California Cannabis Market

California Cannabis Market Overview – 2025 Market Size and Growth

California remains the largest legal cannabis market in the United States. In 2023, the market was valued at approximately $5.37 billion and is projected to grow steadily, with a compound annual growth rate approaching 10% through 2030. Retail sales in 2024 reached an estimated $4.66 billion, representing a significant share of total U.S. cannabis revenue. Licensed cannabis production increased by nearly 12% year over year, reaching 1.4 million pounds.

Despite growth in the legal sector, the illicit market continues to dominate overall cannabis consumption in California. Licensed sales accounted for approximately 38% of total use, while estimates place the illicit share at around 60%. Unlicensed production vastly outpaces legal output, with more than 11 million pounds of cannabis believed to be produced outside the regulated system, much of it exported out of state.

Retail cannabis prices have continued to decline, with the average item priced at $19.21 as of early 2025, down from $20.61 the year prior. Wholesale prices have also dropped significantly, with outdoor-grown cannabis seeing a reduction of over 70% from its peak. The market is facing increased cost pressures, and an upcoming cannabis excise tax hike from 15% to 19% scheduled for July 2025 is expected to place additional strain on legal businesses, potentially widening the gap between legal and illicit operators.

Beginning January 1, 2025, new legislation permits cannabis lounges and dispensaries to serve non-psychoactive food and drinks and host live entertainment. This move is intended to enhance consumer experiences and draw more users into the legal market. Product diversification has also played a role in market dynamics. For example, edibles featuring cannabinol (CBN), a compound marketed as a sleep aid, have gained significant traction, now making up a substantial portion of edible sales.

The industry continues to struggle with product safety and regulatory integrity. Investigations have shown that some products contain pesticide levels exceeding legal limits, and there have been credible allegations of lab fraud, including inflated THC potency numbers and falsified test results. These issues have led to legal challenges against regulatory agencies and raised concerns about consumer trust.

California's legal cannabis industry continues to grow in scale and complexity but faces deep-rooted challenges. Price compression, heavy taxation, and regulatory gaps have hindered the ability of legal businesses to compete with the illicit market. However, efforts such as expanding legal consumption settings and innovating product offerings show promise in attracting a broader consumer base. Continued focus on regulatory reform, tax policy, and market enforcement will be essential for stabilizing and legitimizing the sector.