Current State of the California Cannabis Market

California broke ground on legal cannabis as far back as 1996 when voters passed Proposition 215, the Compassionate Care Act. This law effectively legalized access to cannabis for qualifying medical patients. It was the first law of its kind and the beginning of a major cultural shift within the U.S. towards the access and acceptance of legal cannabis.

As with many aspects of our society, California became an influential model for the United States in regards to cannabis. Twenty one other states signed medical cannabis bills into law in the 16 years following. In 2010, California voters tried, and failed, to pass fully legal adult use. Two years later, Colorado and Washington became the first states to fully legalize recreational cannabis. Finally, in 2016, Californians voted overwhelmingly to build off the state’s strong medical infrastructure to launch an above ground recreational cannabis industry.

California is a state that represents the largest economy in the United States and the world’s sixth-largest economy. It has become the hub of the legal cannabis industry in America, naturally. Being the largest, and arguably the most mature, market in the world, after maybe only Amsterdam, puts the state in an interesting position as we hurtle faster and faster towards a reality of legal and safe cannabis accessible nationwide. California is not without its problems; the market has been marred by issues of over regulation and the resulting massive black market which is hurting legal cannabis businesses and causing them to fall short on their profit predictions.

The turn of the decade presents a unique opportunity for the cannabis industry to take a moment to reflect on its current situation as a whole, and especially the status of what has historically been the nations “model market”. I asked six executives from some of the most prominent companies involved in the California cannabis industry to take a moment out of their busy schedules to elaborate on what they see as the positives of working in the Californian market, as well as the struggles and hurdles their home state need to still overcome. Their answers were very interesting.

The Positives of Operating in the Golden State

“The opportunity that exists today in the California market for operators and investors alike has never been better. California is at the tail end of a legislative transformation that began in January 2018 and will likely end in late 2020, whereas compliant operators will see the effects of the illicit market muted through increased law enforcement. Now that California has instituted seed to sale tracking of all cannabis products throughout the value chain it makes it near impossible for products to enter or exit the chain of custody without alerting state auditors. Additionally, it is now far easier for Sacramento to identify those who are legally operating and those who are not. This will allow law enforcement professionals to snuff out the grey market in favor of a legal market. This bodes very well for the California cannabis industry over the next several years.”

  • Rob Hunt, CEO of Linnaea Holdings, a holding company that invests in best-in-breed, California-based cannabis companies through a unique two-part strategy designed to help provide financial and operational expertise for the company being invested in.

“California’s long history of medical legalization, combined with it’s massive population, has enabled it to become the largest and most competitive legal cannabis market in the world. We believe brand winners in California [like PLUS] will be strong enough to enter new markets success for rapid US success. Our best-selling gummies were recently launched into the Nevada adult-use market. Early indications are positive, with third party data provider Headset showing PLUS as one of the 5 best-selling products in the category after less than a month in the market.”

  • Blake Brennan, Head of IR at PLUS Products, one of the most popular and fastest growing edible brands in California’s cannabis market. PLUS recently launched their CBD line available nationwide.

“ I’m extremely excited about the thriving recreational cannabis market here in California, I believe the state has done a decent job of implementing a new recreational program after they’ve had to navigate through the butchered medical and black markets.”

  • Matt Morgan, CEO of OneQor, an over-the-counter (OTC) pharmaceutical company focused on developing, patenting, and delivering proprietary, plant-derived formulations in order to provide consumers with safer, more effective OTC solutions

“California is the birthplace of the commercial cannabis industry which comes as a blessing and a curse. We’re in the worlds biggest legal marketplace, collaborating with some of the most talented people in the game, and at the same time competing with the world’s biggest companies.”

  • Martin Kuaffman, Co-Founder of MKSI, a cannabis business accelerator whos two founders have spent decades successfully founding, leading and supporting companies across every aspect of the cannabis industry, from agriculture to advocacy to private equity, real estate, retail and beyond.

“California has one of the largest & most mature consumer bases that drive global cannabis trends, making it the most important market for brand development. With the illicit California cannabis market almost 300% larger than the regulated market, less restrictive regulations are needed, as well as a shift in societal norms regarding the dangers of using unlicensed products in order to effectively curtail the black market.”

