Cannabis Legalization

California pioneered the modern cannabis policy reform movement in 1996 when voters passed Proposition 215, the Compassionate Care Act. State voters approved Proposition 215, the law that made it legal for doctors to recommend cannabis to patients.

In 2015 Gov. Jerry Brown signed three bills that toughened regulations for medical cannabis businesses and sought standards for documentation and testing. The bills are known as the Medical Marijuana Regulation and Safety Act (MMRSA). Collectively, the legislation also paved the way for medical cannabis businesses to turn a profit. The legislation is impacting marijuana business models in other ways. The laws have eliminated the idea of home-based dispensaries. The Act requires licenses for the cultivation, manufacture, distribution, transportation, laboratory testing, and sale of medical cannabis.

Though voters failed to approve adult use in 2010, they voted overwhelmingly in 2016 to make adult use legal in a state that represents the world’s sixth-largest economy.

Recreational Cannabis

On November 8, 2016, California voters have approved cannabis for recreational use.

On June 27, 2017, the legislature passed, and Governor Brown signed into law the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), which creates the general framework for the regulation of both commercial medicinal and adult-use (recreational) cannabis. Under MAUCRSA, the Bureau of Cannabis Control (Bureau) is the lead agency. The Bureau is charged with licensing, regulation, and enforcement of the following types of commercial cannabis businesses: distributors, retailers, microbusinesses, temporary cannabis events, and testing laboratories. The Manufactured Cannabis Safety Branch, a division of the California Department of Public Health (CDPH), is responsible for regulating and licensing manufacturers. CalCannabis Cultivation Licensing, a division of the California Department of Food and Agriculture (CDFA), is responsible for licensing cultivators and implementing the Track-and-Trace system.

On January 1, 2018, the state began issuing licenses for commercial cannabis activity. Additionally, on January 1, 2018, two new cannabis taxes went into efect: a cultivation tax on all harvested cannabis that enters the commercial market and a 15 percent excise tax on the purchase of cannabis and cannabis products.

During the first six months of 2018, the number of granted licenses jumped from 1,272 licenses on January 17th to 6,421 licenses on June 30th. The number of licenses grew during the first six months of 2018:

  • cultivation – 1001%
  • distributor and delivery – 263% and 252%, respectively
  • manufacturing – 175%
  • microbusiness – 160%
  • retail/dispensary – 113%
  • testing licenses – 107%

The state issued more than 8,400 licenses to cannabis-related businesses in 2018.

Laboratory Testing Requirements
  • Untested cannabis goods cannot be sold by a retailer and must be destroyed. A retailer may not send cannabis goods to a distributor for testing.
  • Untested cannabis goods manufactured or harvested before January 1, 2018, in possession of a distributor that are owned by the distributor must be destroyed.
  • Untested cannabis goods manufactured or harvested before January 1, 2018, in the possession of a distributor owned by a manufacturer or cultivator may be returned to the licensee who owns the cannabis goods. If a cultivator or manufacturer chooses to sell the returned cannabis goods, the cannabis goods must be sent to a distributor for testing and must meet all of the testing requirements in effect at the time of testing before transported to a retailer for sale.
Packaging and Labeling Requirements
  • A retailer shall not accept cannabis goods that are not properly packaged and labeled. A retailer shall not package or label cannabis goods, even if the cannabis goods were in inventory before July 1, 2018. However, for medicinal sales, retailers will place a sticker on cannabis goods stating, “FOR MEDICAL USE ONLY” upon sale to a qualified medicinal consumer, unless the statement is already printed on the package.
  • A retailer may not send unpackaged cannabis goods to another licensee for packaging or labeling. Cannabis goods in possession of a retailer that do not meet packaging and labeling requirements must be destroyed.
  • Exit packaging is not required to be child-resistant and can no longer be used to satisfy the child-resistant packaging requirements. All cannabis goods must be in child-resistant packaging prior to delivery to a retailer.
THC Limits

For Edible Cannabis Products

  • Edible cannabis goods may not exceed 10 milligrams of THC per serving and may not exceed 100 milligrams of THC per package.

For Non-edible Cannabis Products

  • Non-edible cannabis products shall not contain more than 1,000 milligrams of THC per package if intended for sale only in the adult-use market.
  • Non-edible cannabis products shall not contain more than 2,000 milligrams of THC per package if intended for sale only in the medicinal market.
Other Requirements
  • The monetary value of product that delivery drivers may carry at any time was increased from $3,000 to $10,000.
  • Drivers must receive orders and stock their vehicles at a physical location before hitting the road to deliver them.
  • Single facilities that house multiple licensees now may utilize the same common areas, such as break rooms and restrooms.
  • Industry-friendly tweaks eliminated unnecessary overlaps for security and testing samples.
  • Expanded water source protection, transportation of immature plants and other changes were added by the Growers Association.

California Cannabis Market Projections

  • By 2022, cannabis market in California is projected to jump to $7.7 billion – boosted significantly by California’s recreational cannabis market that opened for business in 2018. The California cannabis industry’s total economic impact could be nearly $15 billion in the next four years.
  • According to the UCAIC, about 29 percent of cannabis consumers may, at first, stay in the illicit market to avoid the costs of new regulations, which will add 15 percent to retail values.
  • After the state adopts regulations, legal recreational use will make up 61.5 percent of the overall market, illegally purchased marijuana will make up about 29.5 percent of the market and legal medical marijuana use will be about 9 percent of the overall market, the analysis estimated.

Sales from recreational use are projected to account for over half of total Concentrate sales in California and continue to increase in proportion to overall category sales. Medical cannabis sales are expected to decline down to $600 million as people migrate toward the adult-use market to avoid medical cannabis ID fees.


  • Recreational
  • Medical

Cannabis Sales (million $)

  • 2017
  • 2020

 In 2017, California’s regulatory regime allowed only holding state-issued medical cannabis cards to legally purchase cannabis. But that hasn’t stopped sales in the state from eclipsing the other states with recreational sales. California state dispensaries sold $2,757 million worth of cannabis products via nearly 2,800 dispensaries in 2017 compared to $1,129 million in Colorado’s robust cannabis marketplace, $975 million in Washington, and $502 million in Oregon. 

Cannabis Taxes

On November 8, 2016, California voters approved Proposition 64, Control, Regulate and Tax Adult Use of Marijuana Act, which provides:

  • Effective November 9, 2016, certain sales of medical marijuana are exempt from sales and use tax.
  • Effective January 1, 2018, a 15 percent excise tax is imposed upon purchasers of all marijuana and marijuana products. Additionally, a tax on cultivators of marijuana is imposed as follows:
  • $9.25 per dry-weight ounce of marijuana flowers
  • $2.75 per dry-weight ounce of marijuana leaves

Immature plants (including clones) and seeds are excluded from the cultivation tax.

Within the first quarter of calendar year 2018, the cultivation tax generated $1.6 million, the excise tax generated $32 million, and the sales tax generated $27.3 million in revenue, according to the California Department of Tax and Fee Administration.

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