California Cannabis: A Golden Opportunity With Unique Challenges
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California Cannabis: A Golden Opportunity With Unique Challenges

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If the state of California were a country, it would have the fifth largest GDP in the world.

Take this kind of spending power and combine it with the recent legalization of recreational cannabis, and it’s fair to say that the Golden State is primed to become the Holy Grail of cannabis opportunities.

But while the market is home to immense potential, this doesn’t mean that the California cannabis business isn’t without its own unique challenges and obstacles to navigate.

Navigating California Cannabis

Today’s infographic comes to us from High Hampton Holdings and it helps set the stage for the boom in California, as well as listing the regulatory hurdles that companies must be prepared to deal with in the jurisdiction.

California Cannabis: A Golden Opportunity With Unique Challenges

In the next year, it’s expected that recreational cannabis sales in California will surpass the existing total from the already established medical market.

By 2025, those recreational sales could be $4 billion per year – that’s five times the size of the medical market!

Sticker Shock

The potential of the California cannabis market may be obvious, but navigating both the state’s notorious regulatory system and tax regime is a clear threat for companies aiming to succeed in the space.

Since legalization, the price of cannabis in California has become an immediate hiccup that has initially angered consumers, reducing expected demand and state revenues.

According to BDS Analytics, the effective sales tax on a gram of cannabis bought in San Jose works out to a hefty 38%. Add this to the higher cost of doing business in the state, and the sticker shock for consumers is real.

Complex Legislation

After high taxes, companies entering the California market must also navigate the state’s complex rules and regulations about growing, distributing, and selling cannabis.

To give an idea of what this looks like for the average company, here is a brief snapshot of California’s regulatory environment:

  • There are three governing bodies for cannabis in the state: California Department of Food and Agriculture (CDFA), California Department of Public Health (CDPH), and the Bureau of Cannabis Control (BCC)
  • There is a dual licensing requirement in the state, in which companies must be licensed both by the state as well as by local authorities
  • Companies must get their local license before their state license – and this is complicated: there are 58 counties and 482 incorporated cities, each with their own specific set of rules and requirements
  • Currently, many growers do not meet state or local standards
  • The supply of zoned, permitted areas for cannabis cultivation are scarce and in high demand

Even further, the rules around cultivating, distributing, and retailing all involve specific and highly-specialized licenses. For example, only those with a full-service distribution license can coordinate required third-party testing, ensure packaging reviews of products, and collect and remit cultivation excise taxes.

Golden Potential

Despite the challenges that exist in the California cannabis market, it is still the undisputed jewel in the crown of the global legal cannabis space, offering access to 39 million consumers and large amounts of disposable income at play.

Only companies that can navigate this uncharted territory will be able to take advantage of this lucrative opportunity.

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Markets

The Top Google Searches Related to Investing in 2022

What was on investors’ minds in 2022? Discover the top Google searches and how the dominant trends played out in portfolios.

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Trend lines showing when the top Google searches related to investing reached peak popularity over the course of 2022.
The following content is sponsored by New York Life Investments

The Top Google Searches Related to Investing in 2022

It was a turbulent year for the markets in 2022, with geopolitical conflict, rising prices, and the labor market playing key roles. Which stories captured investors’ attention the most? 

This infographic from New York Life Investments outlines the top Google searches related to investing in 2022, and offers a closer look at some of the trends.

Top Google Searches: Year in Review

We picked some of the top economic and investing stories that saw peak search interest in the U.S. each month, according to Google Trends.

Month of Peak InterestSearch Term
JanuaryGreat Resignation
FebruaryRussian Stock Market
MarchOil Price
April Housing Bubble
MayValue Investing
JuneBitcoin
JulyRecession
AugustInflation
SeptemberUS Dollar
OctoberOPEC
NovemberLayoffs
DecemberInterest Rate Forecast

Data based on exact searches in the U.S. from December 26, 2021 to December 18, 2022.

Let’s look at each quarter in more detail, to see how these top Google searches were related to activity in the economy and investors’ portfolios.

Q1 2022

The start of the year was marked by U.S. workers quitting their jobs in record numbers, and the effects of the Russia-Ukraine war. For instance, the price of crude oil skyrocketed after the war caused supply uncertainties. Early March’s peak of $125 per barrel was a 13-year high.

DateClosing Price of WTI Crude Oil
(USD/Barrel)
January 2, 2022$76
March 3, 2022$125
December 29, 2022$80

While crude oil lost nearly all its gains by year-end, the energy sector in general performed well. In fact, the S&P 500 Energy Index gained 57% over the year compared to the S&P 500’s 19% loss.

Q2 2022

The second quarter of 2022 saw abnormal house price growth, renewed interest in value investing, and a bitcoin crash. In particular, value investing performed much better than growth investing over the course of the year.

IndexPrice Return in 2022
S&P 500 Value Index-7.4%
S&P 500 Growth Index-30.1%

Value stocks have typically outperformed during periods of rising rates, and 2022 was no exception.

Q3 2022

The third quarter was defined by worries about a recession and inflation, along with interest in the rising U.S. dollar. In fact, the U.S. dollar gained against nearly every major currency.

Currency USD Appreciation Against Currency
(Dec 31 2020-Sep 30 2022)
Japanese Yen40.1%
Chinese Yuan9.2%
Euro25.1%
Canadian Dollar7.2%
British Pound22.0%
Australian Dollar18.1%

Higher interest rates made the U.S. dollar more attractive to investors, since it meant they would get a higher return on their fixed income investments.

Q4 2022

The end of the year was dominated by OPEC cutting oil production, high layoffs in the tech sector, and curiosity about the future of interest rates. The Federal Reserve’s December 2022 economic projections offer clues about the trajectory of the policy rate.

 202320242025Longer Run
Minimum Projection4.9%3.1%2.4%2.3%
Median Projection5.1%4.1%3.1%2.5%
Maximum Projection5.6%5.6%5.6%3.3%

The Federal Reserve expects interest rates to peak in 2023, with rates to remain elevated above pre-pandemic levels for the foreseeable future.

The Top Google Searches to Come

After a year of volatility across asset classes, economic uncertainty remains. Which themes will become investors’ top Google searches in 2023?

Find out how New York Life Investments can help you make sense of market trends.

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