california Archives - Page 2 of 3 - Green Market Report

Debra BorchardtDebra BorchardtAugust 20, 2018
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4min14770

The state of California released its tax data for Q2 cannabis sales last week.  Tax revenue from the cannabis industry totaled $74,240,257.00 million from April 1, 2018, through June 30, 2018, which includes state cultivation, excise, and sales taxes. It does not include tax revenue collected by each jurisdiction.

According to GreenWave Advisors, that means that the implied recreational retail revenues increased 36% to ~$290M from $213M in Q1.  In addition to the retail revenues, the implied wholesale revenues would have reached roughly $29.9M vs $10.7M quarter-over-quarter.  “We note while these results fall below expectations, it does not include medical marijuana sales in which sales and excise taxes are excluded,” said Matt Karnes, the founder of GreenWave Advisors.

The California Department of Tax and Fee Administration also noted the excise tax on cannabis generated $43,490,668.00 million in revenue during the second quarter of the calendar year 2018. The cultivation tax generated $4,482,119.00 million, and the sales tax generated $26,267,470.00 million in revenue.

California cannabis retailer MedMen (MMNFF) said on Monday that its stores accounted for roughly six percent of all legal retail sales of cannabis and cannabis products in the second quarter for the state. MedMen said in a statement that its eight stores represent about two percent of all retailers, meaning on average MedMen stores outperform non-MedMen stores by a factor of three.

“The strong growth in tax revenue in the second quarter of the year shows that the legal cannabis industry is delivering on its promise of economic activity and greater public resources to the people of California,” said Adam Bierman, MedMen chief executive officer, and co-founder.

While MedMen is clearly happy with its results, the actual tax receipts are far lower than what the state had projected in the budget proposals. Governor Jerry Brown had estimated that the state would pull in $175 million in the first six months and instead the number was $135.1 million.

GreenWave went on to add that approximately 100,000 medical marijuana cards have been issued by the state since 2004 so Karnes believes that total retail sales are likely considerably much higher with med marijuana included and he estimates that its near $700M  for the first half of the year.

“As the regulated market in CA continues to evolve, it will likely experience ongoing sales pressure in the near term.  However, we remain optimistic that these “growing pains” will ultimately be resolved to achieve a $7B retail market over the next 5 years,” said Karnes. He went on to add that the average revenue per dispensary for the first half of the year is roughly $300,000 per month.

At the end of June, there were approximately 64 medical only licenses representing 15% of the market and 331 licenses for outlets selling both medical and recreational. At that time there were only 21 recreational only licenses representing 5% of the market.


Jack SmithJack SmithAugust 8, 2018
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4min19650

Despite the overwhelming majority of Californians being happy with the legal cannabis market, there is still a significant percentage of residents who buy marijuana illegally, due in large part to high taxes on the substance.

A new report from Eaze Insights shows that 84 percent of Californians are “satisfied” with the legal marijuana market, but approximately 20 percent have purchased illegal or illicit marijuana in the past three months. Concerning to regulators and the state’s finances is that 84 percent of that segment of the population is “highly likely to repeat that behavior in the future due to the illicit market having cheaper products and no tax.”

Part of the concern is that although consumers would like to purchase marijuana legally if, given the option, the taxes are a major concern for many consumers. According to the California Department of Tax and Fee Administration, marijuana has a 15 percent excise tax, though recent reports have suggested the state is looking at cutting taxes as a way of driving legal means of consumption.

Approximately 85 percent of Californians have purchased cannabis from “unlicensed sources,” but most of them cited factors such as lower prices and a lack of taxes for the reasons those purchases were made.

Other consumers say they have purchased from illegal marijuana vendors because it’s “hard and time-consuming” to find legal businesses. Approximately 1 in 7 respondents said it was “not easy to identify licensed cannabis businesses.”

Although the picture has been painted with some negative brushes, there are changes that can be made that will positively affect California’s burgeoning weed economy.

If taxes were decreased by 5 percent, that could drive much of the illegal market into the legal market, Eaze notes. The town of Berkley took that initiative early on when it lowered its city tax on cannabis from 10% to 5%.

“A 5% decrease in the overall tax rate in CA could bring twice as many CA consumers to only purchase cannabis from licensed businesses (from 16% to 32%),” Eaze wrote in an email obtained by Green Market Report. “Conversely, a 5% increase in the overall tax rate in CA would drive twice as many CA consumers to only purchase from unlicensed businesses (12% to 23%).”

