💸 The Tape

When the Democratic nominee for lieutenant governor and the Republican nominee for governor stand on the same stage at a cannabis conference and reach the same conclusion, it’s worth paying attention. At IgniteIt LA this week, State Treasurer Fiona Ma called California’s legal market “a complete disaster” and declared the legal business “dead.” Steve Hilton, the GOP’s pick for governor, looked at a Sacramento dispensary’s 38% effective tax rate and labeled it “RIDICULOUS” in all caps. Ten years after Prop 64, the world’s largest cannabis market has become a bipartisan punching bag. The numbers explain why.

The state of play: smaller, cheaper, and still losing to the street

California’s licensed retail sales peaked around $5.2 billion in 2021 and have declined every year since: $4.4 billion in 2023, $4.2 billion in 2024, $3.9 billion in 2025. The first quarter of 2026 came in at $956.7 million, down about 2% year over year and well below the $1.07 billion printed in Q1 2024. Headset puts the current run-rate at roughly $325 million a month, a number that has been “relatively static” for a market that was supposed to be the industry’s growth engine.

What makes this worse is that units aren’t falling. Q1 2026 moved 36.4 million units, essentially flat against last year. Revenue is shrinking because prices are, which is the signature of a market where supply refuses to rationalize and demand refuses to migrate from the illicit channel. Vapes are now the top category at $350.8 million per quarter, ahead of flower at $312.8 million and pre-rolls at $184.5 million. The flower that built California’s reputation is now the second-tier product.

Wholesale: Croptober meets a price floor that keeps moving down

Cannabis Benchmarks data for late September tells the cultivation story. Outdoor flower is at $334 a pound, down 11% since January. Mixed-light is $566, and indoor has collapsed 31% this year to $983. For context, outdoor pounds fetched over $1,200 in 2021. The harvest coming off the fields in October is projected at 13 to 22 million wet pounds, and August plant counts of 6.6 million are near all-time highs. Supply isn’t the problem being solved; it’s the problem being created.

The attrition is real but incomplete. Outdoor canopy has fallen from about 90 million square feet at peak to 61 million. Mixed-light canopy is down 57%. Indoor has held flat at 9.6 million square feet, which means the highest-cost production tier hasn’t shrunk at all while its price has cratered. That’s the cultivation equivalent of a bank run in slow motion. As one Humboldt grower put it, “We used to make a lot; now it costs a lot.”

The tax stack that nobody will defend

California’s tax structure is the one thing everyone from Ma to Hilton to the DCC agrees is broken. The state excise rate jumped from 15% to 19% on July 1, 2025 under the Prop 64 cultivation-tax swap formula, triggered a near-revolt from operators, and was rolled back to 15% by October 1 under AB 564. But the state excise is only one layer. Add local cannabis business taxes that run 10% or more in many jurisdictions, standard sales tax, and the federal 280E burden that still applies to every adult-use operator, and you arrive at the 38% effective rate Hilton found in Sacramento. Meanwhile, 56% of California cities and counties ban retail outright, which means legal product has to travel farther, through more markups, to reach customers who have a cheaper unlicensed option on the same block.

The result is a legal market worth $4 to $5 billion sitting inside a total cannabis economy that the state’s own agricultural data pegs at $12.9 billion. Hilton’s claim that 62% of cannabis consumed in California comes from illicit sources is unverified, but every independent estimate lands in the 50-to-60% range. A decade in, legalization has produced a licensed market that is a minority shareholder in its own state.

What the overhaul actually looks like

Here’s where the two parties diverge on method while agreeing on diagnosis.

Ma’s play is structural. She wants Prop 64 replaced, and she’s identified the cheapest path: an industry-backed bill passed with a two-thirds legislative supermajority and the governor’s signature, which can amend a voter initiative without the $10-million-plus cost of a new signature drive. She’s promised to convene a stakeholder working group immediately. The implication is a rewrite of the tax formula, the local-control regime, and potentially the licensing architecture, done through Sacramento rather than the ballot box. For operators, that’s the best news in years, because a legislative fix can happen in a single session rather than a multi-year initiative cycle.

