Cannabis businesses are having a rough year in more mature markets such as Colorado and California. States are making less money, dispensaries are shutting their doors and workers are being laid off as doom-and-gloomers herald the end of the Green Rush. As marijuana sales continue to bloom in the Land of Enchantment, New Mexico is uniquely positioned to take notes on the misfortunes of other states and avoid their mistakes.
In Colorado, dispensaries that have held their place for more than a decade are closing their doors and shuttering their windows, leaving business owners and advocates scratching their heads. In California, dispensaries are shutting down with debts intact, leaving distributors empty-handed and in a hole.
In 2020, Colorado dispensaries raked in a whopping $2.2 billion. But by 2023, sales had plummeted to $1.5 billion. The state received $274 million in marijuana taxes in 2023 — down more than 15% from 2022 and more than 35% from 2021.
Towns along Colorado’s southern border have lost as much as 50% of their cannabis revenue after New Mexico legalized weed. Not only did they lose their New Mexican customers, they also lost out-of-state customers who were attracted to the higher personal possession and THC limits found in New Mexico.
In California, recreational pot sales started in 2018 and steadily rose for three years before peaking in 2021 with around $482 million in sales in April 2024. They’ve been following a downward trend since then, and now thousands of weed businesses have shut their doors for good. In December 2023, the state made $420.9 million in weed sales.
According to The Mercury News, the number of licensed producers and brands has dropped by 70% since 2018. Green Market Report found that the state of California is still owed $732 million in back taxes that will never be paid because the companies that owe have gone under.
“We should be learning, from what’s happening around us more than anything at this point,” says Matt Kennicott, CEO and co-founder of cannabis industry association The Plug. “We’re still a pretty new market. We’re maturing quickly, but there’s still a lot of growing up to do. We are starting to see some of the bad getting sorted out from the good, so that’s helping.”
Kennicott says there are a number of lessons to be learned from the unfortunate crashes that our neighbors are experiencing. He says that legislating a cap on the state’s cannabis excise tax — which is set to rise from 12% to 18% by 2030 — would be one way of ensuring that consumers don’t go back to buying weed from black market sources and maintain purchasing power.
“I really think we need to nip the illicit market in the bud as fast as possible,” Kennicott says.
He says legislators need to give the state’s Cannabis Control Division more authority to punish bad actors while balancing regulations with the needs of business owners.
“Striking a balance in the regulatory environment is very important,” he says. “That’s one area where California has really, quite frankly, done a very poor job. They over-regulate their industry immensely.”
But Kennicott says the most important thing that retailers can learn from the misfortunes of Colorado and California is to pause before declaring a price war.
“The big one is trying to avoid a race to the bottom,” he says. “You have everybody trying to compete with each other and dropping their prices as low as possible. That really deteriorates the entire market — from retail all the way down the chain — because at some point the farms and the growers won’t be able to make any money based on what the retail prices are doing.”
It’s also possible that some of the problems in the other markets had to do with the way businesses responded to the windfall provided by COVID-19 lockdowns. In both Colorado and California (and most of the other legal states in the U.S.), cannabis dispensaries were deemed “essential businesses” and were allowed to stay open while many others were forced to close when states began shutting down in 2020.
While consumer spending in nearly every sector dropped during lockdowns, spending on cannabis went through the roof. This sudden money injection in the industry spurred an increase in business spending and hiring. It also increased the attention that weed companies were getting from private investors.
Kennicott says there’s actually a silver lining to the fact that companies are folding in more mature markets.
“We’ve got a real shortage of labor in just about every industry in New Mexico — especially trained and educated workforce,” he says. “We could potentially see an influx of workers into the cannabis industry that have years of experience and can plug a lot of holes — all the way from cultivation up to retail.”