• Gavin Kogan

Significant Market Shift!

With the looming implementation of Phase II requirements, we are seeing a massive shift in dispensary and distributor purchasing criteria away from cannabinoid and terpene profiles and towards Phase II compliant weed. There is a clear shortage of clean cannabis and California regulated dispensaries are scared to death of the BCC shutting them down for selling non-compliant weed. If you are not already Phase II compliant, you could get clipped by the market. It’s hard to say how long this buying emphasis will last, but our best guess is that until Phase II compliant cannabis is the standard, those who can meet (and prove) compliance will have a significant market advantage.


Currently, the black and gray markets are the biggest winners in California’s newly regulated cannabis industry. There are many factors suffocating the roll-out of California’s newly regulated cannabis marketplace.


From overly local controls (leaving greater than 60% of the state counties and cities banning marijuana), to preventing regulated market participants from selling to unregulated shops (of 2,500 shops, only 400+/- are currently participating in the regulated market), to requiring the testing of cannabis to standards that are not themselves standard - the regulated cannabis market pioneers face a stiff headwind.


But no wind is stronger or more bitter than the 45% price increase customers pay at the counters of Regulated shops - but not Prop 215 shops. The below chart tracks the sale of a pound of marijuana at $1,000 from the cultivator to the counter, compounding all the taxes it will suffer along the way. The result is a compounded tax exceeding 45% of the original cost. Why would consumers go to a regulated shop that is 45% more expensive than an unregulated shop? They don’t, and that’s one huge reason California’s gray and black markets are the winners in California’s newly regulated cannabis industry.