California is losing legal pot farm licenses by the hundreds

Lester Black, SFGATE

April 7, 2023Updated: April 17, 2023 9:09 a.m.

California’s legal pot market has lost hundreds of pot farms a month as farmers opt to quit the legal market. And signs indicate the industry is only continuing to shrink.The state has lost 1,766 cultivation licenses since the beginning of last year, according to data reported by the California Department of Cannabis Control and the Cannabis Business Times. Low wholesale prices and high taxes have made it almost impossible for operators to run a profitable small business, pot industry insiders say.

The fleeing farms are reducing the total amount of space licensed to produce cannabis in California. The state has lost 23% of its total legal canopy — the combined size of all legal cannabis grows — since the beginning of 2022, according to Aaron Edelheit, a cannabis investor who analyzes California’s market. That’s over 19 million square feet of cannabis farming that has disappeared over the past year.

Max Rudsten, chief revenue officer of Monterey’s POSIBL cannabis farm, said he expects the industry to continue bleeding farms throughout the year.

“We expect this loss to accelerate as more businesses decide the same fate,” Rudsten said in an email.

Lost farms

There are 6,827 active cultivation licenses in California, according to the Department of Cannabis Control. That’s 845 fewer farm licenses than there were at the beginning of the year and 1,766 fewer licenses compared with the beginning of 2022, according to data from the California Department of Cannabis Control reported by the Cannabis Business Times.

Brian Dewey, the head of business development at the cannabis distributor Nabis, said that the significant reduction in cultivation licenses was caused by “an oversupply of bulk flower” produced by the wealth of legal farms in the cannabis market.

Edelheit, who invests in California cannabis companies and writes about the industry in his Mindset Value newsletter, agreed that the reduction in farms is a correction after too many small farmers entered the industry.

“In my opinion, we are seeing a rationalization of having too many cannabis farms and too much supply,” Edelheit wrote in an email to SFGATE. “Going forward there will be fewer farms and most of the remaining ones will either produce the absolute best craft quality or be the low cost producers.”

Edelheit said that most farms going out of business likely won't be able to renew their licenses because they would need to come into full compliance with environmental protection laws, which few small farms are able to do.

Rising prices

California’s pot farmers have seen a steep drop in wholesale prices, with some farmers reporting a 95% drop in what they can get for a pound of pot since the state legalized cannabis in 2016. But signs indicate that the downward spiral has started to bottom out, with cultivators able to sell their pot for higher rates, according to Rudsten.

Even so, Edelheit said that recent increases in wholesale prices won’t be enough to keep many of the small-scale farms in business.

“Even now with the price increases, we are back to breakeven for most people. This is why so many farms are giving up and shutting down and have been for the past 12 months,” Edelheit wrote.

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