Bay Area Cannabis shops are closing as pot sales slump
California’s legal cannabis market continues to descend into financial turmoil, according to the latest annual tax figures released this week.
The total market is shrinking in size, according to state-released data, and additional tax information obtained by SFGATE shows hundreds of pot stores are at risk of going out of business.
California’s pot shops sold goods worth a total of $5.1 billion in 2023, down for the second year in a row and nearly 11% less than what was sold in 2021, according to the California Department of Tax and Fee Administration.
The latest figures show that California’s legal market is significantly smaller than what analysts estimated it would be prior to legalization. The economic fallout in the pot industry isn’t because Californians aren’t buying cannabis; it’s because people are still buying it at illegal stores. Illicit pot shops continue to thrive across the state, enticing customers with cheaper tax-free cannabis and undercutting the legal market in the process.
In fact, California’s legal pot industry has a shockingly small cannabis market by at least one measure. The state has the lowest per capita sales of any cannabis market that’s been operating for at least three years, according to Hirsh Jain, a cannabis consultant based in Los Angeles.
“If California’s legal market was simply performing on par with Michigan’s or Montana’s, it would be generating a staggering $13 billion in annual sales,” Jain wrote in a Marijuana Moment editorial published this week. That’s approximately $8 billion in lost state revenue, thanks to California’s inability to bring all of the state’s pot customers into legal stores.
With legal pot sales dropping, pot stores are now struggling to stay in business. Already, several Bay Area pot shops are going out of business, and hundreds more across the state are at risk of closure.
The number of tax liabilities owed by pot retailers to the state increased from 265 in May of last year to 386 as of Feb. 6, according to data shared by CDTFA. An agency spokesperson said one store could have multiple liabilities, so there may be fewer than 386 stores that are behind on taxes, but the overall number does appear to be increasing. These stores are now facing a 50% penalty on their owed taxes, which could be a fatal blow to many pot shops.
