingly severe.
By the end of 2014 the problems had boiled over and the stage was set for the
passage of the Medical Marijuana Regulation and Safety Act (MMRSA) in
2015. This act established a framework for licensing cannabis.
In June of 2016 the State legislature amended the MMRSA with the passage of
the Medical Cannabis Regulation and Safety Act (MCRSA). This legislation
included groundbreaking environmental policies that will ensure cannabis is the
most sustainable crop grown in California.
In November of 2016 the voters passed Proposition 64, the Adult Use of
Marijuana Act AUMA. Though largely modeled on the MMRSA, the adult use law
differed from the medical regulations.
In 2017 Governor Jerry Brown released the proposed budget in January and set
out to unify the two laws. After more than 6 months of focused work from the
governor’s administration, the state legislature and stakeholders, SB 94—the
Medical and Adult Use Cannabis Regulation and Safety Act (MAUCRSA) was
passed.
On June 27, 2017 Governor Brown signed the Medical and Adult Use Cannabis
Regulation and Safety Act and—with a quick stroke of the pen—fundamentally
changed the business of cannabis in California.
This law will be the foundation of regulated cannabis in California. Cal Growers
was honored to be included in the process and provide this report as a starting
point for understanding this new law.
4. MARKET SITUATION
California accounted for 27 % of the 2016 legal cannabis market in North
America. (State of Legal Marijuana Markets report, Arcview Group)
The analysis estimates that as of last November, aggregate annual sales of
medical cannabis sales reached $2 billion per year (about 26 percent of total
marijuana sales), sales in the illegal market were $5.7 billion (74 percent) and
total cannabis sales were $7.7 billion.
• $ 5.8 billion legal market (projection for 2021) - Arcview Group
• 27 % of the 2016 legal cannabis market in North America
• Key Drivers: climate, traditions, size of market, legalization
100 98 97 91 88 74 51 49 27
0
10
20
30
40
50
60
70
80
90
100
Illicit Cannabis Trade as Percent of Total Spending
5. Source: State of Legal Marijuana Markets report, Arcview Group
MARKET PROJECTIONS
According to a study by the University of California Agricultural Issues Center
(UCAIC), California’s recreational cannabis market could be worth more than
$5 billion; however, the benchmark will only be achieved once cannabis
consumers fully embrace the state’s legal market.
The $2 billion legal marijuana sales are expected to grow more than 25
percent annually to hit $5.8 billion by 2021. (Arcview Group)
According to the UCAIC, about 29 percent of cannabis consumers may, at first,
stay in the illicit market to avoid the costs of new regulations, which will add
15 percent to retail values.
While recreational cannabis market is expected to grow, medical cannabis
sales are expected to decline down to $600 million as people migrate toward
the adult-use market to avoid medical cannabis ID fees.
After the state adopts regulations, legal recreational use will make up 61.5
percent of the overall market, illegally purchased marijuana will make up
about 29.5 percent of the market and legal medical marijuana use will be
about 9 percent of the overall market, the analysis estimated.
0.4%
22%
32%
27%
4%
1%
14%
Percentage of Total State Menu Items by Product Category
Clone Concentrate Edible Flower Seeds PreRoll Other
6. With the transition to a regulated medical marijuana market and the start of
recreational cannabis sales on the horizon, there will likely be plenty of turmoil
for the foreseeable future. Many existing MMJ companies might not be able to
qualify for licenses, and even those that do will face huge hurdles adapting to a
regulated system. Businesses vying for recreational licenses also likely will see
a volatile climate, and delays are possible.
CANNABIS BUSINESS OPPORTUNITY OVERLOOK:
California is poised to reclaim its title as the marijuana capital of the world,
which it lost when Colorado and Washington state legalized recreational
cannabis. The business opportunities are simply enormous on both the
medical and recreational sides of the industry, as well as for both plant-
touching and ancillary companies. California's status as a technology,
innovation and finance hub will help the market grow quickly. Even though
sales on the recreational side won't begin until 2018, scores of entrepreneurs
and companies will start preparing to enter the market in 2017.
The voter-approved taxed and regulated model is estimated to bring in $1
billion in tax revenues and more than 1,200 jobs will be created for testing
and handling cannabis under the new regime.
