This Central Valley city was late to legal weed game. Now it’s bucking California trend

Legal sales of cannabis products in California in early 2024 dipped to their lowest level in more than three years, falling by about 6% compared to the first quarter of 2023.

Just over $1.2 billion worth of taxable cannabis — from marijuana buds to pre-rolled joints, edibles, resins and other cannabis products — was sold in California between Jan. 1 and March 31, according to preliminary data released by the state Department of Tax and Fee Administration. That compares to almost $1.3 billion in the same period of 2023, and a peak of almost $1.6 billion in the spring of 2021.

In the central San Joaquin Valley, where weed is now available from licensed retailers in six of the seven counties from Stanislaus to the north to Kings and Tulare counties in the south, first-quarter sales were also off by varying degrees:

• Kings County: $5.9 million, down 19.1% compared to the first quarter of 2023.
• Madera County: No legal sales in the first quarter.
• Merced County: $8.5 million, down 8.2%.
• Mariposa County: No legal sales in the first quarter.
• Stanislaus County: $29.9 million, down 13%.
• Tulare County: $14.8 million, down 3.3%.

The lone exception in the Valley was Fresno County, where taxable sales of legal weed climbed to the highest level ever, reaching $21.9 million — an increase of almost 21% compared to $18.1 million in the first quarter of 2023.

The quarterly sales figures for counties and the state are subject to change as some retailers continue filing first-quarter tax returns after the end-of-April deadline, state tax officials said.

Still, the significant rise in sales in Fresno County over the past year largely coincides with a sharp increase in the number of licensed retailers in the city of Fresno. Prior to last fall, California’s fifth-largest city had only two legal cannabis retailers.

Now there are 13 open throughout Fresno — a six-fold increase that is also driving up sales, and the associated tax revenues for the city’s treasury. Of the $21.9 million in cannabis products sold in Fresno County in the first quarter of this year, about $16.6 million or almost 76% were generated by retailers in the city of Fresno.

Number of cannabis retailers in Central California

Since California voters legalized recreational marijuana use for adults in 2016 and state-licensed retailers could legally open their doors at the beginning of 2018, the cannabis industry has grown rapidly in some counties, slower in others, and is yet to get off the ground in a handful of others.

For instance, of 1,850 retail licenses issued by the state Department of Cannabis Control throughout California, only 82 — just 4.4% — are for businesses in the San Joaquin Valley. The vast majority of those are storefront and delivery businesses, but the figures also include “microbusinesses” for which retail is one component of their operations.

The largely rural San Joaquin Valley also represents a relatively meager proportion of legal cannabis sales statewide, accounting for less than 7% of all taxable sales in the first quarter of the year. Of the $1.2 billion in cannabis sales in California from Jan. 1 through March 31, about $81 million was through retailers in the Valley.

While the state cannabis agency licenses weed businesses, city councils and county boards of supervisors have the authority to regulate commercial activity including retail sales and delivery through local ordinances and permits.

In Fresno County, five cities allow legal marijuana sales, while the county and nine cities including Clovis prohibit cannabis businesses.

Across the rest of the Valley:

• In Kings County, the cities of Hanford and Lemoore allow recreational cannabis sales, while Corcoran permits retail sales and delivery only for medical marijuana. Sales are not allowed in the unincorporated areas of the county.
• Madera County and the city of Chowchilla prohibit any cannabis businesses, but sales and other commercial cannabis activity are allowed in the city of Madera.
• Mariposa County prohibits any marijuana businesses. The county has no incorporated cities.
• The Merced County cities of Atwater, Gustine and Merced allow for cannabis sales and other commercial activity, but marijuana businesses are prohibited in the cities of Dos Palos, Livingston and Los Banos and the unincorporated county.
• In Stanislaus County, the cities of Hughson and Newman prohibit cannabis businesses, but they are allowed in Modesto and six other cities, as well as the unincorporated areas of the county.
• Tulare County only allows for retail sales of medical marijuana in the unincorporated parts of the county. The cities of Dinuba, Exeter and Visalia prohibit all cannabis businesses, but retail sales are allowed in Farmersville, Lindsay, Porterville, Tulare and Woodlake.

As Fresno got off to a relatively late start in the development of cannabis retailers, initially banning sales of recreational marijuana, other communities were much quicker on the draw.

The central San Joaquin Valley’s first legal cannabis dispensary opened in the Tulare County city of Woodlake in May 2018. In Parlier, southeast of Fresno, a company operated a cannabis delivery service for about two years before opening a brick-and-mortar storefront in 2021.