Use cases in the state include wellness (treating or coping with illnesses such as cancer) and consumers are increasingly becoming more sophisticated in the types of cannabis they consume.

“They care the most about consistent product quality,  fair pricing, packaging, safe access and a great customer experience, the same way they care about those things for more traditional consumer products,” the email obtained by GMR said.


William SumnerWilliam SumnerApril 24, 2018
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3min15950

The world of mergers and acquisitions is heating up in the state of California as two cannabis companies today announced a pair of high priced acquisitions.

First, Golden Leaf Holdings (GLH) announced that is has signed a letter of intent (LOI) to acquire a cannabis dispensary in northern California. Included in this transaction are all of the dispensary’s assets; such as licenses and permits for cannabis cultivation, production, manufacturing, distribution, and retail. Under the agreement, Golden Leaf will pay $1.25 USD million upfront in cash, an additional $500,000 in stock, and earn-out payments of up to $8 million based on future revenue thresholds. This transaction will mark Golden Leaf’s first entry into the U.S. market.

“Signing this LOI is another key strategic step forward for Golden Leaf, as we continue to execute on our plan to introduce our retail brand-focused model to the largest growth markets, both in the U.S. and internationally,” commented William Simpson, CEO of Golden Leaf, in a statement.

Also announcing a major acquisition today is Cannabis Strategic Ventures, Inc., which just completed the definitive agreement to acquire Worldwide Staffing Group, Inc. The company will acquire 100% of Worldwide’s issued and authorized shares and begin recognizing Worldwide’s revenue, which reached $1.5 million in 2017, upon the closing of the transaction.

Worldwide will continue to operate as an independent wholly owned subsidiary, providing employment and staffing services that are not related to the cannabis industry. However, the company will use Worldwide’s experience to eventually expand into cannabis industry staffing, particularly in the California market.

“The job demands in the Cannabis Sector are expanding into other job functions beyond the traditional Bud Trimmers and Bud Tenders. This acquisition better prepares us to meet the growth we are expecting through the end of this year, into next, and beyond,” stated Simon Yu, CEO of Cannabis Strategic Ventures. “We welcome Worldwide Staffing into the Cannabis Strategic portfolio.”


Peggi CloughPeggi CloughApril 18, 2018
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5min12740

Of the nearly 5,000 people surveyed by legal cannabis delivery service company Eaze, more than half report they’ll be openly celebrating 4/20 this year.

Eaze asked their customers questions about their consumption openness when discussing their use and thoughts on celebrating their first legal 4/20 holiday in California.

Seventy-three percent surveyed reported the reason they’re celebrating 4/20 for the first time is that cannabis is now legal. About a quarter of Baby Boomers will be first-time celebrants. Sixteen percent of Gen Xers, 10 percent of Millennials and 12 percent of Gen Z adults will be partaking in celebrations for the first time this year.

Gen Z adults are most likely to post about it on social media, at 52 percent, and more surprisingly, Gen Xers are more likely to share on social media than Millennials, at 46 percent and 42 percent, respectively. Forty-seven percent of women report they’ll probably share about their 4/20 plans on social media, while only 42 percent of men will.

The trend of women being more forthcoming about their cannabis use also held true where their family and friends are concerned. They’re a bit more open than men when speaking about cannabis consumption, at 96 percent versus 95 percent. Almost all of the adults surveyed—99 percent—have shared about their use with friends, but they’re not as open with family members. Forty-seven percent of parents have told their children, with mothers being more likely to tell them than fathers, 61 percent to fathers’ 37 percent.

Seventy-two percent of adults reported that they’ve told their parents about their cannabis use. Baby Boomers are most likely to tell their parents, at 79 percent. The numbers went down with age: 75 percent of Gen Xers, 72 percent of Millennials and 67 percent of Gen Z adults have been open about their cannabis use with their parents. A quarter of people surveyed reported that they’ve used cannabis with a family member for the first time since its legalization.

Legalization has made it easier to talk to others about their cannabis consumption, according to 52 percent of respondents. Thirty-eight percent of women cited family concerns as the reason they’re not open about their use, 35 percent said career concerns and 32 percent stated medical privacy. Family concerns were the reason 62 percent of men are hesitant to speak about their use, and 68 percent said medical privacy.

