The BCC (Bureau of Cannabis Control) issued notices to 394 cannabis businesses in California on November 1, per a November 6 Marijuana Business Daily report. These included retailers, distributors, delivery services, and microbusinesses. These businesses are now required to stop their sales operations. They can only resume business after BCC changes the state of their licenses to “active.”
The BCC suspends 407 cannabis businesses
As of the end of November 7, the BCC suspended 407 cannabis business permits in the state. This accounts for almost 5% of the total 7,392 legal cannabis businesses in the state. The suspended entities account for around 10% of the legal cannabis retail shops and 20% of the legal delivery businesses.
BCC is a regulatory agency for California cannabis operations. As reported by Marijuana Business Daily, the BCC is in charge of regulating 2,630 cannabis companies. The CDFA (California Department of Food and Agriculture) is in charge of 3,830 marijuana farmers. The CDPH (California Department of Public Health) watches 932 cannabis manufacturers in the state.
The BCC suspended licenses of businesses that did not complete the mandatory track-and-trace and credentialing requirements. Also, these businesses did not signup and update their inventory data in Metrc’s software. However, businesses can easily comply with the requirements and activate their licenses.
California market offers huge business
Per an ARCVIEW Market Research and BDS Analytics report, spending in California’s legal cannabis market will rise from $3.1 billion in 2019 to $7.2 billion in 2024. According to MedMen, Cowen estimates California’s cannabis market to be $11.0 billion by 2030. Then, the state will account for 15% of the US cannabis industry.
The US Census Bureau estimates the California population to be 40 million. Los Angeles Times estimated the number of tourists visiting the state per year to be 268 million. Also, according to Fortune, California is the fifth biggest economy in the world. The state has evolved as a leading retail market across all product categories in the cannabis industry.
The number of California licensed players declines
However, per a Marijuana Business Daily report, there are fewer licensed cannabis businesses in California in 2019. The number of cultivators dropped by 48% from 5,381 in late 2018 and early 2019 to 2,795 in August 2019. Meanwhile, the number of distributors fell 17% from 1,404 to 1,167. The number of manufacturers dropped by 29% from 1,260 to 891 in the same time frame. Also, the number of retail outlets is down by 7% from 637 to 592. Finally, the number of legal cannabis delivery businesses fell by 14% from 315 to 270. The number of microbusinesses shrunk by 12% from 293 to 258.
This drop in licensed businesses is due to the rising regulatory oversight in the state. California now requires businesses to have state licenses as well as country or local city approvals. The gradual expiration of temporary business licenses and the state’s refusal to extend or issue new licenses from December 31, 2018, further worsened this problem.
The big market opportunity, fewer licensed businesses, and high barriers to entry in terms of regulatory compliance can culminate into solid growth potential for existing players in the state.
Regulators have raised vigilance
Per Marijuana Business Daily, although the CDFA has not yet suspended licenses, it warned 103 cannabis farmers as of October 22. These farmers will have their licenses suspended in case they do not comply with California’s track-and-trace rules. Also, the CDPH suspended 13 manufacturing licenses in the first week of November. This was due to non-compliance with California’s track-and-trace rules.
Per ARCVIEW, spending in California’s illicit cannabis market will shrink from $8.7 billion in 2019 to $6.4 billion. To date, state regulator efforts against the illicit market have shown limited results.
MedMen is a leading player in California
MedMen (MMEN) (MMNFF) is a big player and makes up a 6% share in California’s cannabis market. In fiscal 2019, the company reported an annual retail revenue run-rate of more than $110 million in California. In the fourth quarter, the company saw revenues of $27.5 million in California.
MedMen has 17 retail licenses in California, of which 13 are retail stores. Also, the company offers more than 1,000 SKUs (stock-keeping units) in these stores. California accounts for 53% of the company’s total US stores.
According to an investor presentation, the company’s stores in the state have managed to report more than $7,000 as sales per square feet in the fourth quarter of fiscal 2019. This performance is around 6x better than an average dispensary in California. The company plans to raise the number of retail stores in the state to 30 by the end of 2020.