California’s Legal Cannabis Market Faces Declining Sales in Q1 2023

LOS ANGELES- California’s legal cannabis market continues to grapple with challenges, as indicated by the latest tax and sales numbers released by the state’s Department of Tax and Fee Administration.

According to the agency’s report this week, the state recorded $216 million in sales during the first quarter of 2023, based on $1.2 billion in taxable sales. These figures represent a sequential decline for the quarter and mark the lowest level of sales achieved in a three-month period since the second quarter of 2020. Additionally, it represents the lowest amount of state cannabis taxes collected since the fourth quarter of 2019, as reported by the California Department of Tax and Fee Administration (CDTFA).

The decline in sales amounted to nearly $94 million, a significant 7.5% drop from the previous quarter and nearly $50 million below the worst quarter experienced last year. This downward trend is an extension of the market contraction that began in the second half of 2022, marking the first decline since the launch of the legal recreational cannabis market in 2018.

The latest sales figures highlight ongoing challenges faced by California’s legal cannabis industry, including market contraction, price compression, and fierce competition from the illicit market. Licensed businesses have long complained about the illicit market, considering it a significant threat to their long-term sustainability.

The decline in tax revenues also coincides with recent news that 13% of retailers missed the May 1 deadline to remit cannabis taxes under a new policy implemented in January. The policy shifted the responsibility of collecting and remitting the state cannabis excise tax from distributors to retailers. This change aims to improve tax compliance but has faced challenges as some retailers struggled to meet the new requirements.

The struggling legal cannabis market in California highlights the need for industry stakeholders and policymakers to address the underlying issues affecting sales and tax revenues. As the industry evolves, finding solutions to curb the illicit market’s impact and foster a more sustainable legal market will be crucial to ensure its long-term success.