California Cannabis Sales Decline Even as Consumers Purchase More Units

State Revenue Drops Amid Shift to Cheaper Cannabis Products

California’s legal marijuana industry is experiencing a significant dip in sales revenue, despite an increase in the number of individual products sold. Data released this week by the California Department of Tax and Fee Administration shows that licensed cannabis retailers reported $1.08 billion in sales for the first quarter of 2025. This figure marks the lowest Q1 total since 2020 and a sharp decline from the $1.2 billion reported during the same period in 2024.

At the same time, retailers moved more individual products. State track-and-trace system data from Metrc, shared by the Department of Cannabis Control, indicated that 57.4 million cannabis units were sold during the first three months of 2025—a modest increase from the 56.9 million units sold in the first quarter of 2024.

Cannabis Industry Faces Margin Pressure as Consumers Trade Down

This trend suggests that while cannabis consumers aren’t cutting back on purchases, they are opting for lower-priced products. The shift toward less expensive options may reflect broader economic uncertainty, where inflation, global trade tensions, and unstable financial markets are influencing retail behavior across sectors—including cannabis.

Although cannabis is often considered “recession-resistant,” the industry appears increasingly vulnerable to the same pressures affecting traditional retail. Consumers are still purchasing cannabis, but they are making different decisions about what they buy—trading premium flower and branded products for lower-cost alternatives.

Track-and-Trace Limits Obscure Deeper Market Trends

The exact nature of these purchases remains unclear due to data transparency limits. California law restricts public access to detailed track-and-trace data, making it difficult to assess how much consumers are truly downgrading—whether moving from top-shelf eighths to economy flower, or from vape cartridges to value pre-rolls.

Nevertheless, the growing gap between product volume and total revenue suggests that declining average transaction values are squeezing margins across the supply chain. Without pricing power, many cannabis businesses may be facing unsustainable economics.

COVID-Era Sales Boom Fades, Exposing Structural Weakness

The industry is also reckoning with the lingering fallout from pandemic-era growth. During COVID-19 lockdowns, marijuana retailers were deemed essential businesses, and consumer demand surged, aided in part by government stimulus payments. That surge led to inflated expectations, overvaluations, and expansion strategies that are now proving difficult to sustain.

With the pandemic-induced demand spike fading, California’s cannabis sector is undergoing a market correction—returning to a more grounded, if more challenging, economic reality.

Excise Tax Increase Expected to Deepen Financial Strain

The industry’s financial challenges are likely to intensify with a scheduled increase in the state excise tax. On July 1, California’s 15% excise tax on cannabis sales is set to rise to 19%, compounding an already steep tax burden when combined with local levies and regulatory compliance costs.

Observers warn that the higher tax rate could further discourage consumers from shopping at licensed stores, pushing more business into the unregulated market. A bill to freeze the excise tax hike has passed the state Assembly and is now under consideration in the Senate, but legislative hurdles remain.

Sales Volume Masks Profitability Crisis in Legal Market

Despite the small uptick in units sold, the underlying economics for many cannabis businesses remain precarious. The increase in volume is not translating into healthier balance sheets. Instead, it appears that businesses are moving more product—but at thinner margins or even at a loss.

This disconnect recalls past market bubbles, where growth in usage or engagement concealed deeper financial fragility. While some cannabis companies may ultimately weather the storm by focusing on product quality and operational discipline, many others are being pushed to the brink by a combination of falling prices, heavy taxes, and increased competition from illicit operators.

Outlook for Second Quarter Hinges on Consumer Confidence and 4/20 Surge

California’s cannabis market still holds potential. With more than $4.6 billion in annual legal sales, it remains the largest in the U.S. Some optimism persists around a possible rebound in the second quarter, driven by seasonal demand tied to the 4/20 cannabis holiday and a slight recovery in consumer confidence in May.

However, without structural reforms to taxation and regulatory frameworks, industry insiders say that short-term gains may not be enough to stabilize the market long-term.