San Francisco, CA - Apr 20, 2019: A marijuana leaf themed version of the Stars and Stripes flies over the 420 festival crowd in Golden Gate park.

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Almost a decade has passed since California legalized recreational cannabis, and Governor Gavin Newsom marked April 20, widely known as “4/20,” an informal holiday celebrating cannabis culture, by announcing that the state has curbed illicit activity worth about $1.2 billion over the years and cleared 215,000 past cannabis charges.

“California has cleared records, seized illegal product, and built a legal market that works,” Newsom said in a statement. “As our work continues, we’re focused on strengthening that legal market so it can compete and succeed.”

California pioneered cannabis reform, from early decriminalization in the 1970s to legal medical use in 1996 and full adult-use legalization in 2016 (sales started in 2018), helping create one of the largest legal markets in the US. But that market is now losing momentum: licensed sales fell to $3.9 billion in 2025 from $4.2 billion in 2024, while regulators continue to grapple with a persistent illicit trade.

California officials have taken hold of over 778,000 pounds of illicit cannabis since recreational legalization, according to the latest state report. Close to a million plants were destroyed by state authorities working under the governor’s direction. In the first quarter of 2026, authorities seized more than $34 million worth of illegal cannabis.

Despite these efforts, the crackdown on illegal cannabis remains a goal to achieve, as cannabis dispensaries that operate legally have to face the competition of the illicit market that doesn’t fade away.

Illegal growers are estimated to produce far more cannabis than licensed farms. In 2024, licensed producers grew about 1.4 million pounds, according to the California Cannabis Market 2024 Report, compared with roughly 11.4 million pounds from unlicensed operations.

On top of that, under Proposition 64 that legalized cannabis for recreational use in in California November 2016, cities and counties can decide whether to allow legal cannabis businesses in their jurisdictions. As a result, about 58% of California jurisdictions still prohibit retail cannabis sales. This means that access to legal cannabis depends on where you live, while the illicit market operates across the state.

The legalization of cannabis has brought the California Department of Tax and Fee Administration to collect over $7 billion in cannabis tax revenue since 2018, which has flowed into state coffers.

However, licensing requirements, taxes, and compliance rules impose substantial costs on legal cannabis businesses, which can make it harder to compete with illicit competitors.

Legal cannabis products face a 15% excise tax plus retailer compliance duties, with cultivation license fees ranging from hundreds to tens of thousands of dollars annually, depending on scale, and additional testing and security compliance costs significantly increase overall operational expenses. A 2020 study found California’s cannabis testing costs about $136 per pound, which is roughly 10% of the average wholesale price.

California is now also facing new challenges with hemp-derived THC products like delta-8 THC that give psychoactive effects similar to legal cannabis and that spread across the U.S. following the legalization of industrial hemp in 2018.

The state has recently banned intoxicating hemp products with detectable THC and restricted synthetic THC products. California’s Alcoholic Beverage Control agency said that, since 2024, it has inspected more than 20,800 locations, identified 157 violators, and seized over 7,300 illegal products, while reporting a compliance with state rules above 99%.

The administration, meanwhile, said it is working to fix regulatory gaps and make all intoxicating products follow the same safety, labeling, and age rules.