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Legal pot to be $5 billion business in California: study

The Hill logo The Hill 6/16/2017 Reid Wilson

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Video by CBS Sacramento

Legal marijuana sales are projected to add billions of dollars and attract thousands of new tourists to California in coming years, according to a new study commissioned by the state regulatory agency tasked with overseeing the beginnings of the new recreational pot market.

The analysis, conducted by the University of California Agricultural Issues Center at UC-Davis, estimated that recreational marijuana sales will command about 60 percent of the state's pot market - accounting for about $5 billion in annual sales.

California voters in 2016 ratified a state ballot initiative to make marijuana legal for recreational use. The state will join four others - Oregon, Washington, Colorado and Alaska - where recreational marijuana is already legal. Voters in Nevada, Massachusetts and Maine also approved legalization initiatives in 2016.

California's pot market would almost immediately become the largest in the nation. Washington and Colorado, the first two states to legalize marijuana, surpassed $1 billion in annual sales this year.

Medical marijuana sales brought in about $2 billion in California last year. Researchers estimated that the illegal pot market in California accounted for another $5.7 billion, or about three-quarters of all marijuana sales in the state.

Both medical marijuana sales and illegal sales are projected to drop precipitously once recreational marijuana becomes legal. Researchers estimate medical sales will drop up to 70 percent, while black market sales will plunge by more than half.

But confusion and simple habit is still likely to leave an opening for illegal marijuana sales. In the first year of legalization, researchers estimated that about 30 percent of total sales would still take place outside the legal system.

In an interview in January, state marijuana regulator Lori Ajax told The Hill her agency was working to eliminate those black market sales, in part by bringing the medical and recreational marijuana systems into harmony.

"We want them to get into the regulated market. That's why we're doing it," Ajax said. "The last thing we want to do is, as we're trying to get people to come into the regulated market, is we don't want to make it so confusing that they're not sure what they can do under" medical and recreational systems.

Legal pot to be $5 billion business in California: study© Provided by The Hill Legal pot to be $5 billion business in California: study

Ajax said her agency, the Bureau of Marijuana Control, would be ready to issue recreational sales licenses by the beginning of next year.

Kevin Sabet, president of Smart Approaches to Marijuana, which opposes marijuana legalization, said he was concerned that the new legal market would not do enough to undercut illegal sales.

"No proposal will get rid of the underground market for marijuana in California, even if the campaign promises said they would," Sabet said. "We have seen this in other states too, that the legal market is easily undercut by the well-established underground market. This is unsurprising, and it is just one more unrealized promise from the marijuana industry."

The legal market will be a boon to state tax coffers. Previous estimates of tax revenue generated by legal marijuana sales have ranged from $770 million to more than $1 billion annually.

Recreational marijuana would face a 15 percent excise tax in the state when it becomes legal next year, on top of the state's 8.8 percent sales tax.

Researchers said they expected demand for marijuana to rise when the legalization market opens for business next year, both because of new interest from California residents and from tourists coming from out of state.

About 14 percent of California residents age 12 and older said they had used cannabis within the last month, according to the National Survey on Drug Use and Health. People between the ages of 18 and 25 are the most likely to have used pot recently; more than one in five Californians in that age range said they had consumed marijuana within the last month, and more than a third had done so within the last year.

Tourists are likely to make up a significant portion of the new marijuana industry. Tourists spent $7.2 billion on the California wine industry in 2015, according to the Wine Institute, an industry trade group.

"Demand for new forms of leisure spending by tourists and other visitors to California is potentially large," the study's authors wrote. "Given that adult-use cannabis remains illegal in most other states, California's legalized adult-use industry may attract some new visitors whose primary reason for visiting the state is cannabis tourism."

The authors cited Colorado, where just under 10 percent of tourists surveyed in a state-funded study said they had chosen to visit specifically because of the marijuana industry.

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