California Medical Marijuana Market at $845 Million

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The medical marijuana market in California may be the tail that wags the dog. According to a recent report at Marijuana Business Daily, the state’s nearly 2,800 dispensaries have posted retail sales of $845 million in the 12-month period from April 2015 through March 2016.

The actual total is likely to be much higher because the state does not closely regulate the medical marijuana industry. The second-largest state medical marijuana market is Colorado’s, with $408 million in sales last year.

The massive size of the market for medical marijuana in California indicates that if the state’s voters pass Proposition 64 legalizing pot for recreational use, the result will be a market that could at least double.

In July, marijuana dispensaries in Colorado sold $83.8 million in pot products for recreational use and $38.9 million in medical marijuana products. That despite the fact that medical marijuana sells for a premium to recreational pot.

Analysts at Cannabis Benchmarks noted last week that the premium for medical marijuana in the state’s spot market has now reached about $300 a pound. Across the country, spot prices for medical marijuana are now more than $500 higher than spot prices for recreational pot.

In the first seven months of 2016, Colorado’s combined retail sales of marijuana products totaled $702 million and generated more than $105 million in taxes and fees.

The current number of medical marijuana dispensaries in California is 10% higher than the number of dispensaries of all other states combined. Colorado, for example, has a total of 528 licensed dispensaries.

According to Marijuana Business Daily, California collected about $76 million on the $845 million in total sales, at a tax rate of 9%. But there is a high probability that some dispensaries are under-reporting sales in order to avoid detection by local authorities:

In Orange County, for example, average per-dispensary sales equate to just over $65,000 – far less than it would take to rent a facility, pay employees, purchase inventory, etc. In San Bernardino County average sales are even lower: just over $22,000 across the county’s 179 dispensaries.

… Rather than regulating dispensaries out of existence, local rules and regulations have caused dispensaries to simply subvert taxation – continuing to operate under the nose of local law enforcement.

New regulations for California’s medical marijuana industry have been passed, but they are not scheduled for implementation until 2018. If Prop 64 is approved, the state stands to generate a lot more tax revenue in a total market that could approach $2 billion annually.