California’s pot growers are on a “painful downsizing curve,” says industry head

A leader in California’s burgeoning marijuana industry says that due to state regulations coming into play next year, pot growers will be banned from exporting outside of the state, leaving producers with a glut of too much weed and nowhere to sell it.

“We are producing too much,” said Hezekiah Allen, executive director of the California Growers’ Association at a Sacramento Press Club event this week, according to a report in the Los Angeles Times. “[State growers] are going to have to scale back. We are on a painful downsizing curve,” says Allen.

Estimates are that California’s pot production is more than five times larger than the state’s consumption, meaning that under the new regulations, state growers will be losing out on a major outside market.

California residents voted last November to become one of now eight states to legalize the recreational use of marijuana, with legislative and regulatory changes expected to come into effect next January.

A study released last month by the University of California Agricultural Issues Center concluded that once underway, the legal pot industry in the state will be worth $5 billion USD. Current estimates have California’s medical marijuana sales at $2 billion, while the illegal market is said to be about $5.7 billion.

The study estimated that 1,200 new jobs will be created to handle testing and distribution in the new recreational use market, which is expected to cut into medical cannabis sales, reducing them to $600 million. Researchers say there’s a precedent for the drop in medical sales. “Revenues for medical cannabis in Washington state, for instance, fell by one-third in the first year after the legal adult-use cannabis system took effect, and by more subsequently,” say the study’s authors.

The study predicts that, initially, 29 per cent of cannabis consumers may stay in the illegal market, in order to avoid the new regulations on testing and the extra cost, which include a 15 per cent retail tax. “It’s going to take some time,” said Lori Ajax, director of the state Bureau of Marijuana Control, which provided funding for the study. “While it’s unlikely that everyone will come into the regulated market on Day One, we plan to continue working with stakeholders as we move forward to increase participation over time.”

Meanwhile, Canada’s legalization of recreational marijuana use is expected to be dealing with the opposite conundrum when it comes into effect next July: too little product.

Experts are warning that Canadian suppliers will be facing a major supply shortage next year, arguing that the industry and its licensed producers haven’t yet scaled up to the production levels needed to meet the projected demand.

“There won’t be 14,000 (marijuana) stores on Day 1,” says Bruce Linton, CEO of cannabis company, Canopy Growth Corp., to the Ottawa Citizen. “For some period of time, I expect there will be more people who will want to buy cannabis than can access cannabis.”

A Deloitte report released last fall estimated the base retail market for recreational pot to potentially reach $8.7 billion CDN, which would be close to the size of the Canadian spirits market at $5 billion. Adding in ancillary services, the report said the new industry could be worth $22.6 billion in total.

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