California's small cannabis farmers give up in the face of wildfires and falling prices

In California, small cannabis farmers are giving up due to crop failures caused by devastating wildfires and falling prices, and industry experts expect the exodus from the largest marijuana market in the US to continue in the near future.

Unlike traditional crops, marijuana growers cannot claim financial assistance from the government for damage caused by extreme weather because cannabis remains on the federal list of controlled substances.

“These operators do not have the ability to turn to FEMA for compensation for losses in a federal disaster area because this area is classified as such,” said Anthony Coniglio of NewLake Capital Partners.

In California, prices have also fallen sharply since 2021 due to oversupply.

The Golden State saw an influx of new producers as demand peaked during the pandemic and wholesale prices for flower topped $2,000 per pound. But enthusiasm has waned and prices currently hover around $1,200 per pound.

“Lower wholesale prices don't give people enough wiggle room to take the risk of wildfires. As the risk of wildfires continues to rise, fewer people will invest in outdoor cultivation,” Coniglio said.

Climate change is also increasing insurance costs for cannabis growers, who are already restricted to a limited pool of insurers.

“We have seen an increase in costs of electricity, water and labor, for example, but this has not impacted agricultural prices … which is putting pressure on margins and causing more farmers to exit the market,” said Morgan Paxhia, co-founder and managing partner of Poseidon Investment Management.

Many have returned their cultivation permits and left Lake County in northern California, once a popular growing area, several farmers told Reuters.

According to cannabis data firm CRB Monitor, the number of active business licenses fell by more than 20% in the first quarter of 2024 compared to the previous year.

According to the state's tax authority, California sold $5.3 billion worth of cannabis products in 2023, compared to nearly $6 billion in 2021, losing the top spot to Colorado in the first quarter of this year.

“Industry dynamics continue to pose significant challenges for legal cannabis operators in California, which is why markets in other states are viewed as more attractive,” said George Archos, founder and CEO of Verano.