Retail stores were also opened in Coalinga, in western Fresno County, and in the Kings County city of Lemoore, long before Fresno gained its first legal dispensary — two of them, in fact — in July 2022.

Dispensaries also abound in the north Valley. The earliest of the 27 active state-issued licenses for retail cannabis storefronts in Stanislaus County date to the spring of 2019, including 12 in Modesto. There’s also one approved state licensee for a delivery service and one microbusiness licensee that includes a retail component.

The number of state retail licensees in other Valley counties are:

• Fresno County: 19 retail storefront licensees.
• Tulare County: 14 storefront licensees, two delivery licensees and one microbusiness retail licensee.
• Merced County: Eight retail licensees and two microbusiness retail licensees.
• Kings County: Five retail licensees and one microbusiness retail licensee.
• Madera County: One retail licensee. Another Madera County dispensary, the Tribal Nation Flower Company operated by the Picayune Rancheria band of Chukchansi Indians near Coarsegold, opened in early 2022, but because the tribe is considered sovereign it is able to operate without a state license.

Who’s growing cannabis in the Valley?

On the cultivation side of the industry, the San Joaquin Valley — one of the richest agricultural regions in the state and nation — represents 381 of the 5,053 active cultivation licenses issued by state regulators, or about 7.5%. The Valley also has six microbusiness licensees with cultivation as part of their license, out of 250 such licenses statewide.

All told, cultivation licensees amount to 132 in Fresno County, 216 in Kings County, 27 in Stanislaus County, six in Merced County and six in Tulare County. No cultivation operations have been licensed in Madera or Mariposa counties.

The Valley’s largest single concentration of cultivation licenses issued to a licensee by the state is near Lemoore, where People’s Farming LLC holds 210 individual licenses for property in Kings County near Jackson Avenue and Highway 41. All of those licenses are for small outdoor grows, each of which is permitted for between 5,000 and 10,000 square feet of “canopy,” the space taken up by the leafy branches of a plant.

Other large-scale licensees include Odyssey Agricultural Development LLC, which has 61 state-issued licenses for properties just east of Mendota in western Fresno County, including 48 for small outdoor grows and and 10 indoor grows; Boca Del Rio Agriculture LLC with 43 licenses for small outdoor grows, also near Mendota; and GBH Cultivation, with 22 licenses near Parlier for medium-sized outdoor grows of up to one acre of canopy.

Financial implications of cannabis

Cannabis operations, particularly retailers, represent a potentially sizable source of budget revenue for cities or counties through sales and excise taxes.

In Fresno, cannabis retailers are charged a business license tax at a rate of 4% of gross receipts; taxes are also assessed for distributors and manufacturers of products. According to city budget documents, revenues from weed were nil in the 2021-22 budget year, compared to a forecast of almost $4.4 million. In 2022-23, revenues came in at less than $1.17 million, compared to a budget expectation of almost $5.4 million. In 2023-24, cannabis revenues were estimated at about $2.26 million, compared to a budget forecast of about $5.4 million.

With the rising number of dispensaries climbing in Fresno this year, the forecast for cannabis revenues in the 2024-25 fiscal year is more than $7.1 million — more than triple what came in during 2023-24.

Local taxes vary, however, from one jurisdiction to another. The cannabis business tax rate for retailers in Modesto is 8%; there’s also an annual permit fee of more than $18,700. But the city’s revenue from cannabis taxes and administrative fees has been falling over the past few years, from about $5.7 million in 2020-21 to a little over $4.3 million in 2021-22, and less than $3.5 million in 2022-23. City budget documents had anticipated cannabis revenues of $4 million in 2023-24 and about $3.9 million in 2024-25.

Merced enacted its Measure Y, a tax of $25 per square foot of cultivation space or 10% of gross revenues on cannabis businesses, in 2018. That generated $1.1 million in 2019-2020 and $3.2 million in 2020-21. Since then, however, revenues have generally declined, falling to $2.4 million in 2021-22 and projected to dip below $2 million in 2024-25 for the second year in a row.

The local taxes and fees charged by cities are on top of the state’s sales tax rate of 7.25% and a state excise tax of 15%. But just as taxable sales have fallen, so too have the state’s revenues over the past few years.

The combined revenue from California’s excise tax, sales tax and cannabis cultivation tax (which stopped being assessed in mid-2022) peaked at $1.36 billion in 2021 before dropping to about $1.2 billion in 2022 and to less than $1.1 billion in 2023.

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