The U.S. cannabis industry continued to contract in the third quarter of 2025, driven primarily by a steep decline in cultivation licenses, according to licensing data from CRB Monitor.
The total number of active cannabis business licenses nationwide fell to 37,555, representing a 1% decline from the previous quarter and extending a downward trend that began in late 2022. Over the past two years, the number of active licenses has declined by 13%.
Cultivation Licenses Account for the Majority of Losses
Cultivation permits have experienced the most significant decline. Since the third quarter of 2023, active cultivation licenses have fallen by 24%, resulting in the loss of more than 5,000 licenses. By comparison, retail licenses declined by only 330 during the same period.
At the same time, indicators of future growth weakened further. The number of approved, pending, and pre-licensing applications declined for the fifth consecutive quarter, signaling reduced expansion activity across the industry.
Investment and Growth Pipeline Continue to Tighten
The sustained contraction reflects reduced risk tolerance amid market saturation, regulatory complexity, and the absence of federal cannabis reform. Capital deployment has become more selective, with fewer new market entrants and a greater emphasis on operational efficiency.
Growth interest remains concentrated in new and emerging adult-use markets, where large population centers continue to present expansion opportunities.
New York Emerges as the Primary Growth Driver
National license totals mask a clear divide between mature cannabis markets and newly launched adult-use states.
While established markets such as California, Oklahoma, and Michigan continue to consolidate, nearly all net growth is being generated by new adult-use states, with New York accounting for the majority of new activity.
New York added 155 active licenses in the third quarter, an increase of nearly 9% quarter over quarter, bringing the state’s total to approximately 1,910 active licenses, representing 71% year-over-year growth.
At the end of the quarter, regulators were processing approximately 4,600 pending license applications, positioning the state for continued expansion into 2026. However, ongoing litigation and leadership changes present potential risks to the pace of rollout.
California and Oklahoma Continue to Cool
California and Oklahoma together account for 36% of all active cannabis licenses in the United States and both continued to see license attrition during the third quarter.
California, the nation’s largest legal cannabis market with projected sales approaching $4 billion, ended the quarter with 8,048 active licenses. Active licenses declined nearly 2% from the prior quarter and 8% year over year, reflecting ongoing challenges related to taxation, regulatory burden, and illicit market competition.
Over the past 12 months, California lost 740 licenses, exceeding the combined total number of licenses in Arizona and Nevada.
Oklahoma’s market contraction remained pronounced following a 2022 moratorium on new licenses. The state lost more than 20% of its licenses in the past year and ended the third quarter of 2025 with approximately 5,380 active licenses.
Canada Shows Relative Stability with Continued Consolidation
Canada’s cannabis market also declined 1% in the third quarter, leaving approximately 5,760 active licenses nationwide. This relative stability follows a 15% decline over the past two years, reflecting ongoing market maturation.
Active cultivation licenses in Canada declined 2.3% quarter over quarter to approximately 900 and are down 8% year over year. Retail licenses, the largest category, remained relatively stable at approximately 4,100.
Federal Rescheduling Unlikely to Reverse Near-Term Trends
Recent market optimism around potential federal cannabis rescheduling briefly lifted sentiment, as reclassification to Schedule 3 would eliminate the impact of Internal Revenue Code Section 280E and improve cash flow for plant-touching businesses.
However, licensing data from the third quarter indicates that industry contraction remains driven by structural factors rather than short-term policy expectations.
Active cannabis licenses have declined for nearly three consecutive years, signaling a prolonged period of consolidation rather than a cyclical downturn.
Industry Enters a Rationalization Phase
The data suggests the cannabis industry has moved beyond its rapid expansion phase and entered a period of rationalization. Excess capacity is being reduced, weaker operators are exiting the market, and growth is becoming increasingly concentrated in new, large-population states.
This shift points toward a smaller, more disciplined, and potentially more sustainable industry structure heading into 2026.
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