Sixty-five percent of men reported career concerns prevent them from speaking freely about their cannabis use, yet they’re more open about their use with their colleagues and their supervisors than women tend to be. Baby Boomers are less likely than Gen Z adults to share their cannabis consumption with their boss, but only by a small margin, 31 percent versus 33 percent. Gen Xers were most likely at 40 percent, and Millennials were at 39 percent.

On the medical front, 70 percent of those surveyed have a friend or family member who’s benefitted from medical cannabis. This has helped 96 percent of them become more open with others about their own personal use.

 


StaffStaffApril 9, 2018
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3min32660

Palo Alto-based cannabis-infused edibles brand Plus Products closed an approximately $6M in Series B financing to expand its operations. The financing was led by Serruya Private Equity Partners (SPE) and Navy Capital Green Fund LP. The money from the capital raise will be used to fund rapid production capacity expansion, factory automation, working capital, and new product development.

“We are extremely proud of the products PLUS has brought to market,” said Jake Heimark, CEO, and co-founder. “We’ve quickly grown into one of the leading edible brands in California. With the proceeds of this round, we will continue to further our mission: to make cannabis safe and approachable for all types of consumers.”

Edibles have proven to be big winners among the recreational consumer in California. According to BDS Analytics, edible products have accounted for 18% of marijuana retail sales in February 2018 across licensed retailers in California. One of the biggest drawbacks with edibles is that consumers typically wait at least for a half hour for a response after ingestion. PLUS products are known for its rapid reaction. BDS Analytics also noted that PLUS ranked in the top ten sales for edible brands in California.

All of the PLUS products are produced in the company’s dedicated food-safe cannabis manufacturing facility in Adelanto, California. According to a company statement, the 12,000 square foot facility was outfitted for scalable food production with funds raised in 2017’s Series A round, led by The Green Organic Fund and Verde Mountain Fund.

“2018 is a historic year for California’s cannabis industry with the official launch of legalized adult use,” said John T. Kaden, Manager and Chief Investment Officer of the Navy Capital Green Fund. “PLUS is establishing a leading position in California and has assembled the right management team to execute and succeed in this complex regulated environment.”

In addition to its established lines, Plus Products has already begun launching limited edition products that capitalize on holidays like its Valentine’s day themed Rose & Vanilla gummies, which were available at select locations and through delivery services.


Debra BorchardtDebra BorchardtMarch 21, 2018
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6min16660

A new report suggests that the California cannabis market growth may be slowed due to heavy taxes and restrictive regulations. “California: The Golden Opportunity” written by Arcview Market Research in partnership with BDS Analytics writes that even the state’s revenue gains could be affected by the onerous tax and regulatory burdens that will drive consumers to the black market – exactly the opposite of what authorities wanted.

The report stated that the taxes and regulations amount to a 77% handicap versus the prices in the illicit market. California already had high sales taxes and now that is compounded by new cultivation and excise taxes. In addition to that, cannabis businesses are subject to the costs of navigating 40+ different types of state licenses. All of these costs ultimately trickle down to the consumer.

“While California cannabis companies are thrilled with the traffic increase they’ve seen since January 1 they can’t help but worry that regulations and taxes are going to handicap the legal market in the long term,” said Troy Dayton, CEO of the Arcview Group. “It’s clear that every additional penny of a price increase on legal cannabis products only serves to boost the attractiveness of purchasing from the illicit market which has flourished in the state for decades.”

To get an idea of how pervasive the black market is in California, the State Department of Food and Agriculture reported that cannabis cultivators (both legal & illegal) grew 13.5 million pounds of flower in 2016. However, residents only consumed 2.5 million and the rest was diverted to the black market. The bad players have little incentive to abide by the law because as part of the legalization process, punishment for breaking drugs laws have been lightened.

The report said that long-time illicit market customers were shocked when they saw the prices in legal dispensaries. Around 50% of California consumers surveyed in BDS Analytics’ “Public Attitudes and Actions Toward Legal Cannabis” reported buying cannabis from a friend, family member, or acquaintance. This market is big and very much ingrained in the state. Meaning there will be stiff competition between the legal and illegal businesses.

That competition isn’t helped when the legal operators are forking over higher taxes than in Colorado and Oregon with local municipalities adding their own taxes on top. A hypothetical $1,400 pound of cannabis effectively ends up costing $4,054 at retail and puts cannabis businesses at a serious disadvantage to the illicit players who have little overhead costs.

