California’s legal cannabis industry is still failing to match the state’s thriving illicit market amid increasing regulatory and competition pressures, according to a new report.

A new study, commissioned by the Department of Cannabis Control (DCC), suggests that the illicit market still accounts for around 60% of total consumption in the state.

The unregulated sector is now estimated to produce between 7m and 16.3m pounds of cannabis annually.

That is despite legal cannabis production growing by double digits in 2024, increasing by 11.8% to 1.4m pounds, the highest since the state legalized adult-use sales in 2018.

Meanwhile, the number of active cannabis licences has also continued to grow, albeit marginally. Between September 2022 to October 2024, licences grew from 1544 to 1584.

Despite the slight growth in operational businesses, revenues have continued to falter, dropping from $5.39bn to $5.18bn in the same period.

This is largely due to continued price compression in the market with wholesale prices dropping 57% from their peak in 2020, with outdoor-grown cannabis experiencing the steepest decline at 74%.

Elsewhere, local taxes and fees remain high, and efforts to ease this pressure have had mixed results for businesses. The suspension of California’s cultivation tax in 2022 provided some relief, but businesses are now bracing for a scheduled excise tax increase in 2025, which could further impact margins.

Additionally, law enforcement is reported to have eradicated an estimated 7.5% to 18.3% of illicit cannabis production last year, showing some progress in cracking down on illegal cultivation, though the scale of unlicensed operations remains substantial and far in excess of the legal market.

These increased enforcement efforts are expected to help stabalize the market this year. Emerging categories such as cannabis-based animal products and intoxicating hemp cannabinoids are expected to provide new revenue opportunities for legal businesses.