The legal cannabis industry in the nation’s most populous state is still enduring major systemic hurdles, according to a recent memo penned by a prominent marijuana industry consultant, as many businesses are still trying to figure out how to turn a profit in the alluring but difficult-to-navigate market.
A large part of the issue for years has been local veto power over commercial cannabis companies, which has limited where and how many retail outlets are able to sell legal cannabis. Since 2018, when the legal market launched, roughly two-thirds of local governments across California have maintained bans on marijuana companies.
That has been changing slowly, as more cities and counties opt to allow some level of licensed cannabis operations, but the pressure on the broader industry hasn’t really let up.
According to Hirsh Jain, founder of Los Angeles-based Ananda Strategy, it’s because the “dual licensing” system in California – which requires businesses to obtain both city or county permission as well as a state license before they can launch operations – is “fundamentally broken.”
“The licensing system that California has adopted makes it nearly impossible for stores to open. Stores are more likely to go bankrupt (say, 2-3 years into the process of trying to open) than they are to actually get open,” Jain wrote in a memo to Green Market Report.
Jain concluded that most local governments don’t have the resources, time, manpower, or expertise to write their own ordinances and regulations to effectively govern the complex cannabis industry, which has led to time-consuming bottlenecks that drive entrepreneurs broke before they get a chance to compete in the cannabis market.
“Cities that passed retail ordinances in 2019/2020 (to great fanfare!) have still not seen those stores open, 3-4 years later. That tells us that something is fundamentally wrong in the licensing process,” Jain wrote.
“Every year since adult use sales began in California, we see 20-30 cities ‘opt in’ to allowing dispensaries (to great fanfare!). But the local approval processes these cities are setting up are so convoluted, involve so many different steps, with so many different departments, some of which are not even staffed that … these stores just never open.”
Jain cited several examples, including:
- The Central Valley city of Fresno, which has only opened two out of 21 licensed shops.
- The L.A. suburb of Corona, which has only opened one of 12 licensed shops.
- Another L.A. suburb, Stanton, which has opened none of its four licensed shops.
- Yet another L.A. suburb, Costa Mesa, which has also opened none of its 15 licensed shops.
- The San Francisco suburb of Redwood City, which has opened one of six licensed shops.
- The coastal city of Oxnard, between L.A. and Santa Barbara, which has opened only one of 16 licensed shops.
- The Central Valley town of Tracy, which has opened none of its 11 licensed shops.
- The coastal city of Ventura, also near Santa Barbara, which has opened none of its three licensed shops.
- The San Diego suburb of National City, which has opened none of its six licensed shops.
- Another San Diego suburb, Encinitas, which has opened none of its four licensed shops.
“It is time that we are honest about the fact that ‘local control’ does not and cannot work,” Jain concluded.