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Media 丨 2021.09.10

California: Growth Trajectory of a Mature Legal Cannabis Market in the US

In 2016, California became part of the first group of states to legalize cannabis use for recreational purposes, while the state became the first to legalize cannabis for medical use all the way back in 1996. Combine this with the relatively huge size of California compared to some of the states that legalized recreational cannabis according to a similar timeframe, and California represents, along with Colorado, one of the most mature legal recreational cannabis markets in the United States. For this reason, California is often seen as a good indication of the direction and trends that could take place in other states as their own legal weed markets head towards maturity. For consumers, this means that products and prices available in California could potentially be expected to be replicated in your own state sometime soon, while for business owners in the cannabis space, including the cannabis vaping space, trends in California can help one to understand a picture of trends that will be replicated in other states early enough to gain a first-mover advantage in a particular product or feature area. 


Legalization: Not an Overnight Process 

The California legal cannabis market has experienced swift and nearly constant change since legalization, and 2021 has been no exception to this rule. The law passing legal recreational cannabis was passed in 2016 and went into effect in 2018 (Saunders, 2018), giving the state ample time to plan the regulatory shift towards legalization. Nonetheless, the process towards legalization has taken place on a city-by-city and county-by-county basis, meaning that adoption of legal weed markets in California has occurred unevenly.


For example, at the beginning of this month, the city of Fresno finally approved three businesses to begin retail cannabis sales in the city, around five years after the original statewide legalization measure in California (Tehee, 2021). Moreover, there is significant evidence that this trend is continuing throughout the state. While cities already allowing cannabis retail have grown more willing to approve businesses in more crowded retail areas, a large number of cities and counties have initiated measures to begin the process of approving retail licenses. Specifically, since last November’s municipal election, 18 cities have already begun the process of issuing new licenses for retail sale, while 18 more have plans in place to do so in the near future (Schroyer, 2021). In other words, there is evidence that political and economic momentum behind legal cannabis markets begins to grow on a municipal basis as statewide markets mature. 


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Product Offerings Also Mature: Weed-Infused Beer and Marijuana Tourism

The economic trajectory of California’s legal weed market also is reflected in the development of the market to meet a new range of customer preferences and needs, reflecting how cannabis can become more and more integrated into other aspects of the economy. For example, the potential for market integration and taking advantage of cross-competencies is demonstrated by the investment by many of the world’s top beer companies in drinks that include a cannabis infusion, including Anheuser-Busch InBev, Pabst Brewing Company, and Constellation Brands (Demko, 2021). Similar patterns can be expected as the cannabis market begins to mature in other states, with a variety of cross-branding attempts cropping up to fill newly developing tastes and needs. 

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Increasingly sophisticated advertising is another sign of market maturation

Source: Flickr


Another sign of increased integration of the cannabis market into the statewide economy is the growth of marijuana tourism, where residents from other states are enticed to plan a trip to California that is structured around taking advantage of the state’s extensive offering of cannabis products. Although the COVID-19 pandemic put the marijuana tourism industry on hold for a large portion of time, the industry had been experiencing rapid growth before the beginning of the pandemic and has shown signs of regaining its rapid growth over the last months (Sizeland, 2021). This is another indication that, as cannabis markets mature in other legal states, economic momentum will pull resources and coordination towards the cultivation of new market segments, which increasingly become integrated with the wider state economy. 

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A recreational cannabis dispensary in California


Some Problems are Easier to Solve than Others

While California’s legal cannabis market continues to mature in economically integrative and productive ways, some hurdles remain more difficult to surmount as the state seeks to implement and grow the industry. One significant issue that remains is the continued existence of significant illegal cannabis cultivation and distribution networks in the state. Around two-thirds of California municipalities still do not allow recreational cannabis sales, and regulatory hurdles for businesses seeking to enter the legal cannabis market in the state are complicated and expensive, discouraging some growth in the legal market (Los Angeles Times Editorial Board, 2021). The trajectory in the state overall is towards tremendous growth, yet the legal cannabis market in California also demonstrates some potential hurdles that could slow some growth in other states if not addressed properly. 


Conclusion

In spite of its relative maturity, California’s legal cannabis market is still extremely young compared to other recreational consumption goods such as alcohol or tobacco. Just as alcohol prohibition led to the development of illegal alcohol distribution networks that did not simply dissolve or disappear as soon as prohibition was lifted, the process of lifting cannabis prohibition must deal with difficult hurdles in addressing the legacy and the impact of prohibition and illicit markets. However, as with the alcohol industry, the economic and social incentive for a taxed and well-regulated industry has in a great number of cases been illustrated as an overriding force guiding the cannabis industry through the legalization process. Despite some issues, legal weed in California has demonstrated the enormous potential for market maturation and growth within a short period of time in legal states. Businesses that stay ahead of the legal and economic trends through the legalization process in a given state can take advantage of these rapid periods of growth which are likely to be replicated in other states, even while the prospect of federal legalization holds the prospect of an even faster rush towards state and local steps towards regulation and market development. In any case, the development of legal cannabis markets in the US continues to be an exciting time for consumers and investors alike.