California officials have unveiled a new report on the current status and future of the state’s marijuana market—with independent analysts hired by regulators concluding that the federal prohibition on cannabis that prevents interstate commerce is meaningfully bolstering the illicit market.
The California Cannabis Market Outlook 2024 report—commissioned by the state Department of Cannabis Control (DCC) and carried out by ERA Economics—looked at consumer trends, industry data, regulatory enforcement actions and more.
Marketing conditions for licensed businesses “have been challenging since 2021,” the report says, noting declining wholesale cannabis prices and stagnation in transitioning adults to the regulated market. Just about 40 percent of consumers are buying from legal operators years into the implementation of legalization.
“Competition from the illicit market contributes to lower prices in the licensed market,” it says. “Some consumers still purchase cannabis from illicit operations and illicit cannabis production moves across state lines into different markets.”
“[C]annabis consumption has modestly increased and many of those consumers are purchasing cannabis from licensed cannabis businesses, but there is still a substantial illicit market in California,” it says. “Careful analysis of the data does not show an explosion of illicit market production.”
A key part of the problem is ongoing federal prohibition, according to the analysis.
“Federal legalization of cannabis and facilitation of trade between different states with licensed markets would reduce trade of illicit cannabis and could lead to more stable prices in California and other states,” it says.
The report says “wholesale prices showed that prices in the licensed markets in California, Colorado, Oregon, and Washington are related,” and this “link between the licensed cannabis markets in California, Colorado, Oregon, and Washington has increased over time.”
“The link is the unlicensed market,” it says.
“Prices in these states have converged, and statistical analysis confirms these markets are co-integrated. Market co-integration generally occurs as a result of trade between nations (or in this case, states). However, without any legal interstate trade, this result indicates that the illicit market is a driving factor that connects prices across states.”
That’s not to say that the lack of interstate commerce is the sole factor stymieing the industry, of course. The report also identifies the unregulated market for intoxicating hemp products—as well as local bans on marijuana businesses—as contributing factors.
Hellbound and Down 