Can legal California cannabis sales grow by $1 billion?
“Despite recent contraction, California is still the biggest individual cannabis market in the U.S. It could also be called the oldest – if you trace the origins of legal over-the-counter sales to medical marijuana legalization in 1996, as some Golden State devotees do.
But according to new state Department of Cannabis Control Director Clint Kellum, who took over regulating the roughly $4 billion annual industry last month, California cannabis is still a developing situation, eight years after the first adult-use sale.
“I think it’s a market in transition from a longstanding, decades-old illicit market into a legal space,” Kellum told MJBizDaily recently. And if Kellum can be said to have one job, accelerating that transition is it.
Growth of any kind is welcome news for legal cannabis industry operators in California, where legal sales tumbled to a five-year low last year amid a short-lived tax hike, according to a state-commissioned report released last year. Kellum’s DCC plans to update the report in 2026.
But Kellum is also taking a long view.
“We want to see more California consumers use the legal market,” he said, adding that the market has “room for growth” while simultaneously cautioning that progress is likely to be slow, if – hopefully – also steady.
Nearly 10 years after voters legalized adult-use cannabis in 2016, the illicit market remains at or near the top of anyone’s list of complaints in California, whether regulator, operator or investor.
Given that California law enforcement seized a record amount of unlicensed cannabis in 2025 and seized nearly 18 times more illicit product than it did in the early part of the decade, the illicit market is still healthy by any metric.
The 40% legal consumption estimate means for every gram of legal cannabis sold in the state, someone without a license who doesn’t pay taxes sells 1.5 grams – and Kellum inherits a situation where that trend briefly accelerated.
Already stumbling from a COVID-19 pandemic-era peak, legal sales revenue slowed even further last year, partially because of a short-lived and near-universally loathed increase in the state excise tax.
The tax is gone, but it remains to be seen whether consumers will react. At any rate, Kellum admits that eliminating the illicit market is impossible.
Every market has some level of activity that is illicit,” he said.
Whether cannabis’ long-term future is 80% or 90% or more legal consumption remains to be seen, but in California, Kellum wants to set a goal that’s achievable while being ambitious.
“We’re still a ways away from sort of figuring out what the long-term steady state is,” he said.
In the short term, “we’ve been talking internally about putting down what is a pretty aggressive marker of getting to 50% and just seeing where the progress goes from there,” he said.
Going from 40% to 50% is a 25% increase, which means Kellum wants to add another $1 billion to California’s annual sales.
To get there, Kellum said, he has four main directives to follow:
Safe and trusted products for consumers.
Continued pressure on the illicit market.
Retail access and consumer awareness.
Easing restrictions on legal operators in a way “that doesn’t compromise that trust and safety in our products,” he said.
Gov. Gavin Newsom appointed Kellum in November. He inherits the job from Nicole Elliott, the first DCC director and third top official, with whom he worked “hand in hand” as chief deputy director last year, he said.
Having continuity in leadership was one sell for Kellum to take the job, he told MJBizDaily. Operators may appreciate having someone in Sacramento who understands the capital.
Kellum spent much of the prior 17 years in the sprawling state bureaucracy in Sacramento. He held several roles at the state Department of Finance, where he worked on cannabis issues, and the Department of Corrections and Rehabilitation before serving from 2021 to 2025 as the chief deputy executive director at the state Infrastructure and Economic Development Bank.
That’s all to say that California cannabis has a seasoned Sacramento operator “in charge,” which should ease coordination with other state agencies that touch cannabis: Fish & Wildlife, workplace safety regulators, tax collectors and more.
But growing California cannabis to the level Kellum proposed will take more power than that.
Despite recent contraction, California is still the biggest individual cannabis market in the U.S. It could also be called the oldest – if you trace the origins of legal over-the-counter sales to medical marijuana legalization in 1996, as some Golden State devotees do.
But according to new state Department of Cannabis Control Director Clint Kellum, who took over regulating the roughly $4 billion annual industry last month, California cannabis is still a developing situation, eight years after the first adult-use sale.
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“I think it’s a market in transition from a longstanding, decades-old illicit market into a legal space,” Kellum told MJBizDaily recently. And if Kellum can be said to have one job, accelerating that transition is it.
Potential is there. If just half the cannabis Californians consume is purchased at stores the DCC regulates – the figure now is 40% – it means another $1 billion a year in annual sales.
