Study Predicts a $5 Billion Market for Recreational Marijuana in California

recreational marijuana in California

In coming years, legal cannabis sales will add billions of dollars to California coffers and attract millions of domestic and foreign pot tourists to the state. This is according to a new study, funded and commissioned by the regulatory agency responsible for supervising the beginnings and workings of the new recreational marijuana market.

Conducted by researchers from the University of California Agricultural Issues Center at the University of California Davis, the study estimates that recreational pot sales will account for roughly 60 percent of California’s cannabis industry in the future, which equates to approximately $5 billion in annual sales. This does not take into account the medical marijuana industry, illegal weed markets, or even marijuana delivery in California.

Legalized Marijuana in California

In 2016, California voters approved Proposition 64, which was a ballot measure to legalize weed for recreational use. Adult use is already legal in Colorado, Oregon, Alaska, Washington, Nevada, Maine, and Massachusetts, and all are generating massive tax revenues. Almost immediately, California’s weed industry is set to become the nation’s largest and most profitable.

The first two states to legalize recreational use, being Washington and Colorado, are now raking in well over $1 billion in yearly sales. Last year, medical cannabis sales generated roughly $2 million in California, and experts estimate that the illegal market accounts for another $5.7 billion, which equates to about three-quarters of all pot sales occurring within the state.

Projections for both medical cannabis and black market sales are that they will drop significantly when recreational sales start next year, the deadline for which is January 1, 2018. Experts predict a 70 percent drop in medical sales, while illegal sales will likely plummet by more than half. The black market will not disappear, however.

Old habits rarely die quickly. Consumers may still turn to the black market for cheap weed or regulatory confusion. Researchers are estimating that roughly 30 percent of all sales in the state will still occur outside of the legal system by the end of the first year of recreational sales. State cannabis regulator, Lori Ajax, spoke to The Hill in January about how her agency is working to kill the black market:

“We want them to get into the regulated market. That is why we are doing it. The last thing we want to do, as we are trying to get people to come into the regulated market, is to make it so confusing that they are not sure what they can do under medical and recreational systems.” Her agency, the Bureau of Marijuana Control, is trying to harmonize both medical and recreational markets.

Ajax also said that the Bureau of Marijuana Control would start issuing licenses for recreational sales by the start of next year. Kevin Sabet, president of Smart Approaches to Marijuana, a group opposed to legalizing weed, showed concern that the new legal industry would be insufficiently able to undercut black market sales:

“No proposal will get rid of the underground market for marijuana in California, even if the campaign promises said they would. We have seen this in other states too, that the well-established underground market easily undercuts the legal market. This is unsurprising, and it is just one more unrealized promise from the marijuana industry.”

Tax coffers will benefit enormously from the legal market. Earlier estimates of tax collections from legal cannabis sales have ranged between $770 million to well over $1 billion a year. When recreational sales become legal next year, it will face a state excise tax of 15 percent on top of its 8.8 percent sales tax. Experts expect marijuana demand to rise steadily when the legal market opens next year.

Consumer demand will grow because of new interest California residents are increasingly showing, as well as from tourists visiting from out of state or other countries. California marijuana delivery will also play a role in this increase, as more people realize they do not have to visit dispensaries or illegal pot dealers in dodgy, potentially unsafe locations.

According to the National Survey on Drug Use and Health, approximately 14 percent of Californians aged 12 and older admit to using marijuana within the last month. Those aged between 18- and 25-years are more likely to have used it recently, with more than one in five consuming cannabis within the last month, and over a third within the last year.

Visitors to the state are likely to contribute enormously to the new cannabis industry if wine sales are any indication of potential similarity. In 2015, tourists consumed $7.2 billion of California’s finest wines, and according to a study conducted by industry trade group, the Wine Institute, it is more than likely that cannabis will follow a similar pattern:

“Demand for new forms of leisure spending by tourists and other visitors to California are potentially large.” The study’s authors go on to explain, “Given that adult-use cannabis remains illegal in most other states, California’s legalized adult-use industry may attract some new visitors whose primary reason for visiting the state is cannabis tourism.”

As an example, the Wine Institute cited Colorado. A state-funded study conducted a survey of tourist motives for visiting the state. It found that just under 10 percent of them were visiting Colorado solely to enjoy its legal marijuana market. The potential of pot tourist figures being even higher in California is almost a guarantee, and the hospitality industry is already hard at work preparing for it with pot-friendly lodgings and tourist attractions.

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