California's Marijuana Market Remains Mired in Challenges

Several structural factors create significant hurdles for many operators.

Many cannabis operators in California have continued to struggle, but some areas have been showing growth.

Throughout the course of 2023, roughly 40 retailers have closed down, estimated Los Angeles consultant Hirsh Jain, with even more “just barely hanging on.” He cited a handful of prominent operations that closed their doors, including:

While another 120 or so have also opened in other parts of the state – making the retail scene more of a net gain than a loss – a lot of businesses continue to struggle and many Los Angeles retailers, in particular, are looking to sell and exit, Jain said.

“The same listings in L.A. that were advertised for $3.5 million 18 months ago are now being listed for $1.5 million,” Jain said, referring to some dispensaries for sale. “For the first time in California, we’re seeing a wave of people voluntarily closing stores.”

By contrast, retailers that have set up shop in relatively unsaturated local areas – such as Fresno – appear to be doing quite well. But almost half of all of California’s marijuana shops are in just seven cities:

  • Los Angeles
  • San Francisco
  • Oakland
  • San Diego
  • Sacramento
  • Santa Rosa
  • Palm Springs

It’s this oversaturation that makes it hard for many retailers to survive.

Jain said the retail closures can also be attributed in part to many of the well-chronicled industry hurdles, such as high state and local taxes, tough competition from the cheaper underground market,  and heaps of red tape that drive up costs.

But it’s also the result of a still-snowballing debt bubble due to a systemic problem of businesses not paying vendor bills. That’s one of the larger problems undergirding the California cannabis industry woes, Jain said.

“This kind of culture of nonpayment that’s become entrenched in California would not fly in markets like Arizona,” Jain said. “We’ve kind of accepted that it’s OK. Aside from the structural challenges of the industry, this behavior has been normalized to some extent, which I think is very concerning.”

That trend by itself has led to a broader pivot by brands and distributors, Jain said, where they’ll refuse to do business with certain retailers unless they have a solid reputation for paying on time.

“Brands like Pacific Stone … have been very public about how that’s a big part of their strategy, to be thoughtful about which retailers they partner with,” Jain observed. “That’s an interesting maturation.”

John Schroyer

John Schroyer has been a reporter since 2006, initially with a focus on politics, and covered the 2012 Colorado campaign to legalize marijuana. He has written about the cannabis industry specifically since 2014, after being on hand for the first-ever legal cannabis sales on New Year’s Day that year in Denver. John has covered subsequent marijuana market launches in California and Illinois, has written about every aspect of the marijuana trade, and was part of the team that built the cannabis industry’s first-ever trade show, MJBizCon. He joined Green Market Report in 2022.

One comment

  • Joe

    October 25, 2023 at 5:34 pm

    Good to hear Caliva closed in Ceres. They are a terrible company to work for as they exploit their employess and only promote family members.


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