Are These States’ Cannabis Markets Performing as Forecasted?

As the legal cannabis industry matures across the United States, the performance of cannabis markets varies drastically from state to state. While some large states expected to lead the market are underperforming, some smaller states are exceeding expectations.  The reasons aren’t always what you’d expect. In this blog post, we compare three of the largest U.S. states with two of the smallest, examining what influences cannabis market outcomes.

California: Overregulated and Fragmented (Rank: 1st) – Despite being the biggest legal market in the U.S., California’s cannabis industry continues to underperform relative to early forecasts. The state’s fragmented regulatory environment and heavy taxation have driven many consumers and operators into the illicit market. Here’s why:

• Excessively high cannabis taxes (state + local)
• Limited retail access due to restrictive local ordinances
• Cumbersome approval and licensing processes
• Strong competition from the illicit market, which still supplies nearly two-thirds of cannabis sold in the state

New York: Delayed and Disjointed Rollout – (Rank: 4th) New York legalized recreational cannabis in 2021 but struggled with rollout delays. The slow approval of dispensaries, complex social equity implementation, and ongoing lawsuits have hindered market progress. Here’s why:

• Restrictive municipal involvement, with many towns opting out of retail sales
• A sluggish licensing system due to legal battles and bureaucratic red tape
• High expectations for social equity led to delays in broader retail rollout
• The illicit market continues to flourish, especially in New York City

Illinois: Limited Supply and High Prices (Rank: 6th) – Illinois’ market opened with strong demand but was quickly constrained by limited supply and expensive cannabis. Retail licenses were slow to roll out, and prices remain among the highest in the country. Here’s why:

• Limited number of cultivators and dispensaries relative to population
• The state’s vertically integrated licensing system favored a few large operators
• Delays in social equity licensing stifled competitive market growth
• Wholesale cannabis prices remain significantly above national average

Vermont: Small but Strong Growth – (Rank: 49th) – Vermont’s cannabis market launched adult-use sales in late 2022 and, while small in scale, is operating sustainably. The state has taken a cautious but functional approach to market regulation. Here’s why:

• Local control and modest taxation have allowed for steady market growth
• Strong support for small craft cultivators keeps supply manageable
• Consumer trust is high due to local product sourcing and education efforts
• The market is too small for a strong illicit economy to dominate

Rhode Island: Efficient Rollout, Positive Growth (Rank: 45^th) – Rhode Island opened adult-use sales in late 2022 with an efficient rollout strategy and limited barriers to entry for medical operators transitioning to recreational sales. The state has avoided many of the pitfalls seen in larger markets.  Here’s why:

• Streamlined application and licensing processes
• Early transition of medical operators helped stock shelves quickly
• Competitive pricing and retail accessibility kept consumers in legal channels
• Local governments largely opted in to retail sales

What’s Causing Underperformance in Larger States?

Several common factors explain why large, well-populated, and high-income states are falling behind market projections:

• Overbearing Local and State Regulations: – Many municipalities have opted out of allowing dispensaries. Complex zoning hearings, community outreach mandates, and restrictive ordinances block retail growth in high-demand areas.
• Cumbersome Licensing Approvals: – Bureaucratic red tape delays licensing cultivators and dispensaries, slowing market development.
• Tax Pressure: – Cannabis in California and Illinois is subject to excise, cultivation, local, and sales taxes — driving up retail prices and keeping illicit markets alive.
• Limited Supply & High Wholesale Prices: – In states like Illinois and New York, limited cultivator licenses have driven up wholesale prices well above the national average, increasing costs for consumers.
• Illicit Market Proliferation: – When legal weed is too expensive or hard to access, the black market steps in. California and New York continue to lose market share to illegal sellers due to affordability and availability.

How Can Underperforming States Improve?

1. Increase Supply to Lower Prices – By awarding more cultivation licenses and fostering micro-grower ecosystems, states can reduce wholesale prices, making legal cannabis more competitive.
2. Encourage Retail Access with Municipal Incentives – States must reward towns that allow dispensaries with funding or shared tax revenues to balance out community concerns.
3. Reduce the Tax Burden – Cannabis products in some states are taxed up to 40%. Reducing excise and local tax rates can make legal cannabis a more attractive option for consumers.
4. Streamline Licensing and Approval – Cut through regulatory red tape by simplifying application processes, automating parts of the review cycle, and increasing state support staff to move applications forward faster.

Conclusion

Market size and income levels don’t guarantee success in the cannabis industry. California, New York, and Illinois are prime examples of how regulation-heavy environments and over-taxation can strangle even the most promising markets. Meanwhile, small states like Vermont and Rhode Island have found a way to scale their ecosystems sustainably by focusing on access, affordability, and simplicity.

If large markets want to reach their full potential, they must reduce barriers to entry, increase supply, improve retail access, and ease the financial burden on both businesses and consumers. The lessons from smaller, more agile states offer a roadmap to smarter cannabis policy.

About MaxQ Technologies

At MaxQ Technologies, Inc., we believe the cannabis industry needs a system that can protect cannabis companies’ data and mitigate the risk of a cyber-attack.  Our Seed to Sale ERP system is specifically designed for this industry and will provide greater security and protection against bad actors trying to hack into corporate systems. Contact us today or visit our website for more information on how our ERP systems can help your business.