---
title: "Why marijuana legalization never paid off"
url: https://modern-mba.com/case/cannabis
sector: "Retail & brands"
sector_url: https://modern-mba.com/sector/retail-and-brands
aired: 2025-07-13
published: 2026-08-25
updated: 2026-08-28
reading_time_minutes: 15
charts: 15
video: https://www.youtube.com/watch?v=niQ7mk13xew
author: "Yishan Lin"
author_url: https://www.linkedin.com/in/yishanlin/
publisher: Modern MBA
license: "© Modern MBA, all rights reserved. Quote and cite with credit and a link; republishing needs written permission."
---

# Why marijuana legalization never paid off

Legal weed was supposed to be the next Marlboro. Instead the public companies have lost billions and the survivors are self-funded shops nobody has heard of. Filmed with three independent operators in Los Angeles — the most competitive cannabis market on earth — this case study sets their real store economics against the balance sheets of Tilray, MedMen, Curaleaf, and Green Thumb, and traces the collapse to price, tax, and a black market the state made more attractive every year.

## Key figures

- **25% vs −65%** — Mecca’s operating margin against Cronos’
- **$1,377 → $721** — California wholesale price per pound, 2020 to 2024
- **6 in 10** — Licensed California growers who have gone out of business

## The argument

Legal cannabis was priced as a new consumer category and turned out to be a commodity. Tilray listed first, ran from $30 to $180 in two months, and touched a $17 billion valuation at roughly 600 times revenue. It has never made money. MedMen went from a $3 billion unicorn to bankruptcy in six years. Cronos took $2.4 billion from Big Tobacco and lost hundreds of millions a year anyway.

The collapse underneath them is a price collapse. A pound of California wholesale flower went from $1,377 in 2020 to $721 in 2024 — operators on the ground put the real fall at $3,500 to $500. Six in ten licensed growers have gone out of business. Legal sales have fallen three years running, and $8 billion still moves through the black market against $5.1 billion legally, because the state taxed and licensed the legal product until the illegal one was the better deal.

But the shops in this episode are profitable, and that is the argument. Mecca runs a 25% operating margin, ERBA 12% across four stores, HERB 5% on delivery. Against them Curaleaf runs 2%, Tilray −22%, and Cronos −65%. None raised outside money and none is trying to build a brand. For a self-funded shop profit is not a milestone on a slide, it is the condition of opening tomorrow — and that constraint is the only competitive advantage in this industry that has actually worked.

## Charts

### The biggest market is mostly illegal

Cannabis sales by market, 2023, in billions. California's black market alone is larger than the entire legal market of Canada.

|  | US dollars |
| --- | --- |
| California black market | $8.0B |
| California legal | $5.1B |
| Canada | $4.4B |
| Michigan | $3.2B |
| Illinois | $1.6B |
| Netherlands | $0.9B |
| Uruguay | $0.2B |

Source: Modern MBA, “Why marijuana legalization never paid off”, aired July 2025. Chart: https://modern-mba.com/case/cannabis#chart-1 · Sources: https://modern-mba.com/case/cannabis#sources

### Los Angeles is the whole state

Legal cannabis sales by California county, 2023, in millions. LA County outsells the next county by more than two to one.

|  | US dollars |
| --- | --- |
| Los Angeles | $1,369M |
| San Diego | $550M |
| Riverside | $402M |
| Sacramento | $276M |
| Alameda | $264M |
| San Francisco | $215M |

Source: Modern MBA, “Why marijuana legalization never paid off”, aired July 2025. Chart: https://modern-mba.com/case/cannabis#chart-2 · Sources: https://modern-mba.com/case/cannabis#sources

### Tilray never made money

Revenue against operating income, in millions. The first cannabis company to list in the U.S. grew revenue sixty-fold and lost more every year.

|  | Revenue | Operating income |
| --- | --- | --- |
| 2016 | $13M | −$7M |
| 2017 | $21M | −$8M |
| 2018 | $43M | −$29M |
| 2019 | $167M | −$302M |
| 2020 | $405M | −$104M |
| 2021 | $513M | −$132M |
| 2022 | $628M | −$610M |
| 2023 | $627M | −$1,369M |
| 2024 | $789M | −$175M |

Source: Modern MBA, “Why marijuana legalization never paid off”, aired July 2025. Chart: https://modern-mba.com/case/cannabis#chart-3 · Sources: https://modern-mba.com/case/cannabis#sources

