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Editorial Team

Content & Coffee.

California’s Marijuana Laws Prior to 2018

 

California has long been a pioneer in the legalization of marijuana, beginning with its passage of the Compassionate Use Act that legalized medical marijuana in 1996. But it wasn’t until 2015 that the state passed legislation, the Medical Cannabis Regulation and Safety Act, to regulate the growing medical marijuana industry. The Act created three authorities responsible for the licensing of dispensaries, growers, and processors in anticipation of the legalization of recreational marijuana and the rapid expansion of the marijuana industry it was sure to trigger. 

 

A few months later, voters approved the passage of the Adult Use of Marijuana Act legalizing the purchase, possession, and use of marijuana by adults throughout the state of California, though local governments had, and still have, the right to ban it within their jurisdictions. In 2017, these two pieces of legislation—the Medical Cannabis Regulation and Safety Act and the Adult Use of Marijuana Act—were consolidated to create the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). This was a significant move that created a single regulatory system overseeing both the medical and recreational marijuana industries.

 

California’s Marijuana Laws—2018

 

As of 6:00 a.m. on January 1, 2018, it became legal to sell, possess, and use marijuana in California without going through the process of registering as a medical marijuana patient, making the state the world’s largest legal marijuana market. It was estimated that thousands of licensed dispensaries would be operating in the state by the end of the year. However, that expectation was not met. 

 

Close to 80% of California counties and cities chose not to allow recreational marijuana sales, which prohibited the opening of adult-use stores and made it impossible for existing medical marijuana dispensaries in those jurisdictions to enter the recreational marijuana marketplace. The number of licenses issued to cultivators, distributors, and manufacturers also fell short of expectations. 

 

Initially, California issued a number of temporary licenses, for which the entry bar was very low compared to the requirements for obtaining a provisional or annual license. But as of December 31, 2018, no more temporary licenses could be issued, and many of the existing temporary licenses had expired or soon would. Consequently, there was a surge in applications for temporary licenses at the end of 2018. 

 

Between October 31 and December 31, 6,855 temporary licenses were granted, more than doubling the number of active licenses in the state. However, the majority (65%) of the licenses issued in November and December went to cultivators, 729 of them to only five companies. Only 3% of the licenses issued in November and December, 2018 were awarded to retailers or dispensaries (Source: National Cannabis Industry Association). Additionally, new packaging and labeling requirements implemented in July of 2018 became a barrier to entry for many retailers and resulted in product shortages and price increases that have caused some Californians to purchase marijuana in the black market.

 

By the end of 2018, revenues were far below what was originally projected for the first year of legal recreational and medical marijuana sales. The primary reasons for this are the lack of retail outlets and prices that are significantly higher than black market prices due to the cost of compliance with the new packaging and labeling requirements and the impact of state and local taxation.

 

California’s Marijuana Laws—2019

 

With no more temporary marijuana licenses being issued in California and many of the ones awarded during 2018 expiring, the only way for marijuana businesses operating under temporary licenses to remain in business is to obtain a provisional or annual license. As of November, 2019, there are only 1.5 open dispensaries per 100,000 Californians. Some medical marijuana patients have to drive over 100 miles to find a legal dispensary. To help address this, California now permits the delivery of marijuana products to customers even if they live in jurisdictions that have banned the sale of marijuana for recreational or medical use.

 

Assembly Bill 1356, which would have required municipalities where voters supported the legalization of recreational marijuana use to permit the licensing of a certain number of marijuana retailers, stalled in the state legislature and has been withdrawn by its sponsor. If it had passed, it would have tripled the number of licensed shops currently in business and increased marijuana sales by an estimated $2.1 billion.  

 

Predictions for California’s Marijuana Laws—2020 and Beyond

 

Assembly Bill 1356 is expected to be reintroduced in 2020 as part of an ongoing effort to bridge the gap between what California voters want and the restrictions imposed by city councils. Increasing the number of legal retailers is essential to increasing marijuana sales in the state and justifying the large investments required for continued expansion of California’s marijuana industry. 

 

In-state delivery of marijuana will not only increase consumer access, but should also help bring prices down. The cost of operating a delivery-only service is far less than the cost of running a brick-and-mortar retail store, so the number of delivery services is likely to increase significantly. Increased competition is key to bringing retail prices down and increasing overall marijuana sales and state tax revenues from the sale of marijuana.

 

While California’s marijuana industry has experienced some growing pains, a 2019 forecast by BDS Analytics and Arcview Market Research predicted that by 2024, legal marijuana sales in California will surpass black market sales. (Black market sales for 2019 are estimated to be nearly three times the sales in the legal marijuana market.) That prediction is predicated on California lightening the tax burden and loosening some of the constraints on legal market participants. Longer term, if the STATES Act passes in the U.S. congress, eliminating federal interference and leaving the regulation of marijuana to the individual states, California is well positioned to become the leading exporter of marijuana, both to other states and beyond the borders of the United States.