Legal Update - Market Downturn

Through participating in the ever-evolving commercial cannabis industry, operators have weathered many storms from over regulation, to over taxation, to licensing pitfalls - just to name a few. But what the industry has not experienced thus far is this current catastrophic drop in the market that is making it near impossible for growers to sell flower, and if they do, sell it for any sort of a reasonable price that would allow them to break even. Prices in the wholesale market have fallen in California more than 60% since this past June. Apparently, the drop in sales is affecting mostly outdoor and mixed light cultivators and though some indoor markets have slowed down, the drastic drop in sale prices has not affected these operators as significantly.

The market downturn can be attributed to many factors, but the over supply of product is mainly the driving force. It is reported the market is flooded and there are still many cultivation licenses in the queue that have not been issued. Also being reported is that California cultivators produce more than three times the amount of flower product sold in cannabis retail stores and there is not the demand for flower there was last year during COVID lockdowns.

All in all, whatever the driving forces may be, this is going to have a lasting effect on our local economy. Not only can our growers not sell the bulk of their product, what they can sell is barely making enough money to cover the costs of production. The costs associated with doing business both locally and at the state level continue to rise. Most concerning to the local industry is that the County’s cannabis tax structure does not take into account whether the operators are selling the product. Cannabis cultivators are responsible for their square footage tax allocation regardless of whether or not they sold the commodity. They are essentially pre-paying taxes on goods not yet sold, and for some, on goods that are never sold.

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