### It makes more from beer than weed

Gross margin by division at Tilray Brands. The alcohol business it bought as a sideline out-earns the cannabis business it was built on.

|  | Cannabis | Beer & alcohol |
| --- | --- | --- |
| 2021 | 35% | 56% |
| 2022 | 18% | 55% |
| 2023 | 26% | 49% |
| 2024 | 33% | 44% |

Source: Modern MBA, “Why marijuana legalization never paid off”, aired July 2025. Chart: https://modern-mba.com/case/cannabis#chart-4 · Sources: https://modern-mba.com/case/cannabis#sources

### The Apple Store of weed

MedMen revenue against operating income, in millions. Sales fell during the stimulus year that lifted every other retailer; bankruptcy followed.

|  | Revenue | Operating income |
| --- | --- | --- |
| 2017 | $3M | −$15M |
| 2018 | $40M | −$97M |
| 2019 | $130M | −$232M |
| 2020 | $155M | −$432M |
| 2021 | $132M | −$55M |
| 2022 | $141M | −$169M |

Source: Modern MBA, “Why marijuana legalization never paid off”, aired July 2025. Chart: https://modern-mba.com/case/cannabis#chart-5 · Sources: https://modern-mba.com/case/cannabis#sources

### The biggest one loses money too

Curaleaf revenue against net loss, in millions. The world's largest cannabis company by revenue, built on debt that magnifies every stalled year.

|  | Revenue | Net loss |
| --- | --- | --- |
| 2019 | $221M | −$70M |
| 2020 | $627M | −$61M |
| 2021 | $1,196M | −$59M |
| 2022 | $1,336M | −$12M |
| 2023 | $1,347M | −$290M |
| 2024 | $1,342M | −$222M |

Source: Modern MBA, “Why marijuana legalization never paid off”, aired July 2025. Chart: https://modern-mba.com/case/cannabis#chart-6 · Sources: https://modern-mba.com/case/cannabis#sources

### One public company clears it

Green Thumb revenue against operating income, in millions. The only consistently profitable public grower-retailer — and its margins are thinning too.

|  | Revenue | Operating income |
| --- | --- | --- |
| 2018 | $62M | −$26M |
| 2019 | $216M | −$28M |
| 2020 | $667M | $106M |
| 2021 | $894M | $215M |
| 2022 | $1,017M | $121M |
| 2023 | $1,055M | $185M |
| 2024 | $1,137M | $224M |

Source: Modern MBA, “Why marijuana legalization never paid off”, aired July 2025. Chart: https://modern-mba.com/case/cannabis#chart-7 · Sources: https://modern-mba.com/case/cannabis#sources

### Nobody has escaped anybody

Largest cannabis companies by trailing revenue, in billions. Seven firms inside a billion dollars of each other is what a commodity looks like.

|  | US dollars |
| --- | --- |
| Curaleaf | $1.31B |
| Trulieve | $1.18B |
| Green Thumb | $1.13B |
| Verano | $0.86B |
| Tilray | $0.82B |
| Cresco | $0.70B |
| Sundial | $0.66B |

Source: Modern MBA, “Why marijuana legalization never paid off”, aired July 2025. Chart: https://modern-mba.com/case/cannabis#chart-8 · Sources: https://modern-mba.com/case/cannabis#sources

### The price of a pound halved

Average California wholesale price per pound of legal cannabis. Operators put the real fall steeper — from $3,500 to $500 for good flower.

|  | US dollars |
| --- | --- |
| 2020 | $1,377 |
| 2021 | $1,297 |
| 2022 | $791 |
| 2023 | $750 |
| 2024 | $721 |

Source: Modern MBA, “Why marijuana legalization never paid off”, aired July 2025. Chart: https://modern-mba.com/case/cannabis#chart-9 · Sources: https://modern-mba.com/case/cannabis#sources

### And so did the shelf price

Average California retail price by product. An eighth of an ounce is the most common unit sold and it has lost 45% of its price in five years.

|  | 2020 | 2025 |
| --- | --- | --- |
| Vape cartridges | $43.80 | $21.74 |
| Eighths flower | $38.86 | $21.53 |
| Infused pre-rolls | $22.39 | $16.70 |
| Edibles | $19.71 | $12.25 |
| Pre-rolls | $12.73 | $9.85 |

Source: Modern MBA, “Why marijuana legalization never paid off”, aired July 2025. Chart: https://modern-mba.com/case/cannabis#chart-10 · Sources: https://modern-mba.com/case/cannabis#sources

### The legal market is shrinking

Total legal cannabis sales in California, in billions. Three consecutive years of decline from the 2021 peak.

