California cannabis market 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.

Cannabis Licensing

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 effect: 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.

As of December 2022, the state’s three licensing authorities have issued 12,060 commercial cannabis licenses to cannabis businesses throughout the state of California, including 7,673 cultivators, 879 manufactures and 1,092 retailers, 487 non-storefront retailers, 1,246 distributors, 383 microbusinesses, 187 transporters, 68 event organizers and 45 testing laboratories.

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.
• If a cultivator or manufacturer chooses to sell their 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. 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.

What cannabis businesses can you start in California?

California Cannabis Market

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. Sales in California represented about 34 percent of legal sales in the United States in 2017.

In 2022, California retail stores sold about $5,279 million worth of cannabis products representing almost 20 percent of legal sales in the United States while combined sales in top five states represented more than 40 percent of U.S. sales.

Since January 2018, the program has totaled over $20.5 billion in sales and $4.6 billion in tax revenue, including $2.3 billion in cannabis excise tax, $1.8 billion in sales tax and $500.4 million in cultivation tax.

Projections

• The California cannabis industry’s total economic impact could be nearly $10 billion.
• It is projected that 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.
• Medical cannabis sales are expected to decline down to $600 million as people migrate toward the adult-use market.

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:

• $10.08 per dry-weight ounce of marijuana flowers
• $3.00 per dry-weight ounce of marijuana leaves

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

Beginning July 1, 2022, the cultivation tax no longer applies to harvested cannabis entering the commercial market.

California Cannabis Market Infographics

Cannabis Cultivation, Extraction, Manufacturing, Distribution and Retail Microbusiness Business Plan Template Sample, California