61.50%
29.50%
9%
Marijuana Market Distribution - Projections 2018-2021
Legal Recreational Use Illegally purchased marijuana Legal medical marijuana
7. PRICES
Though California’s medical marijuana market is largely unregulated, cannabis
businesses have been operating in the state for many years. This level of
competition has kept marijuana prices low, though this will almost certainly
change once statewide regulatory reforms are rolled out in 2018. Up to this point,
many businesses have been able to conduct operations without the need to pay
for expensive licenses or to maintain compliance with strict and costly
regulations.
Prior to market maturation, it is likely that cannabis prices will increase in the
near term. The mandate to employ a distributor for testing, as well as labeling
and ultimate transportation to retailers, combined with stringent environmental
and water regulations unique to the Golden State, will drive up costs for
cultivators and prop up wholesale prices. State and local taxes, licensing fees,
insurance, formal payroll, and other customary business expenses – which
California operators have largely avoided to this point - will further increase
operational costs.
On a longer term, as California implements a legal, regulated system, a
percentage of the state’s massive gray and black market production will be
redirected to the legal market as existing operators come into compliance.
Additionally, newly licensed grow sites and facilities of all types will come online
during the first few years after legalization, expanding the already voluminous
production taking place in California. Consequently, it seems inevitable that the
supply of legal cannabis will increase and prices will ultimately decline.
8. WHOLESALE PRICES
California’s Spot Index saw its second consecutive week of modestly-rising rates,
ticking upward by 1% this week to settle at $1,590 per pound. (Cannabis benchmarks
weekly report -- August 18, 2017)
RETAIL RPICES
California retail marijuana prices vary by city, strain, season and other variables. The
average retail state prices for August were $14 per gram and $301 per ounce. That’s
up from $13 per gram and $245 per ounce in July.
Overall, marijuana prices in the state of California are up slightly since the beginning
of the year. In January, the average price of a gram of cannabis in Los Angeles
amounted for $10. (marijuanarates.com, www.priceofweed.com, forbes.com)
Average California Marijuana Prices – August 2017
Area Gram Ounce
City Average $14 $301
Los Angeles $14 $277
San Francisco $15 $277
San Diego $14 $350
1520
1566
1199
1719
1679
1557
2045
1918
1803
1727
1748
1555
0 500 1000 1500 2000 2500
Q1 2016
Q2 2016
Q3 2016
California Wholesale Sopt Prices by Grow Type
Outdoor Greenhouse Indoor CA Spot Index
9. REGULATORY FRAME
LEGALIZATION
The history of California cannabis legalization has started 20 years ago with the
Compassionate Use Act from 1996, authorizing the use of medical marijuana.
Since 1996, the following major cannabis legislation took effect:
1996: The Compassionate Use Act authorized the use of medical
marijuana.
2003: The Medical Marijuana Program Act (MMPA) established guidelines
for its lawful cultivation, use, and distribution.
2015: The Medical Marijuana Regulation and Safety Act (MMRSA)
established a regulatory structure for medical marijuana businesses
(Assembly Bills 243 and 266, and Senate Bill 643).
2016: The Medical Cannabis Regulation and Safety Act (MCRSA), SB 837,
AB 21, AB 2516, and AB 2679 expanded on the MMRSA
November 9, 2016: The Adult Use of Marijuana Act (AUMA), Proposition
64, passed, allowing for recreational marijuana use and sale
June 27, 2017: The Medicinal and Adult-Use Cannabis Regulation and
Safety Act (MAUCRSA) consolidated elements of the MCRSA and the AUMA
LICENSING
Last year the state legislature passed breakthrough legislation consisting of three
bills: AB 243, AB 266, and SB 643. Collectively known by many as "the act" these three
bills provide a comprehensive regulatory framework for licensing commercial cannabis
in California.
The State of California will begin issuing close to 20 different licenses for
commercial cannabis activity on January 1, 2018. The regulations that licensees
10. must comply with are being promulgated by three different agencies. This rule-
making process will take up significant time in 2017.
Where to apply?
There are three different state agencies that are tasked with issuing licenses to
cannabis businesses and several more agencies that will assist in the process.
