Licensed cannabis production rises while wholesale and retail prices fall, shrinking industry value, DCC economists tell Assembly

The Department of Cannabis Control presented data to a joint informational hearing of the California State Assembly showing that licensed cannabis production has increased while unit wholesale and retail prices have fallen, producing a decline in the gross sales value of the licensed market even as more licensed product moves through the supply chain.

Duncan McEwen, PhD, an economist with ERA Economics, summarized the presentation: “the overall gross value of the industry is down. Quantity produced through the industry is up, but retail prices and wholesale prices, have fallen.” He said licensed production rose year over year and that production shipped through the licensed supply chain increased by double-digit percentage points, but price declines outpaced those volume gains.

The data presented to the committee showed licensed production at roughly 1,400,000 pounds (dry flower equivalent) and an overall estimated state production of about 12,500,000 pounds, leaving a large unlicensed share of production. McEwen said the licensed market’s share of consumer demand has been rising over time and is roughly 38% as of 2024, but that the illicit and hemp-derived cannabinoid markets continue to compete on price and availability.

Why it matters: lawmaker questions during the hearing framed the trend as a policy problem because lower prices and elevated operating costs can force licensed businesses to exit the regulated market, reducing tax collections and legal retail access while leaving consumers exposed to unregulated products.

Key presentation points and supporting details from the hearing: - Licensure transition: the DCC reported progress moving businesses from provisional to annual licensure. The department said provisional licenses fell from about 8,360 to roughly 1,500 (about 17% still provisional when the data was compiled). - Price and volume trends: McEwen said wholesale and retail prices fell substantially in 2021–22 and have largely stabilized since then, with modest wholesale upticks in late 2024; however, the previous declines reduced the sector’s gross value even as quantity sold rose. - Market mix: retailers are selling a higher share of value‑added products (manufactured goods) and a lower share of flower, which affects revenue and margins across the supply chain. - Illicit and hemp-derived competition: the economist and DCC staff emphasized the influence of unregulated markets on prices, citing statistical correlations across state markets that suggest illicit supply exerts downward pressure on legal-market prices.

The DCC’s presentation included staff analysis of enforcement and market-monitoring activity, but the economists and lawmakers later focused on the interplay between taxes, regulatory costs, enforcement, and retail access as drivers of market outcomes. The hearing record also included multiple public commenters and trade groups saying that excise tax increases and other regulatory costs are driving retailers and manufacturers out of the licensed market.

Lawmakers asked the department and its economist for follow-up data on employment, business exits, and the distribution of license-holders by equity status. Committee members also repeatedly raised enforcement and retail-access as levers to increase legal-market share and relieve price pressure.

The hearing did not include a formal vote or a specific legislative action; committee chairs and members said they expected to use the information to inform bills and budget deliberations in the coming months.

The Assembly scheduled additional follow-up briefings and committee work on cannabis taxation, enforcement funding, and access measures as lawmakers consider proposals this session.