California’s legal cannabis market just took a hard hit. Licensed retailers sold $3.9 billion worth of products in 2025, down from $4.2 billion the year before. This marks the third year in a row of falling sales in the nation’s biggest weed market, sparking worries about the industry’s future.
State data from the Department of Tax and Fee Administration paints a clear picture of trouble. The $3.9 billion total for 2025 represents a 7 percent slide from 2024’s $4.2 billion. Back in 2023, sales topped $4.4 billion, showing a steady downward trend.
This drop affects everyone from small shop owners to big growers. Early in the year, first-quarter sales hit just $1.09 billion, the lowest since 2020. By the third quarter, numbers dipped under $940 million, even as demand seemed stable in some areas.
Experts point to broader patterns. Across the U.S., cannabis sales grew to $23.9 billion for adult use in 2025, but California bucked the trend. Local prices held around $18.56 per item by early 2026, down a bit from $19.13 at the start of 2025.
One sentence sums it up: The market feels the pinch.
Taxes Climb as Sales Tumble
Higher taxes played a big role in pushing buyers away. Starting July 1, 2025, the state raised the cannabis excise tax from 15 percent to 19 percent of gross receipts. This change aimed to boost revenue but instead squeezed retailers hard.
The tax hike came at a bad time, right when sales were already softening. State officials collected $502.8 million in cannabis taxes during the first half of 2025, up from prior years but tied to shrinking volumes. By the third quarter, tax revenue reached $283.7 million, funding programs like youth education and public health.
Retailers say the extra costs make it tough to compete. Prices for products fell due to oversupply, with wholesale rates dropping since late 2020. Growers harvested more than the market could handle, flooding shelves and driving down profits.
Background shows this built over years. Legal sales peaked at over $5 billion in 2021, but declines started soon after. The state tried to adjust, but the formula based on average prices often led to unexpected jumps.
Black Market Thrives Amid Legal Struggles
The illegal cannabis trade keeps stealing market share. California authorities seized a record amount of illicit products in 2025, valued at over $1.2 billion. This underground economy offers cheaper options without taxes or strict rules.
Legal businesses lose out as buyers turn to street dealers for deals. Experts estimate the black market captures up to 70 percent of total sales in the state. Strict regulations, like testing and labeling, add costs that illegal sellers skip.
Here are main reasons the illicit side wins:
- Lower prices: No taxes mean deals up to 50 percent off.
- Easy access: Pop-up shops and online sales ignore licensing.
- Less oversight: No quality checks, appealing to some risk-takers.
One report from early 2025 highlighted how this hurts licensed operations. A study by the Senate Budget Committee noted declining wholesale prices and retail revenues since 2020. It called the situation a “complete failure” in some areas, with farms closing left and right.
Ventura County saw similar issues, with legal sales stagnating. The trend spread statewide, from Los Angeles to rural spots.
| Year | Total Sales ($ Billion) | Change from Previous Year |
|---|---|---|
| 2023 | 4.4 | – |
| 2024 | 4.2 | -4.5% |
| 2025 | 3.9 | -7.1% |
This table tracks the steady fall, based on state reports.
Industry Faces Closures and Job Losses
The sales drop hits hard on the ground. Many small businesses shut down, unable to cover rising costs. Consolidation grows as bigger players buy out strugglers, but even they feel the strain.
Thousands of jobs vanished in 2025, adding to California’s economic woes. The state lost 11,000 nonfarm jobs overall last year, with cannabis playing a part. Dispensary owners report profitability below 30 percent, forcing cuts.
Workers in cultivation and retail bear the brunt. A February 2026 report on cultivation insights showed farms scaling back operations. Yields per square foot dropped as operators faced power bills and compliance fees.
Hope flickers in innovation. Some firms pivot to pre-rolls, which made up 43 percent of sales but saw a 10.9 percent dip. Others push edibles or topicals to draw new customers.
This affects everyday people too. Higher prices mean families pay more for medical cannabis. Communities lose tax dollars that could fix roads or schools.
Looking Ahead: Paths to Recovery
Reform talks heat up for 2026. Lawmakers eye suspending tax hikes if sales keep falling. Bills like AB 564 propose dropping the rate back to 15 percent until 2028.
Federal changes could help, but state fixes come first. Experts urge cracking down harder on illegal grows and easing banking rules. Without action, the market risks more closures.
Positive signs emerge. U.S. total THC sales hit $96.5 billion in 2025, showing demand exists. California could rebound with better policies.
Personal stories add heart. One grower shared how years of hard work faded amid the slump. Yet, many stay optimistic, betting on education to shift consumers back to legal channels.
As this chapter closes on a tough year, the cannabis world in California hangs in balance. The decline underscores bigger issues like overregulation and competition, but it also sparks calls for change that could lead to a healthier market.