Cultivation, processing and nurseries will be regulated by the Department of
Food and Agriculture
Packaging, extraction and infusion will be regulated by the Department of
Public Health
Testing, Distribution, Transportation, and Retail will be regulated by the
Department of Consumer Affairs: Bureau of Medical Cannabis Regulation
Applications may be available as early as October. Licenses will not be available
before January 1, 2018.
TYPES OF LICENSES
Medical Cannabis Cultivation Licenses
The California Department of Food and Agriculture (CDFA) is authorized to issue the
following 11 Types of Medical Cannabis Cultivation Licenses:
Type 1 – Specialty Outdoor
For outdoor cultivation that uses no artificial lighting for a 5,000-square-foot or
smaller total canopy size on one premises, or for up to 50 mature plants on
noncontiguous plots.
Type 1A – Specialty Indoor
For indoor cultivation that exclusively uses artificial lighting for 501 to 5,000 square
feet of total canopy size on one premises.
11. Type 1B – Specialty Mixed-Light
For cultivation that uses a combination of natural and supplemental artificial lighting
at a maximum threshold (which will be determined by the licensing authority) for
2,501 to 5,000 square feet of total canopy size on one premises.
Type 1C – Specialty Cottage
For cultivation that uses a combination of natural and supplemental artificial light at
a maximum threshold (which will be determined by the licensing authority) on one
premises for:
• 2,500 square feet or less of total canopy size for mixed-light cultivation
• up to 25 mature plants for outdoor cultivation, or
• 500 square feet or less of total canopy size for indoor cultivation
Type 2 – Small Outdoor
For outdoor cultivation that uses no artificial lighting for 5,001 to 10,000 square feet
of total canopy size on one premises.
Type 2A – Small Indoor
For indoor cultivation that exclusively uses artificial lighting for 5,001 to 10,000
square feet of total canopy size on one premises.
Type 2B – Small Mixed-Light
For cultivation that uses a combination of natural and supplemental artificial lighting
at a maximum threshold (which will be determined by the licensing authority) for
5,001 to 10,000 square feet of total canopy size on one premises.
Type 3 – Outdoor
For outdoor cultivation that uses no artificial lighting for 10,001 square feet to up to 1
acre of total canopy size on one premises.
Note: CDFA will limit the total number of Type 3 licenses allowed
12. Type 3A – Indoor
For indoor cultivation that exclusively uses artificial lighting for 10,001 to 22,000
square feet of total canopy size on one premises.
Type 3B – Mixed-Light
For cultivation that uses a combination of natural and supplemental artificial lighting
at a maximum threshold (which will be determined by the licensing authority) for
10,001 to 22,000 square feet of total canopy size on one premises.
Type 4 – Nursery
For cultivation of medical cannabis solely as a nursery (examples of typical nursery
activities include cloning and seed propagation)
Note: Type 4 licensees may transport live plants if they also hold a Type 12 transporter license.
Adult-Use Cannabis Cultivation Licenses
The California Department of Food and Agriculture (CDFA) is authorized to issue the
following 13 Types of Adult-Use Cannabis Cultivation Licenses:
Type 1 – Small Specialty Outdoor
Type 1A – Small Specialty Indoor
Type 1B – Small Specialty Mixed-Light
Type 2 – Small Outdoor
Type 2A – Small Indoor
Type 2B – Small Mixed-Light
Type 3 – Medium Outdoor
Type 3A – Medium Indoor
Type 3B – Medium Mixed-Light
Type 4 – Nursery
Type 5 – Large Outdoor
13. For outdoor cultivation that uses no artificial lighting for more than 1 acre of total
canopy size on one premises.
Note: CDFA will not issue any Type 5 licenses prior to January 1, 2023
Type 5A – Large Indoor
For indoor cultivation that exclusively uses artificial lighting for more than 22,000
square feet of total canopy size on one premises.
Note: CDFA will not issue any Type 5 licenses prior to January 1, 2023
Type 5B – Large Mixed-Light
For cultivation using a combination of natural and supplemental artificial lighting at a
maximum threshold (which will be determined by the licensing authority) for more
than 22,000 square feet of total canopy size on one premises.
Note: CDFA will not issue any Type 5 licenses prior to January 1, 2023
Manufacturing licenses
Manufacturing licenses are separated into two categories based upon the type of
solvent used. Like Type 3 licenses, the Department of Public Health (DPH) will limit
the number of licenses for manufacturers who use volatile solvents (Type 7).
