California was among one of the first states in the US to fully legalize cannabis use and sale, which many predicted would provide a tremendous boost to the state’s economy. However, a strange inverse effect has taken place. Rather than strengthening sales, the number of dispensaries has decreased over the past year. It could be an issue of too many openings all at once after the legalization, or it could be that the sales to the general public simply aren’t there. To combat these negative effects, a new law could help California’s legal cannabis industry expand beyond the struggling dispensary model with retail and entertainment space that can tap demand for unique dining and shopping experiences.
Known as the Control, Regulate, and Tax Adult Use of Marijuana Act, this new law would allow cities to let cannabis retailers serve non-cannabis food cooked on-site and host live entertainment events, such as concerts. “California is once again leading the way in supporting legal, safe cannabis businesses and culture,” said Matt Haney, the San Francisco assembly member who authored the law.
The law is already taking hold in Los Angeles at The Woods. The infamous dispensary and lounge in West Hollywood is co-owned by actor Woody Harrelson and talk show host Bill Maher and is a perfect example of how these efforts have aided sales and business. Customers can now order refreshments like coffee and desserts while consuming cannabis products. The Woods, one of the first licensed operators to take advantage of the new law, is creating a larger menu and applying for permits to add stages for concerts and other live entertainment.
Cannabis’ Declining Sales
California voters legalized recreational marijuana use in 2016, and since then, several cannabis “lounges” have cropped up throughout the state where customers can smoke indoors. Before the recently enacted law, such dispensaries could only sell prepackaged snacks and drinks.
Taxes and competition from the illegal market have challenged California’s legal cannabis business. Legal cannabis sales in the state reached $4 billion in 2020, while illegal sales are believed to have surpassed $8 billion that same year, according to Haney.
Surprisingly, the number of cannabis growers and brands has decreased by more than 70% since legalization first took effect, according to the Mercury News. MedMen, a cannabis retail chain that Wall Street valued at more than a billion dollars when California’s legal market launched, filed for bankruptcy in April and closed all of its dispensaries in the state.
Adding food and beverage features while allowing for more operational flexibility could help dispensaries expand during overall tenant retrenchment in California’s retail scene, with vacancy rates climbing in Sacramento, San Diego, and San Francisco.
Physical Stores Crafting an “Experience”
Dispensaries are diversifying as other, more traditional brands add experiential concepts to boost sales. Retailers ranging from Lexus to Dick’s Sporting Goods are building brand awareness and increasing their foot traffic with experiential attractions, according to Placer.ai analyst Bracha Arnold.
At the same time, retailers like Crate & Barrel, Louis Vuitton, and Lululemon are adding restaurants to keep shoppers on site longer and spending more. However, between inflated prices and hardships across the country, sales have been down at stores. Further exacerbating these effects is the sharp rise in popularity of online shopping, especially since 2020. To combat this, physical stores seem to be prioritizing delivering a full-blown “experience” for shoppers that keeps them returning to the location. The new cannabis law is a logical extension of this.
An “Amsterdam-style” approach to food is needed to help reverse the pharmacy-like experience at most cannabis dispensaries, Haney said. The Netherlands is home to more than 700 coffee shops that sell cannabis and do $1 billion in sales each year, he added.
Dispensary operators are making expansion plans and applying for new licenses across the Golden State in response to the law. One example is the Crystal Nugs dispensary in Sacramento, where the owner is adding a stage and two VIP rooms to the existing midtown location.
The Road to Recovery
The cannabis cafe expansion could take up to nine months to bear fruit as operators apply for the necessary licenses, according to experts. Projects could face additional hurdles as some cities will require owners to win separate approvals for the cannabis component and for food and beverage sales, which may limit immediate expansion and growth, according to Maling.
Opponents argued the law would undermine the state’s no-smoking laws in restaurants. But Haney said such cafes allow smokers a place to indulge with other smokers, away from nonsmokers.
