Why marijuana legalization never paid off

California is the biggest and most competitive cannabis market in the world, and most of it is still illegal. $5.1 billion of legal cannabis sold in 2023 against roughly $8 billion moving through the black market — more unlicensed volume than the entire legal market of Canada at $4.4 billion.

Tilray was the proof of concept and became the proof of the opposite. It listed first on a U.S. exchange, ran from $30 to $180 in two months, and hit a $17 billion valuation at roughly 600 times revenue on the promise that federal legalization was imminent. Insiders cashed out. The stock is now worth close to nothing.

The clearest verdict on the category is inside Tilray's own accounts: its beer and alcohol division runs gross margins of 56%, 55%, 49% and 44% while its cannabis division runs 35%, 18%, 26% and 33%. The company makes more money selling beer than selling weed.

MedMen was the retail version of the same mistake — the “Apple Store of weed,” flagship stores in expensive neighborhoods in every legal state, on the belief that ordinary retail economics did not apply. Revenue reached $155 million in 2020 and the operating loss that year was $432 million. Even as stimulus checks lifted everyone from Target to Louis Vuitton, MedMen's sales fell. A $3 billion unicorn was bankrupt within six years.

Cronos took $2.4 billion from Big Tobacco and spent $100 million over eight years on R&D — stainless steel vapes, CBD skincare, gourmet edibles — betting that brand and product innovation could be a moat. It owns Canada's best-selling flower and edible brands and still lost $292 million in 2021 and $77 million in 2024, on gross margins that went as low as −75%.

Curaleaf is the largest cannabis company in the world by revenue, with around 150 U.S. dispensaries, and it is not profitable either. Revenue went $221 million to $1,342 million in five years while the loss went from $70 million to $222 million — because the scale and the vertical integration were built on debt, which magnifies losses the moment revenue stops growing.

Green Thumb is the exception that shows the ceiling. It is the only consistently profitable public cannabis retailer and manufacturer, taking $1,137 million of revenue and $224 million of operating income in 2024 — and its growth has slowed and its margins have thinned under the same commoditization as everyone else.

Underneath all of it is a price collapse. California wholesale flower went from $1,377 a pound in 2020 to $721 in 2024 — and operators put the real fall steeper still, from $3,500 to $500 for good product, which is below what it costs to grow.

Retail followed. The average eighth fell from $38.86 to $21.53, vape cartridges from $43.80 to $21.74, infused pre-rolls from $22.39 to $16.70, edibles from $19.71 to $12.25 and pre-rolls from $12.73 to $9.85. An eighth is the most common unit sold — roughly the cannabis equivalent of a medium soda.

The supply side did not survive it. More than 7,500 licensed growers have left the business in five years, leaving about 4,000 — six in ten gone. One in two distributors and nearly four in ten dispensaries have shut. And those figures only count the operators who were trying to play by the rules; some of those exits are a return to the black market rather than an insolvency.

California's legal market has now shrunk three years running: $5.8 billion in 2021, $5.4 billion, $5.2 billion and $4.9 billion in 2024. State cannabis tax revenue has fallen with it, from $1,360 million in 2021 to $1,055 million, the lowest since recreational legalization — and the same free-fall is happening in Colorado, Oregon, Washington and Oklahoma.

Tax is why the black market keeps winning. In Los Angeles the state excise tax is 15%, sales tax 9.75% and city tax 10% — and they compound rather than combine, for about 35% on top of the shelf price. An eighth priced at $21.53 costs $29.92 at the register; a vape at $21.74 costs $30.21. The state's answer to the shortfall was to raise the rate again, to 39%.

Against all of that, the independents are the ones making money. ERBA grosses $35 million a year across four stores at $8.8 million each, Mecca $8.0 million, Green Thumb $8.2 million and Curaleaf $8.9 million per store — while Trulieve averages $5.0 million and HERB, a delivery-only operation, $3.0 million.

The margins are where the gap opens. Mecca runs 25% and ERBA 12%, against 20% at Green Thumb, 8% at Trulieve, 2% at Curaleaf, −22% at Tilray and −65% at Cronos. Mecca beats Home Depot at 14%, Target at 5% and Costco at 4%; HERB at 5% lands right on Uber at 6% despite paying every driver as a W-2 employee.

The two profitable store models are opposites, which is the point. Mecca is vertically integrated — it runs its own cultivation and distribution, stocks about 300 SKUs, tests every batch by hand and prices its own brand about 20% under the big names. ERBA is a marketplace: 1,200 SKUs, everything on consignment, no inventory bought up front, no carrying cost and no exposure to the price war.

The last thing keeping the black market alive is enforcement, or the absence of it. There are roughly ten times as many illegal shops selling cannabis in Los Angeles as there are licensed dispensaries, and operators describe waiting years for the city to close one across the street. Taxation, regulation and enforcement are one system — and taxing the compliant while ignoring the rest is a subsidy paid to the people who never registered.