|  | US dollars |
| --- | --- |
| 2018 | $2.0B |
| 2019 | $2.8B |
| 2020 | $4.7B |
| 2021 | $5.8B |
| 2022 | $5.4B |
| 2023 | $5.2B |
| 2024 | $4.9B |

Source: Modern MBA, “Why marijuana legalization never paid off”, aired July 2025. Chart: https://modern-mba.com/case/cannabis#chart-11 · Sources: https://modern-mba.com/case/cannabis#sources

### Tax revenue went with it

California cannabis tax revenue, in millions — the lowest since recreational legalization, and falling in four other states too.

|  | US dollars |
| --- | --- |
| 2019 | $646M |
| 2020 | $1,134M |
| 2021 | $1,360M |
| 2022 | $1,115M |
| 2023 | $1,092M |
| 2024 | $1,055M |

Source: Modern MBA, “Why marijuana legalization never paid off”, aired July 2025. Chart: https://modern-mba.com/case/cannabis#chart-12 · Sources: https://modern-mba.com/case/cannabis#sources

### What the tax adds at the register

Average California retail price before and after tax. The 35% in Los Angeles compounds rather than combines, and rises to 39% in 2025.

|  | Shelf price | After tax |
| --- | --- | --- |
| Vape cartridges | $21.74 | $30.21 |
| Eighths flower | $21.53 | $29.92 |
| Infused pre-rolls | $16.70 | $23.21 |
| Edibles | $12.25 | $17.02 |
| Pre-rolls | $9.85 | $13.69 |

Source: Modern MBA, “Why marijuana legalization never paid off”, aired July 2025. Chart: https://modern-mba.com/case/cannabis#chart-13 · Sources: https://modern-mba.com/case/cannabis#sources

### The independents hold their own

Average annual gross sales per dispensary, 2024, in millions. Two self-funded Los Angeles operators sit level with the largest public chains.

|  | US dollars |
| --- | --- |
| Curaleaf | $8.9M |
| ERBA | $8.8M |
| Green Thumb | $8.2M |
| Mecca | $8.0M |
| Trulieve | $5.0M |
| HERB | $3.0M |

Source: Modern MBA, “Why marijuana legalization never paid off”, aired July 2025. Chart: https://modern-mba.com/case/cannabis#chart-14 · Sources: https://modern-mba.com/case/cannabis#sources

### And they are the only ones earning

Annual operating margin, 2024. Mecca beats Home Depot, Target, and Costco; the venture-funded and debt-funded operators are underwater.

|  | Percentages |
| --- | --- |
| Mecca | 25% |
| Green Thumb | 20% |
| Home Depot | 14% |
| ERBA | 12% |
| Trulieve | 8% |
| Uber | 6% |
| HERB | 5% |
| Target | 5% |
| Costco | 4% |
| Curaleaf | 2% |
| Tilray | −22% |
| Cronos | −65% |

Source: Modern MBA, “Why marijuana legalization never paid off”, aired July 2025. Chart: https://modern-mba.com/case/cannabis#chart-15 · Sources: https://modern-mba.com/case/cannabis#sources


## Takeaways

1. 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**.
2. **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.
3. 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.
4. **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.
5. **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%**.
6. **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.
7. **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.
8. 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.
9. 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.
10. 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.
11. 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.
12. 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%**.
13. 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**.
14. 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.
15. 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.
16. 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.

## Common questions

### Why are cannabis companies losing so much money?

Because legal weed turned out to be a commodity and they were funded as if it were a brand. Tilray hit a $17 billion valuation at roughly 600 times revenue on the promise of imminent federal legalization, has never been profitable, and now earns more from beer than cannabis. MedMen burned through hundreds of millions on flagship stores and went from a $3 billion unicorn to bankruptcy in six years. Cronos took $2.4 billion from Big Tobacco and still loses money. Curaleaf, the largest by revenue, built its scale on debt and loses tens of millions a year.

### Is the cannabis industry actually dying?

The corporate half of it is contracting sharply; the independent half is not. California legal sales have fallen three years running, from $5.8 billion in 2021 to $4.9 billion in 2024, and state tax revenue has dropped to its lowest since recreational legalization. More than 7,500 licensed growers have exited in five years. But the three independent Los Angeles operators in this episode all run profitably — 25%, 12%, and 5% operating margins — in the most competitive market in the world.

