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

The California Legislature passed and the Governor 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 California cannabis industry is regulated by three state agencies: Bureau of Cannabis Control (distribution, testing, retail and microbusiness), Department of Food and Agriculture (cultivation), Department of Public Health (manufacturing).

Recreational cannabis sales officially began in California and the agency had issued 404 temporary business licenses for cannabis companies as of Jan. 1:

  • 140 medical and 94 adult-use retail licenses
  • 21 medical and 18 adult-use microbusiness licenses
  • 49 medical and 40 adult-use distributor licenses, along with another four medical and five adult-use that are transport-only
  • 12 medical and nine adult-use retail non-storefront retail licenses (for delivery companies)
  • 12 testing labs

New Rules (May 2018)

  • 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.
  • A handful of changes favored by the Growers Association were added, such as expanded water source protection and transportation of immature plants.

California Cannabis Market Projections

  • According to a study by the University of California Agricultural Issues Center (UCAIC), California’s recreational cannabis market could be worth more than $5 billion; however, the benchmark will only be achieved once cannabis consumers fully embrace the state’s legal market.
  • The $2.7 billion legal marijuana sales are expected to grow more than 18 percent annually to hit $5.6 billion by 2020. (Arcview Group)
  • 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.

At year-end 2018, 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 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.

Medical Cannabis

San Francisco County has the highest number of registered patients at 17812, roughly 30% of the state’s total. Marin County is the next highest, at 4841 patients, followed by Alameda (3918), Riverside (3775) and Los Angeles (3609).

Cannabis Sales (million $)

  • 2016
  • 2020

 California’s cannabis industry reported $2,692 million in retail sales via nearly 2,800 dispensaries in 2016, that is 10% more than all other MMJ states combined as of 2016 according to Arcview Market Research. In March of 2017, BDS Analytics began tracking and reporting dispensary sales trends for California’s cannabis industry. Between March and October of 2017, total sales through dispensary and delivery services across the most populous state in the country reached $1.856 billion.

We offer “70% ready to go” Cannabis Financial Models and Cannabis Business Plan Templates for a growing, processing, manufacturing, distribution, retail, testing and vertical integrated cannabis business. Please make a note that you need Californian version and you will get the template tailored cannabis business in California.

Related Post