Assembly committee hears DCC market report and industry officials warn illicit market and tax increases are squeezing legal cannabis

Christina Dempsey, Deputy Director for Government Affairs at the Department of Cannabis Control (DCC), told the Assembly Budget Subcommittee 5 that the department licenses activity across the cannabis supply chain and now operates as a standalone regulator since its 2021 formation.

Dempsey introduced the department’s presentations, which included a fiscal request to support implementation of Senate Bill 1064 (combined activities license) and an economist’s market analysis. Natalie Sheeran, the department’s budget officer, described a BCP that would fund one position in the Cannabis Track and Trace Field Support Unit at an estimated cost of $154,000 in 2025–26 and $146,000 ongoing.

Market report findings: Duncan McEwen of ERA Economics presented the California Cannabis Market Report. McEwen summarized the department’s data analysis: licensed production (measured in dry flower equivalent at the farm gate) increased roughly 11–12% between 2023 and 2024 to about 1.4 million pounds, while the illicit market remains far larger by the report’s point estimate (about 11.4 million pounds) though the authors noted a wide uncertainty range around that figure. McEwen said retail units sold rose about 5% in 2024 but average unit prices fell, producing a decline in total retail value and excise tax receipts.

Why it matters: The mismatch—rising licensed supply, falling unit prices and persistent illicit production—helps explain why tax revenue and many licensed businesses are under pressure. McEwen said that, although wholesale prices declined sharply after legalization then stabilized, market integration between the illicit and licensed sectors is evident and exerts downward pressure on prices.

Enforcement and staffing: Committee members pressed DCC on enforcement capacity. Dempsey and other DCC staff said the enforcement division has roughly 87 positions with about a 13–15% vacancy rate, which Dempsey characterized as “give or take” about 50 agents in the field. DCC also reported just over 200 compliance staff. Dempsey explained a structural issue: enforcement funding is drawn from licensees, creating a trade‑off between raising fees for enforcement and increasing licensee costs.

Industry testimony and public comments: Amy O’Gorman Jenkins of the California Cannabis Operators Association described an industry contraction with several metrics: a $1.1 billion decline in legal sales since 2021 (a 19% fall), job losses she cited (12,600 in 2022 and another 5,000 in 2023), thousands of cultivation and manufacturing licenses reportedly disappearing, and a steeply shrinking retail footprint. Jenkins urged legislative action to halt a scheduled automatic excise tax increase (she referenced AB 564 or similar proposals to repeal the scheduled increase), to crack down on intoxicating hemp products sold as untaxed alternatives, and to expand retail access so consumers can use regulated outlets rather than illicit sources.

Other witnesses included law enforcement and labor representatives who urged more enforcement resources and noted the public‑safety and community harms of illicit production and sales. Business groups and manufacturers also urged tax relief, enforcement against hemp‑derived intoxicants, and expanded retail access.

Next steps: The committee did not take votes; members said they will continue to follow the May revise and legislative proposals addressing excise taxes and enforcement funding.

Speakers

["Christina Dempsey","Natalie Sheeran","Duncan McEwen","Amy O'Gorman Jenkins","Shane Wedean","Jared Kailo","Kristin Heidelbach","Alicia Priego","Assemblymember Wallace","LAO representative Heather Gonzalez"]

Authorities

[{"type":"other","name":"Proposition 215 (1996) medical cannabis legalization","referenced_by":["DCC background remarks"]},{"type":"other","name":"Proposition 64 (Adult Use of Marijuana Act)","referenced_by":["industry testimony invoking voter intent to displace illicit market"]},{"type":"other","name":"Senate Bill 1064 (combined activities license, 2024)","referenced_by":["DCC BCP presentation"]}]

Clarifying details

[{"category":"licensed_production","detail":"Licensed cannabis production at farm (dry flower equivalent) reported ~1,400,000 pounds in 2024","value":1400000,"units":"pounds","approximate":true,"source_speaker":"Duncan McEwen"},{"category":"illicit_production_estimate","detail":"Point estimate for illicit cannabis production in California ~11,400,000 pounds with wide uncertainty range (7M–16M lbs)","value":11400000,"units":"pounds","approximate":true,"source_speaker":"Duncan McEwen"},{"category":"enforcement_staffing","detail":"DCC enforcement division ~87 positions with ~13–15% vacancy rate; ~50 agents estimated in the field","value":87,"units":"positions","approximate":true,"source_speaker":"Christina Dempsey"},{"category":"compliance_staffing","detail":"DCC has just over 200 compliance staff","value":200,"units":"positions","approximate":true,"source_speaker":"Christina Dempsey"},{"category":"BCP_cost","detail":"BCP to fund 1 Cannabis Track and Trace Field Support Unit position: ~$154,000 in 2025–26, ~$146,000 ongoing","value":154000,"units":"USD","approximate":true,"source_speaker":"Natalie Sheeran"}]

Proper_names

[{"name":"Department of Cannabis Control","type":"agency"},{"name":"Senate Bill 1064","type":"other"},{"name":"Proposition 64","type":"other"},{"name":"ERA Economics","type":"organization"},{"name":"California Cannabis Operators Association","type":"organization"},{"name":"Kiva Brands","type":"business"}]

Community_relevance

{"geographies":["Statewide","Los Angeles","Fullerton","Orange County"],"funding_sources":["Cannabis Control Fund (license fees, excise tax)"],"impact_groups":["licensed cannabis businesses","consumers","workers in cannabis manufacturing and retail","local governments"]}

Meeting_context

{"engagement_level":{"speakers_count":12,"duration_minutes":90,"items_count":2},"implementation_risk":"high","history":[{"date":"2018-01-01","note":"Start of licensed commercial adult‑use sales in California"},{"date":"2021-07-12","note":"DCC formed through consolidation of prior regulatory programs"}]}

Searchable_tags

["cannabis","DCC","market_report","illicit_market","excise_tax","enforcement"]

Provenance

{"transcript_segments":[{"block_id":"5608.275","local_start":0,"local_end":200,"evidence_excerpt":"Thank you. Good afternoon chair and members of the committee. My name is Christina Dempsey. I'm the Deputy Director of Government Affairs for the Department of Cannabis Control. ... We are here for 2 agenda items. The first item, issue 4 on the agenda is an overview of the department and our role in regulating the cannabis supply chain.","reason_code":"topicintro"},{"block_id":"6554.215","local_start":0,"local_end":220,"evidence_excerpt":"And this gives us kind of the headline, summary findings of the report... active licenses are down year over year... Licensed cannabis production is up... Total units sold at retail were up about 5% in 2024... the retail value of the industry is down.","reason_code":"topicfinish"}]}

Topics

[{"name":"cannabis_regulation","justification":"DCC overview, enforcement capacity and market report presented; industry response to taxes and illicit market","scoring":{"topic_relevance":1.00,"depth_score":0.92,"opinionatedness":0.12,"controversy":0.85,"civic_salience":0.93,"impactfulness":0.90,"geo_relevance":1.00}}]