California Out Of The (Golden) Gate: A Green Tide

The path towards California’s cannabis pot of gold may be lined in green — moolah and ganja. But the legal commercial ferment could even be more effervescent – the pot of gold that much heavier – if not for regulations and taxes.

That’s the conclusion of California: The Golden Opportunity?, a close analysis of the extraordinarily complex California cannabis marketplace conducted by Arcview Market Research and BDS Analytics. The detailed report finds the Golden State indeed offers the most lucrative golden opportunity for the cannabis industry. But the tangle of regulatory burdens and high taxes threatens to diminish the potential — the estimated $3.7 billion in sales anticipated for 2018.

Some businesses are opting to remain outside of the legal system. And consumers, too, find easy access to untaxed, and thus more affordable, cannabis products. Meanwhile, punitive measures for those operating illegally in the state are extremely low, which in effect offers more incentives to operate extra-legally. With punishments for ignoring the law so minimal, some people are willing to skirt authorities because if they are caught — no big deal.

The New California Cannabis Market Is Here To Stay

Either way, California’s New World of commercial cannabis is here and destined for big things — it already is the largest legal cannabis marketplace in the world, regardless of regulatory and tax hurdles. And fresh businesses rise every day offering retail sales in shops or by delivery, novel kinds of edibles, strains even more dense with THC or CBD, and much more.

BDS Analytics began tracking California sales a year ago, back when the scene was more Wild West. Since January of this year, however, we established a policy to only track sales of cannabis products in shops with the new state-issued retail licenses. The number of 2018 licenses is less than those in circulation by the end of 2017, but as the year matures more and more dispensaries are receiving licenses.

We are observing differences in retail sales between today and last year.

Cannabis Prices in California Hit By Taxes, Regulations

The most notable variation between December of 2017 and January of this year revolves around pre-tax prices. In general, dispensaries in January began pricing items — everything from grams of Kosher Kush to vape pens and bags of gummies — higher than just a month earlier.

The average retail price for a gram of flower in December? $8.82. By the end of January the average had risen to $9.62. Vapes rose from $36.90 each to $41.03. Edibles leapt by more than $4 an item, up from $12.76 in December to $16.87 in January. Infused pre-rolled joints? They were $16.10 in December, but the average retail price in January was $17.15.

But the pivot from Wild West to highly regulated marketplace influenced more than just prices. The purchases people made at dispensaries shifted a bit too — not dramatically, but in some cases, at least, the switch in consumer sentiment is worth noting.

Vapes’ California Strength Gains Muscle After Recreational

Consider concentrates, the most dynamic story in cannabis for several years. To date, all states have entered the world of legal recreational marijuana with flower dominating all sales rather dramatically. Over time, however, flower’s command of market share diminishes as consumers turn to concentrates for their buzzes. In California, however, concentrates already captured a sizable chunk of the market in December, prior to the launch of recreational sales. With concentrates capturing 29 percent of the market in December, and flower sitting at 46 percent, California pre-recreational sales already resembled states like Colorado and Washington.

And the turn to recreational sales boosted concentrates’ profile even higher — immediately. Sales of concentrates captured 30 percent of the cannabis market in January, while flower fell to 43 percent.

Perhaps the most interesting concentrates trend that took place in the leap from 2017 to 2018 was with vape pens, a fast-growing and dominant subcategory of concentrates. In December, vapes garnered 73 percent of concentrates sale, far outpacing other states like Colorado (39 percent) and Washington (38 percent). But in January, Californians vape love grew even more intense. Vapes share of the concentrates market rose to 79 percent, truly making California the Land of the Vape.

Go Ahead And Bogart My Gummy — Plenty To Go Around

And then there is the gummy, another ongoing cannabis story. Within edibles, chocolates dominated sales in 2014 and part of 2015 in Colorado and Washington, the first states out of the gates with legal recreational sales. But candy — led by those chewy gummies — overtook chocolate as the most popular style of edible during 2015. And every quarter since, it seems, the popularity of gummies seems to grow in all states with recreational sales.

They were extremely popular in California in December, with 57 percent of the candy market. No other form of candy came close. But in January California consumers went positively nutso for gummies, buying enough of that style of candy to capture 71 percent of all candy sales.

Only a few months into this historic year for the CA market, and we are seeing glimpses of trends that we believe have a good shot at rooting. And unlike Las Vegas, what happens in California doesn’t tend to stay in California — it spreads nationwide.