Type 6 - Manufacturer 1
Manufacturing using non-volatile solvents.
Type 7 - Manufacturer 2
Manufacturing using volatile solvents.
Testing Licenses
Type 8 – Testing
Testing licenses are designated Type 8. The DPH is responsible for ensuring that all
cannabis is tested prior to delivery to dispensaries or other businesses, and will
specify how such testing will be conducted. Type 8 license holders must test for THC,
cannabinoids, contaminants, microbiological impurities, among other compounds
listed in Business & Professions Code § 19344.
14. Dispensary licenses:
Type 10 – Dispensary - general
Type 10A – Dispensary - no more than three retail sites
Distribution licenses
Type 11 - Distribution
Distribution licenses are designated Type 11. All cultivation (Types 1-4) and
manufacturing licensees (Types 6-7) are required to send their products to a Type 11
licensee where their cannabis products will be inspected for quality assurance before
the products pass to the next stage of manufacturing or retail. Type 11 licensees
must also send the cannabis products to a Type 8 laboratory for batch testing and
certification.
Transportation licenses
Type 12 – Transportation (not required under Prop 64)
Transportation licenses are designated Type 12. Only Type 12 license holders can
transport cannabis or cannabis products between licensees, such as cultivators and
retail outlets.
Type 13 - Micro-business
15. TAXES
On November 8, 2016, California voters approved Proposition 64, Control, Regulate
and Tax Adult Use of Marijuana Act, which provides:
Effective November 9, 2016, certain sales of medical marijuana are exempt from
sales and use tax. (see the Dispensaries tab, under the heading, Proposition 64
Exempts Certain Medical Marijuana Sales)
Effective January 1, 2018, a 15 percent excise tax is imposed upon purchasers of
all marijuana and marijuana products. Additionally, a tax on cultivators of
marijuana is imposed as follows:
$9.25 per dry-weight ounce of marijuana flowers
$2.75 per dry-weight ounce of marijuana leaves
16. TARGET CUSTOMERS
The market potential for cannabis products in California is estimated between 15
million and 21 million adults over 21 years of age. While 39% of Californians already
use cannabis, another 44% are non-users interested in trying it now that it’s
recreationally legal.
• 83% of California residents are willing to try or use Cannabis
• Consumers’ top health issues that medical marijuana can alleviate include Pain
(58%), Stress (54%) and Insomnia (49%)
• Cannabis brand awareness remains very low (49% didn’t know any brands)
• Most consumers are interested in edible (62%) and topical products (44%), though
heavy users (use daily or almost every day) still prefer smoking (75%)
• The large majority of target customers use or plan to use medical marijuana,
while a smaller group will use cannabis recreationally
Sources: Enlucem, Arcview Group
17. COMPETITION
The California cannabis market, which is the biggest in the U.S., has nearly
2,800 dispensaries (HDL companies, Marijuana Business Factbook, 2016). That
is 10% more dispensaries than all other MMJ states combined. Harborside is the
state’s and one of the nation’s largest dispensaries.
The state is home to some of the strongest and most well-known brands of
cannabis products. The market is currently dominated by the following brands
by category (New Cannabis Ventures, October 2016):
Edibles
7.22%
7.15%
5.41%
3.20%
3.00%
2.74%
2.57%
2.27%
1.83%
1.37%
Kiva
Cheeba Chews
Korova
Bhang
Venice Cookie Company
Edipure
Kushy Punch
Trikom Treats
Liquid Gold
TKO Edibles
California Edibles Share
18. Concentrates
The California concentrates market continues to be a crowded and competitive
venue, with 428 actively distributed brands identified in September 2016.
Others
Our analysis of other subcategories shows the continued pattern of one or two
dominant brands per field. Pure Ratios (12.85%) continues to be ranked as the
state’s largest maker of transdermal patches, Tetra Labs (16.93%) leads capsule
manufacturers, Emu 420 (16.00%) dominates the topical category, and Presidential
Rx (29.68%) is the state’s top-ranked maker of pre-rolls.
2.58%
1.34%
1.01%
1%
0.77%
0.71%
Moxie Seeds & Extracts
West Coast Cure
Gold Coast Extracts
Alpine
Delta 9
Pop Naturals
California Concentrates Share