Growth of any kind is welcome news for legal cannabis industry operators in California, where legal sales tumbled to a five-year low last year amid a short-lived tax hike, according to a state-commissioned report released last year. Kellum’s DCC plans to update the report in 2026.
But Kellum is also taking a long view.
“We want to see more California consumers use the legal market,” he said, adding that the market has “room for growth” while simultaneously cautioning that progress is likely to be slow, if – hopefully – also steady.
“There’s certainly not going to be a meteoric rise, but making progress, similar to what it was like when alcohol came out of prohibition,” he said.
“It takes time.”
Nearly 10 years after voters legalized adult-use cannabis in 2016, the illicit market remains at or near the top of anyone’s list of complaints in California, whether regulator, operator or investor.
Given that California law enforcement seized a record amount of unlicensed cannabis in 2025 and seized nearly 18 times more illicit product than it did in the early part of the decade, the illicit market is still healthy by any metric.
The 40% legal consumption estimate means for every gram of legal cannabis sold in the state, someone without a license who doesn’t pay taxes sells 1.5 grams – and Kellum inherits a situation where that trend briefly accelerated.
Already stumbling from a COVID-19 pandemic-era peak, legal sales revenue slowed even further last year, partially because of a short-lived and near-universally loathed increase in the state excise tax.
The tax is gone, but it remains to be seen whether consumers will react. At any rate, Kellum admits that eliminating the illicit market is impossible.
“Every market has some level of activity that is illicit,” he said.
Whether cannabis’ long-term future is 80% or 90% or more legal consumption remains to be seen, but in California, Kellum wants to set a goal that’s achievable while being ambitious.
“We’re still a ways away from sort of figuring out what the long-term steady state is,” he said.
In the short term, “we’ve been talking internally about putting down what is a pretty aggressive marker of getting to 50% and just seeing where the progress goes from there,” he said.
Going from 40% to 50% is a 25% increase, which means Kellum wants to add another $1 billion to California’s annual sales.
To get there, Kellum said, he has four main directives to follow:
Safe and trusted products for consumers.
Continued pressure on the illicit market.
Retail access and consumer awareness.
Easing restrictions on legal operators in a way “that doesn’t compromise that trust and safety in our products,” he said.
Gov. Gavin Newsom appointed Kellum in November. He inherits the job from Nicole Elliott, the first DCC director and third top official, with whom he worked “hand in hand” as chief deputy director last year, he said.
Having continuity in leadership was one sell for Kellum to take the job, he told MJBizDaily. Operators may appreciate having someone in Sacramento who understands the capital.
Kellum spent much of the prior 17 years in the sprawling state bureaucracy in Sacramento. He held several roles at the state Department of Finance, where he worked on cannabis issues, and the Department of Corrections and Rehabilitation before serving from 2021 to 2025 as the chief deputy executive director at the state Infrastructure and Economic Development Bank.
That’s all to say that California cannabis has a seasoned Sacramento operator “in charge,” which should ease coordination with other state agencies that touch cannabis: Fish & Wildlife, workplace safety regulators, tax collectors and more.
But growing California cannabis to the level Kellum proposed will take more power than that.
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One complication is that while the industry may judge its state cannabis czar by how far the industry can go and how fast, most readily available growth opportunities are out of Kellum’s control.
Cutting taxes would require revisiting state law in the Legislature. Opening more opportunities for operators will require reevaluating city and county laws that impose restrictions on cannabis retail or cultivation.
And rescheduling marijuana, thus freeing plant-touching operators from onerous federal tax burdens, isn’t something even President Donald Trump can do quickly.
Neither Newsom nor Trump can dictate to individual city councils or county boards of supervisors what to do, though that might be the quickest and simplest method toward achieving Kellum’s growth goal.
Nearly half the jurisdictions of the state still don’t allow legal cannabis retail. And in those places, “62% of the people thought they could purchase it there legally, while 23% people didn’t know,” Kellum said.
That shows that one technique of cutting the illicit market is still spreading basic awareness of the legal market.
Sharing data points like that with lawmakers, the next California governor and powerful lobby groups is one way Kellum can advocate for the industry – using the “bully pulpit” of his role “to advocate for different rules,” he said.
Meanwhile, Kellum promised to share more – and better – information with the industry.
“We’re trying to understand each other,” he said. “I can appreciate that they’re operating businesses and that they have bottom lines and want to be successful.
“And we’re making decisions to have safe, trusted products, while realizing that there have to be businesses out in the community that can operate within these rules and laws.” “
