CALIFORNIA’S LEGAL cannabis market is feeling the strain of a changing economy, as state data shows a sharp revenue decline in the first quarter of 2025, despite consumers purchasing more product overall.
Licensed dispensaries and retailers reported $1.08 billion in sales from January through March, the lowest first-quarter total since 2020 and down 11% from the $1.2 billion posted during the same period last year, according to the state’s Department of Cannabis Control. Despite the falling revenue, the number of products sold rose slightly to 57.4 million units, up nearly 1% year over year.
For cannabis operators, the message is clear: Consumers aren’t walking away from legal cannabis, but they’re increasingly gravitating toward budget-friendly options. This trend underscores a deeper challenge in California’s maturing cannabis market¬: Rising unit volume is no longer translating into revenue growth
Margins under pressure as prices fall
The growth in product volume alongside declining revenue points to shrinking average transaction values. Consumers are likely choosing less expensive products, which may include lower-grade flower, economy pre-rolls or value-brand vape cartridges.
At the same time, retail prices across all cultivation types — indoor, mixed-light and outdoor — have plummeted from their pandemic-era highs. Industry reports show wholesale prices have fallen as much as 70% from 2020 levels, a drop that continues to ripple through the supply chain.
Retailers, distributors and brands now face a margin crunch that threatens long-term sustainability as they sell more products but do so at minimal margins and sometimes at a loss.
Pandemic boom ends
Much of today’s turbulence can be traced to a misalignment of expectations formed during the COVID-19 pandemic. As cannabis retailers were deemed essential businesses and allowed to stay open during broader shutdowns, sales surged.
As a result, many businesses expanded operations or raised capital based on inflated projections.
But the post-pandemic economy has cooled, and the stimulus-fueled spending that once drove growth has dried up.
Excise tax hike may be averted
A looming July 1 tax hike on cannabis products in California may be averted after the state Assembly on June 2 voted 72-0 to freeze a scheduled increase from 15% to 19%. The tax increase would be delayed until 2030 under the measure.
The state Legislative Analyst’s Office has predicted that allowing the excise tax rate to jump to 19% would reduce size the overall market. The bill now goes to the state Senate.