This article was first published on Hashish.net and is available here with permission.
When Colorado and Washington made history as the first US states to legalize recreational marijuana in 2012, they began an inexorable rush that rapidly transformed the cannabis industry. Colorado saw a particular boom, with sales reaching $2.2 billion in 2020 and millions in profits from environmental cannabis taxes. Some local marketers moved into this stream with good fortune, growing brands across the country from humble beginnings.
Fast forward to 2024 and Rocky Mountain Prime has gone haywire. Colorado dispensaries that were unable to book through call times now have one seat closed. Statewide gross sales have fallen more than 30% from their peak. Although it’s a huge market, the pioneering business that put Colorado on the cannabis map is now a cautionary tale.
1,200 miles west, California – the nation’s largest criminal weed market – is going through its own personal reckoning. Despite Blonde Environment’s legendary hashish tradition and ideal budding environment, many reputable operators are struggling to survive. While Colorado’s struggles stem from market saturation and competition from new criminal neighbors, California’s is more linked to over-taxation that enables an unregulated market determined to undercut criminal companies.
As an increasing number of states move ahead in the race to legalization, policymakers want to learn from those early adopters about how to determine a solid and sustainable cannabis sector. In this article, we’ll uncover the criteria behind declining sales in Colorado and California, and explore which categories the growing marijuana market can overcome to avoid the same pitfalls. The best American pot experiment is still a long way off.
colorado puzzle
Colorado’s cannabis business, once a story of great fortune, has fallen on hard times. According to a recent article from Politico, statewide marijuana sales are set to drop from a high of $2.2 billion in 2020 to just $1.5 billion in 2023 – a staggering drop of more than 30% in just 3 years. This has resulted in customer layoffs, industry closures and a gathering of worried business stakeholders.
So what’s behind this Rocky Mountain profit slump? The Business Insiders level is truly a perfect storm of things. “It’s like the wind has been completely sucked out of our cannabis sails in Colorado,” said Wanda James, founder of Denver dispensary Merrily Natural.
The main culprit is the fate that Colorado led — the spread of legalization to neighboring states like untested Mexico and Arizona, which has defrauded consumers. “We’re victims of our own success,” explains husband Jordan Wellington of Denver-based hash coverage company Methods 64. “About the challenges facing Colorado.”
Companies need to adopt this brand new phenomenon in many strategies. Some, like Dank Dispensaries in Denver, have had to reduce employee perks and opportunities. Other stores, such as Southern Colorado store Maggie’s Farm, have closed some locations.
According to a record from Wangst, the consumption of hemp in the environment has declined by 16% in the past year.
Although the generation is painful, this market contraction is a natural evolution for mature cannabis markets, explains Beau Whitney of Whitney Economics. “In the beginning, supply is low and profits are high, which attracts new businesses. As supply and consumer access increases, prices fall.”
As other states legalize, Whitney predicts this boom-and-bust trend will change and interstate prices will normalize.
Meanwhile, Colorado companies are adjusting to compete in a crowded and dynamic marketplace. Denver dispensary Merrily Natural saw gross sales increase by 60% throughout the COVID-19 lockdown, but bounced back after growers were forced to ramp up production due to illness. (1) “The only problem… for a long time was that there was never enough weed,” recalls John Spadafora, CEO of wholesale cultivator Veritas Fantastic Hashish. “We all overestimated the market. We all believed our PR too much.”
Veritas has since reduced its employee count from 144 to just 21.
This thinning of the herd is inevitable as the business matures and stabilizes. However, companies that are willing to grow and experience turbulence may be well-positioned for the upcoming bankruptcy of Colorado’s cannabis story.
As other states enter the crime scene, Colorado’s hard-earned knowledge and experience could prove invaluable. The rush of fairways may be gone, but the Centenary’s environmental impact will certainly be affected.
California Hashish Puzzle
While Colorado’s cannabis market struggles are largely caused by festivals and market saturation, California’s business woes stem from a specific root cause: excessive taxes. Despite prominent hopes that legalization would cripple the illicit market, California’s heavy tax rates have instead enabled illegal operators to undercut criminal companies.
California imposes the highest cannabis tax in the country, with rates as high as 40% in some jurisdictions when environmental and local levies are combined.(1)
This has artificially inflated the prices of criminal goods compared to the illicit market. “The tax rate is too high,” argues Javier Montes, owner of Wilmington dispensary Delta-9 THC. “People have got used to the black market, and then they should have transitioned to the legal market, but there is no incentive to do so.”(2)
This over-taxation has successfully functioned as “Prohibition 2.0,” allowing illegal grows and unlicensed dispensaries to flourish. Paradoxically, it has attracted a surprising partner: the crime is arranged in Chinese.
