Marijuana "mother" plants are grouped by each plant's strain April 19, 2019, at Pacific Reserve nursery and cultivation site. The mother plants, all female, are instrumental in creating the clones sold at retail joints. Male plants generally are discarded because they don't produce flower and pollinated female plants don't produce near as much potent flower. Marijuanaseedtosalemalevfemale
Sacramento, California – California’s legal cannabis industry—formerly a shining model for the nation—is showing troubling signs of contraction. According to an analysis of state tax data by SFGATE, taxable sales at licensed cannabis retailers dropped to $1.088 billion in the first quarter of 2025, marking an 11% decline compared to the same period last year. That figure represents the lowest quarterly revenue in five years and the largest year-over-year drop since legal sales began in 2018.
Tamma Adamek, spokesperson for the California Department of Tax and Fee Administration, acknowledged the data but cautioned that comparisons across time can be misleading. Tax figures, she said, are continuously updated as more retailers report their earnings. “We know that the gap will shrink,” Adamek noted, though she did not provide projections for future revisions.
Still, the broader trend has proven challenging to ignore. Industry experts have long warned that a combination of heavy regulation, high taxes, and aggressive competition from a still-thriving gray market is choking California’s legal cannabis market. While legalization brought unprecedented opportunity and legitimacy to cannabis entrepreneurs, it also introduced a byzantine compliance system that many say has stifled innovation and undercut profitability.
The scope of the problem is significant. A report commissioned by the California Department of Cannabis Control earlier this year found that licensed retailers supplied just 38% of the cannabis consumed in the state in 2024. The remainder was provided by unlicensed sellers—many of whom operate openly and sell tax-free products, often at prices that legal operators cannot match.
State officials have downplayed concerns of decline, emphasizing instead that sales volume and production capacity continue to grow. The DCC has argued that falling prices—not shrinking demand—are responsible for the drop in revenue.
Hirsh Jain, a cannabis consultant based in Los Angeles, dismissed the state’s optimism. “It’s the train wreck that keeps getting worse, but those running the train refuse to admit it,” Jain told SFGATE, describing the DCC’s claims that the market is expanding as “becoming more and more laughable.”
Thousands of cannabis businesses have already closed their doors across the state, and more turbulence may be on the way. On July 1, California’s cannabis excise tax is scheduled to increase from 15% to 19%, the result of legislation signed by Governor Gavin Newsom three years ago. The governor’s administration acknowledges the tax hike will likely further dampen sales. In a March analysis, the Legislative Analyst’s Office predicted the increase could reduce pre-tax legal sales by approximately 6%.
San Francisco Assemblymember Matt Haney has introduced legislation aimed at halting the tax hike. His bill passed the Assembly unanimously this week, reflecting bipartisan concern over the future of the industry. The measure now awaits consideration by the Senate and, if approved, a signature from Governor Newsom.
California’s slipping market share is not just a local concern—it’s become a national benchmark. For the first time, Michigan has surpassed California in total legal cannabis sales, according to data from the analytics firm BDSA. In March, Michigan retailers sold 22 million cannabis products, compared to California’s 21.3 million.