  • Richard Huang, Founder and CEO of Cloudious9, high-tech vaporizer company that’s developed the “Hydrology 9,” the first-ever vaporizer with a built-in water filtration system that allows the user to burn or vaporize their product. They’ve released two more stellar additions to their portfolio with the value focused Atomic9 Vaporizer and the Tectonic9 grinder, both at a low price of $59.99.

Things to Work on as an Industry

“The challenge California has at both a state and municipal level is if they over regulate and over tax the cannabis industry, it will only serve to keep the illicit market alive. I have always maintained that much like the period following the repeal of prohibition in 1933, so long as a more efficient market is created, the illicit market will go away. In order to do so requires that consumers have better access to a larger selection of safe and tested products at a lower price. If tax and regulations prevent this from happening, then regulators are only burying their heads in the sand thinking that the illicit market will disappear simply because a less efficient legal market exists”.

  • Rob Hunt, CEO of Linnaea Holdings, a holding company that invests in best-in-breed, California-based cannabis companies through a unique two-part strategy designed to help provide financial and operational expertise for the company being invested in.

“Despite being the largest legal population targets in the world, California, like several other emerging markets, is open to only a fraction of its potentially legal cannabis market. Local jurisdictions remain slow to allow retail locations to open, with less than 750 legal dispensaries in the state. Shockingly, this is less than a third of the 2500 dispensaries that were operating prior to the introduction of Adult-use regulation in January of 2018. The problem has been further exacerbated by the prevalence of illegal dispensaries and unlicensed brands, an issue that the state has only recently begun to take seriously. These unfortunate realities mean that licensed operators, who’ve spent millions of dollars to ensure compliance in the legal market, are forced to compete against bad actors who don’t face any costs associated with non-compliance, regulations or taxes.”

  • Blake Brennan, Head of IR at PLUS Products, one of the most popular and fastest growing edible brands in California’s cannabis market. PLUS recently launched their CBD line available nationwide.

“The California cannabis market place is the largest and most robust on the planet. While there are many benefits to a legalized framework, the logjam of licensure has forced a consolidation of consumer’s access to it. Corruption, slow implementation, and nascent enforcement has been about what we have come to expect from regulators in California. The real question we legal folks have, is ‘when will they get it’? Egregious taxes, onerous licensing/application fees, and an unclear path forward have taken the business we have spent 5 years building and put it all in jeopardy.”

  • Jason Boze, President and CEO of Stratum Brands, a cannabis brand company currently owning and operating Cobra Extracts, their flagship product line in California. Cobra Extracts, via their founders, has a strong focus on product purity, brand integrity, and a strong reputation behind their grassroots extraction company started in California.

“Anytime you have a new regulated industry emerging you are going to have bureaucrats that want to over-regulate. This is due to the unknowns of how this new industry might play out. The last thing the politicians want or need is a public story backlash after the program was voted in. What I would say to the political figures is to try and find a happy medium between regulating and butchering a new regulated program. There’s always a happy balance to be had so let’s find that so we don’t drive the entire industry into the hands of the black market.”

  • Matt Morgan, CEO of OneQor, an over-the-counter (OTC) pharmaceutical company focused on developing, patenting, and delivering proprietary, plant-derived formulations in order to provide consumers with safer, more effective OTC solutions

“ A lot of these guys came into California with aggressive forecasts not realizing that at the same time they’re up against a very sophisticated, multi billion dollar blackmarket that’s been successfully serving Americans exceptional cannabis for decades. I think a lot of operators on both sides of that line are going to be missing profits until an equilibrium is reached.“

  • Martin Kuaffman, Co-Founder of MKSI, a cannabis business accelerator whos two founders have spent decades successfully founding, leading and supporting companies across every aspect of the cannabis industry, from agriculture to advocacy to private equity, real estate, retail and beyond.

“Although the California cannabis markets continues to rapidly grow, a lot of the demand is being absorbed by the unregulated market due to a combination of restrictive cannabis zoning ordinances, multiple tax layers that significantly drive up costs, and over regulation. Despite these challenges”

  • Richard Huang, Founder and CEO of Cloudious9, high-tech vaporizer company that’s developed the “Hydrology 9,” the first-ever vaporizer with a built-in water filtration system that allows the user to burn or vaporize their product. They’ve released two more stellar additions to their portfolio with the value focused Atomic9 Vaporizer and the Tectonic9 grinder, both at a low price of $59.99.
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