While headlines and hopes have been focused on New York, where regulators just opened another licensing round in a effort to get the state’s adult-use market to functional, parallels and lessons are being drawn from the oldest and largest legal cannabis markets in the world: California.
Despite its longer history, California remains a challenging landscape for cannabis operator.
Statewide, California’s store density remains low compared to its vast population and land area. Several factors, including high taxes and illicit sales, are likely contributors to the state’s lower per-capita cannabis consumption compared to counterparts like Michigan and Colorado, according to a report from equity analyst Pablo Zuanic of Zuanic & Associates.
Many observers have noted that that lack of access to regulated stores has helped perpetuate the illicit market, which by all measures continues to thrive across the state.
But it might also be a boon for the existing operators. With more than 1,000 licensed dispensaries, revenue per store in California averages more than $4 million, a figure that’s notably higher than in other mature markets, Zuanic said.
Still, that revenue varies greatly by county. San Diego County retailers, for example, average twice the state’s per-store revenue, while Santa Clara County stores clock in at a staggering five times the state average.
“But neighboring Monterey is below the state average at $3 million,” Zuanic wrote. “Retail scale matters, especially in a context of narrowing retailer spreads for flower, as does a mix of ‘good’ locations – preferably in less store-dense counties, with above average revenue per store.”
California’s market saw a 23% year-over-year sales increase in 2021, bolstered by stimulus checks and stay-at-home mandates, but predictions from cannabis data firm Headset forecast an 11% drop in the third quarter of 2023. Despite these projections, Zuanic remains optimistic, noting that the slump is smaller than previously estimated and that sales appear to be stabilizing.
Pricing trends, he said, reveal a decline in flower retail prices, indicating a potential profit squeeze for retailers, but stability in wholesale prices. As for dominance, flower remains a fragmented sector, with the leading brand holding only a 3.7% of the market.
On the other hand, edibles and vape categories see a few heavyweight brands like Kiva (30%) and STIIIZY (24%) taking a significant market share, showing the potential for industry consolidation.
“In pre-rolls, Jeeter is a distant #1 with 17% share, more than three times the next player,” he wrote.
The report also showcases potential growth avenues for major cannabis companies in the state. StateHouse, formed from the merger of four industry giants, currently has sales below the state average.
“We think the store network has upside given the mix of counties, although we realize there may be municipality level nuances not captured in this analysis,” Zuanic wrote. “Taking county averages, we calculate StateHouse could aspire to ~$8 million revenue per store.”
On the other end, Gold Flora, another huge presence after its merger with The Parent Company, clocked sales of $68 million in the first half of 2023. Zuanic predicted the company could reach close to more than $7 million in revenue per store, based on averages.