Ultimately the state could be cutting off its nose to spite its face with the extra regulatory and tax burdens. States have mostly legalized recreational marijuana so that they can reap the benefits of huge tax receipts. Cannabis sales in California are expected to hit $3 billion in 2018 larger than the states of Colorado, Oregon and Washington combined. The tax revenue is expected to exceed $649 million in 2018, so this is a significant source of income that the state will want to protect and grow.

While the numbers seem generous, they could be even bigger. The report notes that its forecast puts sales at $7.7 billion by 2021. “That sounds like a lot of growth, and it is, but the forecast is conservative compared to the post-adult-use legalization growth seen in other states. During the first three years (from 2017 through 2020), California’s market will increase at a compound annual growth rate (CAGR) of just under 29%—versus the 84% seen in Washington, 57% in Oregon, and 56% in Colorado during the first three years of adult-use in those states.” Still, the authors believe the politicians will be willing to make adjustments to ensure the success of the program.

“Rarely does a 20-year-old market undergo as radical a transformation in as short a time as California’s cannabis market did on January 1st of this year,” said Tom Adams, Editor-in-Chief at Arcview Market Research and Principal Analyst at BDS Analytics. “Suddenly, 29 million adults had access to the cornucopia of the modern cannabis store but were also suffering sticker shock from the state-imposed costs of going legal.”

On a positive note, the authors of the report believe that medical patients will be excited to see a new range of products available to them in the legal market. They also think that long-time black market consumers will find that the quality of the legal products is better and the options in the legal dispensaries more plentiful. Plus, there will be many consumers who did not want to engage in the illegal market, but now will be comfortable entering a legal dispensary.

In addition to the analysis of the illegal market, the report does a deep dive into all of the complicated regulations affecting the businesses, plus an exhaustive review of the various regions and counties.  It delves into the conflict of the inner state areas not wanting to be a part of the cannabis industry versus the coastal areas that seem to be all in.

 


William SumnerWilliam SumnerFebruary 27, 2018
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4min15440

Part Four of a Four-part Series

The California Growers Association (CGA) believes that the California cannabis market is on the verge of a crisis. In a recently released report, the organization, which represents more than 1,100 small and independent cannabis businesses, details a litany of issues facing the California market; including the sobering statistic that less than 1% of the state’s cannabis cultivators are licensed.

So where do we go from here? How does California help stem the tide of this emerging crisis? In the fourth and final part of our four-part series, Green Marker Report will take you through the 36-page CGA report and break down some of the solutions it puts forward to fix California’s cannabis market.

If you missed the previous part, you can click here to view Part One, Part Two, and Part Three.

Of the many suggestions put forward in the report, the first and foremost is to eliminate emergency regulations passed by the state Department of Food and Agriculture which allows the unlimited stacking of 1-acre cannabis cultivation licenses. Opponents of the emergency regulation say that the rule violates the spirit and the letter of Proposition 64, which places a five year moratorium on large-scale cultivation, by allowing well-funded cannabis operations to essentially create mega-grows using a combination of small-scale cultivation licenses.

In addition to eliminating loopholes that favor large cannabis businesses, the CGA also suggests a total of 51 policy changes on the state and local; including the following

  • Allow smaller cannabis businesses to adjust to new regulation by creating tiered timelines for compliance.
  • Establish a temporary sales license enabling cannabis cultivators to sell directly to consumer through special event like Farmers’ Markets.
  • Remove premise requirements for cannabis transportation businesses.
  • Allow transportation businesses to reside at the same premises of another cannabis business
  • Reduce testing costs by allowing the compositing of multiple cannabis strains into a single testing batch and by reducing the number of batches required for testing.
  • Allow microbusiness license holders to operate at multiple premises for various purposes
  • Create a revolving loan fund for small cannabis businesses
  • Lower the excise tax rate
  • Streamline the cannabis tax collection process
  • Make compassionate use donations tax exempt.
  • Replace the cottage outdoor cultivation grow limit of 25 plants with a cultivation space limitation of 2,500 square feet.

