California’s Race to the Pot of Green Gold

California’s Race to the Pot of Green Gold

The world’s biggest legal cannabis marketplace opened for business on January 1 of this year, giving everybody 21 or older the opportunity to buy eighths of OG Kush, vapes, taffy and an extravagant array of other marijuana products.

Many Californians already had been enjoying legal cannabis, under the state’s medical regulatory regime (the first in the nation, established in 1996). And for them, the turn from December 31 to January 1 might have sparked no more than a shrug.

But pay no attention to the shruggers. Legal recreational weed in California marks the beginning of a transformation, not only of the cannabis industry in California, but nationwide. The just-released report by Arcview Market Research and BDS Analytics, California: The Golden Opportunity, projects sales of legal cannabis products in California to reach $3.7 billion in 2018, and grow to $7.7 billion in 2021. This year’s anticipated revenue for California is 32 percent higher than 2017 sales for Colorado, Washington and Oregon combined, which reached 2.8 billion. According to the report, by 2021 California’s demand for legal cannabis will be three times greater than any other state.

The same report points toward one trend likely to root during the year — a shift in the retail model. For now, mom-and-pop single storefronts dominate the dispensary landscape. But as more savvy businesspeople with backgrounds in other retail industries enter the cannabis industry, the roll-out of specialty cannabis chains is inevitable. The evolution of the dispensary model has already started in states like Colorado. But the California commercial cannabis behemoth will likely accelerate the trend.

And as an increasing number of California dispensaries gain new sales licenses and start selling — the pivot from 2017 to 2018 required new licenses, and many legacy dispensaries did not have 2018 licenses at the turn of the calendar — we begin to understand the new California cannabis consumer. Now, with strong data from the first two months of recreational sales in the Golden State, we can begin to examine retail trends. So did things change between 2017 and 2018?

Prior to 2018, California cannabis sales exhibited a range of consumer quirks, most notably an especially strong embrace of vape pens among shoppers. The switch to recreational sales didn’t slacken their ardor — in fact, it grew even more passionate.

During the last two months of medical sales in California — November and December of 2017 — vapes captured 73 percent of the concentrates market. Consumer spending on vapes in California already stood apart — in Colorado, for example, sales of vapes represented just 40 percent of concentrate sales during those months.

But during January and February of this year in California, vape sales’ piece of the concentrates pie grew to 79 percent — this despite the average pre-tax retail price for vapes rising by more than 13 percent, from $36.91 during November and December to $41.95 in January and February. Inflated pre-tax prices for all cannabis items, not just vapes, illustrates another post-recreational trend — average prices for nearly everything rose.

However, another only-in-California quirk, its consumers’ affection for infused pre-rolled joints, took a hit in the switch from medical to recreational sales. During November and December of last year, infused pre-rolled joints captured 28 percent of the pre-roll marketplace. The blunts leavened with concentrates like wax and hash had an average retail price of $15.90, making them premium joints; the average price for a non-infused joint during the period was $8.67.

Californian’s warmth towards infused pre-rolls cooled during January and February, when their market share fell to 18 percent, a drop of 35 percent in terms of market share.

The dampened enthusiasm might be explained, at least in part, due to those pesky price hikes. The average infused joint during January and February was $17.57, while the price for an old-school blunt was $10.27. Both spleef styles experienced price elevations compared to 2017, but spending more than $20 — after taxes — for a joint might be a toke too far for some cannabis consumers.

As California consumers, dispensaries, growers and manufacturers increasingly adjust to the new face of Golden State cannabis — everything from strict rules that force cultivators to change production practices, to a flood of new customers, with different desires and demands — marijuana’s wild ride in California will keep all of us in the industry captivated to say the least.

For more cannabis industry insights and analyses, check out our most recent Cannabis Intelligence Briefings.