As older Mexican cartels have focused largely on conquering hard drugs like fentanyl, Chinese-language drug trafficking organizations have moved to exploit the lucrative California hashish unlit marketplace. (3) The government has busted various large-scale sugar development campaigns in the suburbs. Properties Recently.(4)
However, taxation is far from the only factor affecting California’s burgeoning hashish trade. Tough and expensive environmental regulations have created huge limits on access for rogue companies. Lengthy licensing processes, restrictive zoning rules, and costly compliance requirements have deterred many legacy operators from entering the criminal market. (5) It has perpetuated illegal trade, as many long-standing producers and dealers find little to gain in being established.
Additionally, California’s patchwork of domestic cannabis regulations has created a complex and inconsistent marketplace. Even after the recreational utility was legalized in 2016, municipalities can block cannabis companies entirely. As of 2022, less than 40% of California cities and counties have permitted any type of criminal cannabis operations. (6) It has deprived wide sections of the environment and prepared it for illegal employment through criminal operators.
With those elements gone in the California cannabis market, it is performing well below its potential. California’s criminal sales totaled more than $5.3 billion in 2022, despite being nearly twice the size of Colorado’s. Wave tax and regulatory scheme to assist authorized companies and encourage illegal operators to transition to the criminal market. California’s cautionary tale will continue for years to come.
Source:
(1) https://taxfoundation.org/state-cannabis-taxes-2022/
(2) https://www.latimes.com/california/story/2022-12-20/california-cannabis-industry-layoffs
(3) https://www.latimes.com/california/story/2022-07-19/california-marijuana-china-cartels
(4) https://www.justice.gov/usao-edca/pr/federal-and-local-law-enforcement-shut-down-over-50-illegal-marijuana-grows-and-seize
(5) https://mjbizdaily.com/obstacles-to-enter-california-legal-cannabis-market-remain-daunting-for-legacy-operator/
(6) https://www.northbaybusinessjournal.com/article/industry-news/majority-of-california-municipalities-ban-commercial-cannabis-how-that-aff/
(7) https://www.politico.com/news/2021/10/23/california-legal-illicit-weed-market-516868
Courses Discovered: Building a Sustainable Hashish Market
As other states consider cannabis legalization, policymakers may be wise to examine the cautionary tales of Colorado and California. They deal with importance classes on what works – and what doesn’t – in terms of creating leading market hits and sustainable cannabis businesses.
Initially, states will face the temptation to impose higher taxes on the new felony market. While chronic cannabis may seem like a money cow for revenue-hungry governments, excessive taxation could backfire through perpetuating the illicit market.
California’s punitive tax charges, which have reached 40% in some areas(1), have corralled illegal operators in the industry and reduced the criminal trade that the environment is attempting to promote. Policymakers should instead strive for a tax candy spot – high abundance to generate significant profits, but low abundance to encourage illicit operators to transition to the criminal market.
Second, the rules have to be designed with a view to equity and fairness. Excessively burdensome licensing requirements, zoning restrictions, and compliance fees can disproportionately impact small operators and communities through conflict over the drug.
Fairness should be built into the criminal market framework from the first month, with measures such as expedited licensing for older operators, fee waivers for social fairness applicants and reinvestment of cannabis tax benefits in the most affected neighbourhoods.
Through reducing barriers to access and offering assistance, states can create an inclusive trade that benefits a wide range of stakeholders.
Despite everything, policymakers must embrace the self-correcting capacity of sovereign markets. As the Colorado story shows, a hidden hand is already at work balancing supply and demand in developing hemp markets.
The growing pains of this industry were undeniably painful, with layoffs and closures wreaking havoc on a once booming market, this contraction is a natural stage in the growth of a new sector.
As Beau Whitney of Whitney Economics says, “As more states legalize, Whitney predicts this boom-and-bust pattern will subside and interstate prices will normalize.” A leaner, more resilient cannabis business.
After all, the cannabis business is still in its infancy, and there will surely be additional categories to consider as legalization spreads.
However, by heeding the hard-earned wisdom of pioneers like Colorado and California – keeping taxes affordable, prioritizing fairness, and letting the market work – states can lay the groundwork for a cannabis business that will thrive. Made to the extreme. The road may be rocky, but Criminal Cannabis Month is fantastic, with interesting, forward-looking coverage.
Source:
(1) https://taxfoundation.org/state-cannabis-taxes-2022/
(2) https://www.politico.com/news/2023/06/09/colorado-cannabis-market-crash-cautionary-tale-00101170
This text is from an external unpaid contributor. It no longer constitutes Benzinga’s reporting and is no longer edited for content content or accuracy.
Discover more from news2source
Subscribe to get the latest posts sent to your email.