Overall, the policy suggestions are aimed at reducing barriers for small, cottage, and specialty cannabis businesses; which the CGA characterizes as a “practical, economic, and moral imperative.” Noting that list of suggested policy changes was nowhere near comprehensive, the CGA hopes that it will serve as starting point for a wider discussion of cannabis regulation and encourages all concerned parties wishing to provide feedback to contact policy@cagrowers.org.


William SumnerWilliam SumnerFebruary 26, 2018
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7min11060

Part Three of a Four-part series.

California’s cannabis market is on the verge of a crisis, according to a new report released by the California Growers Association (CGA), which represents more than 1,100 small and independent cannabis businesses.

According to the report, less than one percent of California’s cannabis cultivators are licensed by the state; leading many to ask: Why? What is it that is keeping cannabis cultivators out of California’s legal cannabis market? In part three of this four-part series, Green Market Report will examine the cultural and financial barriers that are keeping cultivators out of the market, as outlined by the recent CGA report.

If you’ve missed the previous parts, you can click here to view Part One and Part Two and get caught up.

Financial

The cannabis industry’s lack of adequate banking services has been well reported on. But what has slipped through the cracks are the other financial barriers that keep small to midsize cannabis cultivators out of the legal market; such as the lack of small business loans.

The single greatest barrier keeping cultivators out of the legal market, according to a survey of CGA members, is taxation. Due to the federal status of cannabis, most cannabis businesses cannot take standard deductions for business expenses like other industries have.

In many cases, this has the effect of creating an unreasonable tax burden on small to midsize cultivators; with some paying an effective federal tax rate as high as 60%. Additionally, state and local taxes have also proved to be burdensome for small-scale operators.

Many local governments have passed “gross receipt taxes” which are assessed at each step in the supply chain. More often than naught, theses taxes compound each other; turning a modest 5% into a cumulative 25% by the time it reaches the supply chain.

The CGA estimates that the effective tax rate for cannabis cultivators in California can range between 40%-60%, compared to states like Oregon where the effective tax rate is 18%. While larger operators can bear the brunt of this tax rate, many small businesses cannot.

Additionally, inefficiencies in tax collection can incur more unnecessary costs. Once a harvest leaves the cannabis producer, the cultivation tax is required to follow the harvest throughout the supply chain. In situations where a cultivator is directly supplying a retailer, this is not a problem.

However, this is often not the reality. Typically a harvest will pass through multiple points in the supply chain before reaching retailers. If the cannabis industry was not a cash-only business, this would not be a problem, but it’s not. Because of federal, cannabis businesses must physically move the cultivation tax through each point in the supply chain; creating a logistical and security nightmare.

Furthermore, cannabis cultivators must pay taxes on their harvest as soon as it moves through the supply chain; without any consideration of whether it will actually reach the market. The end result is cannabis cultivators having to pay their taxes before the even receive that money that’s actually being taxed.

Another financial burden is the lack of access to small business loans. While large-scale operations with deep-pocketed investors can get by without access to business, small-scale cultivators cannot.

Culture

Another barrier contributing to the small number of licensed cannabis cultivators is the culture in California. Approximately 20% of CGA members have been growing for more than two decades and well before medical cannabis was legal in California. These former outlaws have a deep seeded mistrust of the state and federal government and are reluctant to embrace state regulations. Conversely, many in state and local governments operate under incorrect assumptions and stereotypes about cannabis and consequently legislate accordingly.

The CGA also estimates that approximately 30% of the state’s cannabis cultivators operated “off the grid,” where electricity and broadband access is limited. The end result is that many cannabis cultivators that want to come into compliance simply can’t because they lack these basic resources.

While not necessarily an institutional barrier, some cannabis cultivators are simply not good at business. With a gossamer of state and local regulations, many small to midsize cannabis cultivators become overwhelmed by all of it and simply need more time to absorb the new rules.

The final and some would say most regrettable barrier to bringing cultivators into the market is that they simply don’t want to.

Some cultivators may be operating on public lands while others just have a general disrespect for the law. The side effect of this disregard for the law is that those that interested in becoming compliant are treated the same as those that don’t, and the CGA encourages the state to do all it can in provide a path to legality for cultivators acting in good faith.

Stay Tuned for Part 4

The greater question remains of how to address all of the other institutional, financial, and cultural barriers preventing cultivators from entering the market. Where do we go from here? What should be done? In the fourth and final part of our series, Green Market Report will examine the solutions put forward by the CGA to fix this emerging crisis.



About Us

The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


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