### Why did cannabis prices collapse?

Too much licensed supply chasing a legal market smaller than anyone forecast, with an untaxed black market absorbing the rest. California wholesale flower fell from $1,377 a pound in 2020 to $721 in 2024, and operators say good product went from $3,500 to $500 — below the cost of growing it. Retail followed: an eighth from $38.86 to $21.53, vape cartridges from $43.80 to $21.74. Once the only remaining lever is price, everybody's margin goes.

### How much tax is on legal weed in California?

In Los Angeles roughly 35%, and the taxes compound rather than combine — 15% state excise, 9.75% sales tax, and 10% city tax, each applied on top of the last. An eighth priced at $21.53 reaches the register at $29.92 and a vape cartridge at $21.74 costs $30.21. The state's response to falling revenue was to raise the total toward 39%. Cannabis is also the only drug where the excise burden falls entirely on the retailer rather than being shared through the supply chain, and California levies it on gross rather than net sales.

### Why is the black market still bigger than the legal one?

Price and enforcement. Roughly $8 billion moved through California's illicit market in 2023 against $5.1 billion legally, and untaxed product is at least 35% cheaper — a gap no licensed operator can close, because they cannot buy flower cheaply enough to absorb the tax. Enforcement has not kept up either: there are about ten times as many illegal shops in Los Angeles as licensed dispensaries. Raising the tax rate to recover lost revenue pushes more customers underground, which lowers revenue again.

### How much does a dispensary actually make?

More than the public companies, in the cases here. ERBA grosses $35 million a year across four Los Angeles stores — about $8.8 million each — at a 12% store-level operating margin. Mecca Mid-City does $8.0 million at 25%. HERB, a delivery-only operation, does about $250,000 a month for a $3 million run rate at 5%. For comparison Curaleaf averages $8.9 million per store at a 2% margin, Trulieve $5.0 million at 8%, and Green Thumb $8.2 million at 20%.

### What do the profitable dispensaries do differently?

They pick a model and run it properly, and neither model is brand-building. Mecca is vertically integrated — its own cultivation, manufacturing, and distribution feeding one storefront, about 300 hand-tested SKUs, and its own label priced roughly 20% under the big names. ERBA is the opposite: a marketplace of 1,200 SKUs sold entirely on consignment, so no product is bought up front, there is no inventory risk and no need to win the price war. Both are self-funded, which means profit was a requirement rather than a later phase.

### Why did the Uber-for-weed startups fail?

Because cannabis delivery is not a software problem. Every driver must be a W-2 employee, can work for only one dispensary, and has to hand-deliver each order — so there is no gig-economy cost structure, no algorithmic scale advantage, and no loophole. 66% of California delivery services have shut down in five years, nearly three times the failure rate of brick-and-mortar dispensaries. HERB has survived eleven years by staying small and answering its own phones.

### If alcohol and tobacco work as commodities, why doesn't cannabis?

That is the question the episode ends on, and the difference is policy rather than product. Anheuser-Busch and Altria built multi-billion-dollar positions in equally commoditized, equally regulated categories. Cannabis remains federally illegal and Schedule 1, which blocks banking, tax deductions, and interstate commerce — so a company cannot move inventory across state lines, cannot deduct ordinary expenses, and cannot build a national brand. Add an excise tax aimed at retailers and an unenforced black market, and the category was structured to stay fragmented.

## Discussion

- Legal cannabis was priced as a new consumer category and turned out to be a commodity. What early evidence would have distinguished those two possibilities before the money went in?
- Tilray touched a $17 billion valuation at roughly 600 times revenue and has never made money. What were investors pricing, and what would have had to happen for them to be right?
- California wholesale flower fell from $1,377 a pound in 2020 to $721 in 2024, with operators reporting far worse. When a commodity price collapses, who survives — and is it the best operators?
- Legal sales have fallen three years running while $8 billion still moves through the illicit market. What does a legal market have to offer to beat an untaxed incumbent?
- You are writing the legalization framework for a new state, having watched this. What do you do differently, and what are you willing to give up to get it?

## Sources

Public company figures from annual reports and filings; California wholesale, retail, sales, and tax data from the Department of Cannabis Control and CDTFA; store-level revenue and operating margins disclosed on camera by the owners of Mecca Mid-City, ERBA Markets, and HERB; comparator retail and delivery margins from public company filings

---

From [Modern MBA](https://modern-mba.com/). Read this case in full at [https://modern-mba.com/case/cannabis](https://modern-mba.com/case/cannabis), or watch the episode at https://www.youtube.com/watch?v=niQ7mk13xew.