Cannabis Market Outlook from a California Perspective Photo: Glass House Farms
October 25, 2022

The future is bright for California cannabis, even amid an historic sell-off in cannabis prices and a larger illicit than legal market. President Joe Biden is in poised to deschedule cannabis, thousands convicted of nonviolent cannabis crimes will be forgiven, and interstate trade will be the law of the land. Moreover, California’s illicit market will fade away, allowing for some traction on cannabis prices.

Too good to be true? Not according to Graham Farrar, President of Glass House Brands. He is an optimist, not just about his business, but about cannabis industry prospects overall.

Farrar believes Biden’s vow to pardon all prior federal offenses of cannabis possession, his push to have the states follow suit, and, perhaps most important for the industry, ordering Health and Human Services Secretary Xavier Becerra to expeditiously review how cannabis is scheduled under federal law will ultimately save the industry. Farrar thinks cannabis will eventually be descheduled as a result of the administration’s recent moves.

Farrar sees Biden’s action as “a lot more strategic,” rather than “some political stunt” ahead of the midterm elections. He said Biden’s cannabis announcement is “much bigger than people think.” Farrar interprets it as an end-around Congress. “Congress is a tough road, no matter the issue,” he pointed out. In our interview, Farrar recounted each cabinet member and department head’s cannabis resume and sees their Biden administration appointments as intentional to fulfill campaign promises regarding cannabis. Ultimately, Farrar believes “Biden can legalize cannabis” and that he is going to do so “within the next two years.”

Farrar noted California is “the fifth largest country in the world” by gross domestic product. He said, “not every state can grow cannabis” and cited the Golden State’s massive agricultural industry. Farrar said, “the future looks like California,” when he talked about interstate trade post-federal legalization. Farrar revealed he has been made aware there are some industry insiders lobbying against legalization because it will take away their monopolization of individual state markets, but he does not believe they will be successful, especially considering Biden’s recent efforts on cannabis reform.

When asked about local markets, Farrar acknowledged they are currently “brutal” owing to crashing prices. He expressed a good deal of sympathy for smaller growers, seeing their plight as a combination of costly regulation, taxes, and the illicit market. He pointed to some northern California counties that have limited the size of greenhouse grows to 10,000 square feet and said cultivation at that scale cannot succeed “at these prices.”

Farrar estimated the illicit market is “two to three times the size” of California’s legal market, due in large part to the fact that “60% of municipalities are not signed up [to allow licensed cannabis businesses].” Meanwhile, consumers in jurisdictions that have opted-out are “buying from the illicit market.” More broadly, he asserted, “every time you try to prohibit mutually beneficial transactions, you fail,” meaning legalizing cannabis in a state that already had a thriving unregulated market for decades is a fool’s errand. Farrar noted pointedly that California has “11,000 liquor stores but just 1,000 dispensaries,” highlighting not just the imbalance in that metric, but how state policy has tied the cannabis industry’s hands by limiting distribution within the state.

Speaking about Glass House, Farrar said the firm “sold their first pound from their new farm in July” and has plans to “be in every store” with an ethos of “elevating lives with California cannabis.” The fact is, Glass House is a massive undertaking that will ultimately occupy 6 million square feet of greenhouse. The firm has successfully driven the cost of production down to $150 per pound and has their sights on $100 per pound next year through “technology, quality, and consistency.” Farrar said Glass House wants to be “the Casmigos [tequila] of cannabis;” that is, high quality and affordable versus “1942,” a bespoke tequila brand that doesn’t achieve the widest distribution due to price, but instead appeals to a particular and affluent consumer. That said, he noted Glasshouse will put out products at different price points.

Farrar sees a changing cannabis market and industry; he thinks descheduling is going to happen and sees interstate trade in the future where multi-state operators in, for example, Illinois “should probably just do retail.” He expects states inhospitable to growing cannabis can and should look to California for their supply, as much of the country does for other agricultural products. Regarding cannabis prices, he thinks business attrition will reduce supply even as federal legalization surges demand. Farrar’s optimism does not stop at California’s border; he sees federal legalization as a near-term event – within two years – an eventuality that Glass House appears built to take advantage of.