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California Expected to Sell $5B in Recreational Marijuana Every Year

A new study projects that California’s looming recreational marijuana market will generate $5 billion in annual sales.

California’s soon-to-be-operational recreational marijuana market will pull in more than $5 billion in annual sales, according to a new state-sponsored economic study by the University of California Agricultural Issues Center. The analysis estimates that more than 1,200 jobs will be created for testing and handling cannabis.

Lori Ajax, the director of California’s Bureau of Marijuana Control, hired the agricultural center to investigate the economic impact of the legal market’s new rules. California will begin issuing licenses to sell adult use marijuana in January.

“It’s going to take some time,” Ajax told the Los Angeles Times. “While it’s unlikely that everyone will come into the regulated market on day one, we plan to continue working with stakeholders as we move forward to increase participation over time.”

The study predicts that legalization and regulation will increase California’s tourism industry as visitors come to the state simply to obtain cannabis legally. More than 260 million visits to California occur each year, with tourists spending more than $122 billion in the state. Most of the money spent by tourists is on leisure goods and services.

“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 has been observed in Colorado,” the study reads.

The economic analysis estimates that as of November, annual medical marijuana sales were $2 billion, making up 25 percent of total marijuana sales, while sales in the illegal market were estimated to be $5.7 billion. Legalization of recreational marijuana and the market’s new regulations are expected to reduce the state’s medical marijuana sales to $600 million as people who had gone through physicians to obtain cannabis are given an alternative.

“Revenues for medical cannabis in Washington State, for instance, fell by one-third in the first year after the legal adult-use cannabis system took effect, and by more subsequently,” reads the study.

Once the state implements its regulations, legal medical marijuana will make up 9 percent of the overall market, the analysis estimates. An estimated 29 percent of cannabis consumers will continue to obtain their cannabis through illegal means to avoid higher costs on retail marijuana due to product testing, tracking and taxes. Legal adult use marijuana is will account for the rest, or 61.5 percent of the overall market.

“We projected that when legally allowed, slightly more than half of the demand currently in the illegal adult-use segment will quickly move to the legal adult-use segment to avoid the inconvenience, stigma, and legal risks of buying from an unlicensed seller,” the study says.

The findings in the state-sponsored study are in the ballpark of projected figures in other market research reports. A report from Arcview Market Research and New Frontier estimated that California would pull in $1.6 billion in recreational sales alone in its first full year of legalization and grow at a rate of 18.5 percent to eventually reach $6.46 billion by 2020.

Recreational marijuana was legalized in California following voter approval of Proposition 64 in November. Under the law, adults ages 21 and over are legally allowed to possess and transport up to 1 ounce of marijuana for personal use.

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  • Marcus Walker

    What do you think would happen to the medical marijuana stocks? Is California making it legal July 1st this year?