Hilton’s play is deregulatory and enforcement-heavy. He’s proposed an “Office of Fun and Freedom” to strip rules he considers pointless, demanded a state audit of cannabis tax flows, alleged that $350 million earmarked for substance abuse programs was diverted, and would expand the CHP into a state police force to go after illicit cultivation he ties to cartels and foreign-linked grows stealing water and power. The implication is a supply-side squeeze on the illicit market paired with cost relief for small dispensaries.

What it means for capital

For investors, the shape of the overhaul matters less than the fact that it now has bipartisan political cover. Three implications follow.

First, tax relief is the single highest-leverage variable in California. Every point of excise or local tax that comes off the stack flows directly to retailer gross margin, and every point of margin recovery makes the licensed price competitive with the street. The Q4 2025 and Q1 2026 declines, which came after the excise rollback, show the 15% rate alone isn’t enough.

Second, enforcement finally has a political constituency. The DCC’s record seizures in 2025 didn’t move the needle because enforcement without price parity just relocates illicit supply. Hilton’s state-police approach, or anything like it, only works if it arrives alongside tax cuts, not instead of them.

Third, consolidation accelerates either way. The operators positioned to benefit from a cleaner California are the ones already built for scale and cheap production, which is why Glass House’s greenhouse model, Vireo’s Eaze retail platform, and LEEF’s concentrate business all showed up at IgniteIt talking about interstate commerce and DEA registrations. A functioning California market with a 10% illicit share instead of 55% would be worth $8 billion. That’s the prize, and for the first time since 2016, both parties are competing to win it.

📈 Dog Walkers

$TLRY ( ▼ 3.37% ) Reports Q1

Tilray Brands posted record Q1 fiscal 2027 revenue of $257.1 million, up 23% year over year, and the headline tells you exactly what the company has become: a beverage business with a cannabis division attached.

Beverage revenue jumped 82% to $101.5 million, driven by the BrewDog acquisition, with gross margin expanding to 41%. Distribution added $84.3 million, up 14%. Cannabis, the segment that gave the company its ticker and its mythology, fell 13% to $56.1 million as Canadian medical revenue dropped 23% and adult-use continued to compress. The consolation prize is that cannabis gross margin improved to 39%, and international cannabis grew 21% to $16.2 million, with EMEA revenue up 71%. Tilray’s German and European medical footprint is doing the work its Canadian operations can’t.

The bottom line is messier. Net loss of $40 million was driven by non-cash charges, and adjusted EBITDA slipped 10% to $9.2 million, with about $1.7 million eaten by global fuel surcharges. Free cash flow was negative $27.4 million, worse than last year’s negative $10.6 million, though management points to a seasonally back-half-weighted year and reaffirmed FY2027 adjusted EBITDA guidance of $68 to $75 million.

The balance sheet is the strength: $221.4 million in cash and securities, a net cash position, and $42 million of debt retired fiscal year-to-date. The cost of that comfort was dilution. Shares outstanding climbed from 131.7 million to 144.9 million in a single quarter, with $22.3 million raised through equity issuance, post-reverse split.

Irwin Simon’s line, “We are no longer dependent on a single market or regulatory catalyst,” is both the pitch and the problem. Tilray has diversified away from the thing that would benefit most from US rescheduling, and into craft beer at a moment when the category is contracting. The quarter proves the strategy produces growth. It hasn’t yet proved it produces profit.

Full Report

📺 Trade To Black

Cash Is King, Credit Is Queen: Inside IgniteIt LA + the Week's Biggest MSO Balance Sheet Moves

• FundCanna CEO Adam Stettner joins Trade To Black to break down a week where cannabis balance sheets finally started looking like real businesses.

• Vireo Growth’s $60M refinancing at 8.5% through 2034 from a U.S. commercial bank, secured by its New York and Florida cultivation sites, marks a watershed for bank-led cannabis lending and a warning shot to every operator still paying 12%+.

• Trulieve retires a $65M Florida mortgage early using free cash flow, cutting total debt to roughly $225M fresh off its NYSE listing. Is deleveraging the new Schedule III-era playbook heading into Q3 earnings?

• IgniteIt LA takeaways: Adam shares what he heard from Treasurer Fiona Ma, DCC Director Clint Kellum and California operators on cash, credit, Schedule III reality for adult-use, and who’s selling vs. surviving in the world’s largest cannabis market.