Analysts slash forecast on California cannabis market as slow licensing takes toll

New state rules are killing the buzz on California’s cannabis sales.

Legal pot that was once expected to generate $3.7 billion in revenue this year now is forecast to total just $2.9 billion, Greg Shoenfeld, vice president for operations at BDS Analytics, said by phone Wednesday, previewing a report the research firm plans to issue later this week. BDS had previously cut its forecast to $3.5 billion.

The firm, which provides data and consulting services for the marijuana industry, cites the slow pace of licensing for businesses under Jan. 1 rules in the state, Shoenfeld said. The regulations give local governments greater discretion on whether to let marijuana firms operate in their locale, and about 70 percent have opted to ban cannabis businesses, said Alex Traverso, spokesman for the state Bureau of Cannabis Control.

“Until we see a more rapid increase in the number of licenses issued, our forecast estimates are going to be conservative,” Shoenfeld said.

Also contributing to the dimmer outlook is a July 1 deadline for all cannabis products to be lab-certified as free of dangerous pesticides and molds, he said. The state, the largest legal cannabis market, this year expanded cannabis sales from medical patients to all adults — but accompanied the change with greatly expanded regulation.

“It’s been a monumental change that California is looking to implement in a relatively narrow window,” Shoenfeld said. “This is the fallout from such a quick change.”

To contact the reporter on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net.

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Jonathan Roeder, Josh Friedman