Good morning Greenies. The Greenfields are on holidays this week so there's only a short update, but we hope you enjoy it.

We will be back to our regular selves next Tuesday.

The bubbles aren’t just in the bongs in San Francisco

Anyone familiar with the illicit cannabis trade might think that legalisation would mean literally growing money. The California cannabis industry has news for you though: The recreational cannabis bubbles are bursting.

Cannabis sales in California have dropped by over 8% in 2022. California still did $5.3 Billion in legal cannabis sales, but many in the industry are hurting. San Fransicso cannabis sales were down almost $40 million from 2022. What’s important to keep in mind is that cannabis sales did rise about 23% between 2020 and 2021, which is pretty high (😉).

That doesn’t help everyone that has entered the market since then expecting the growth to continue. Most of them are in for a rough ride.

In San Francisco industry insiders are predicting a bloodbath for cannabis retailers. Some believe that the cannabis industry has $600 million of debt. Matt Yamashita, a grower and distributor in San Francisco, believes that 80% of people in the business will be gone.

Why is this happening? There's a few reasons:

1. Local governments in California are required to opt in to recreational cannabis sales. Over half the cities in the state have blocked cannabis sales.

2. Many growers and manufacturers are not getting paid by retailers. Due to the lack of profitability and growers not demanding payment from retailers on delivery a lot of retailers are failing to pay back their growers.

3. There just aren’t that many cannabis retailers in Califronia. Compared to other smaller states, California has about 3 legal dispensaries per 100k people. Smaller states like Montana and Oregon have between 19 and 39 per 100k.

4. The illicit market is still going strong because it is substantially cheaper.

Most of these probablems come down to one thing: heavy taxes and regulation are preventing the industry from establishing itself in a sustainable way. The illicit market is still going strong thanks to lower prices, and the industry is further burdened by lower taxes.

This is a mistake some of Australia’s legalisation efforts seem keen to replicate. The most powerful political group pushing for adult use cannabis in Australia is the Greens, and they want to impose an excise tax of 15-25% on top of GST. This would allow the black market to flourish and compete with legal cannabis retailers and wholesalers.

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That’s your walk through The Greenfields of the cannabis industry today. We’ll see you again on Thursday with another holiday edition, but if you want more before then follow us on Twitter or Facebook.

DISCLAIMER: This newsletter is not financial advice. It is strictly educational and is not investment advice or a solicitation to buy or sell anything or to make any financial decisions. Please do your own research and do not buy anything dodgy.