California’s medical cannabis market began in 1996 when voters passed Proposition 215 (the Compassionate Use Act), making it the first state to legalize cannabis for medical use. Twenty-two years later, Proposition 64 ushered in adult-use sales, which commenced in January 2018.

Initially, three separate agencies handled different aspects of the industry:

The Bureau of Cannabis Control (BCC) oversaw retail sales, distribution, testing laboratories, and microbusinesses for both medical and adult-use cannabis. Cannabis Cultivation Licensing (part of the Department of Food and Agriculture) regulates and licenses commercial cannabis cultivation operations, including track-and-trace systems. The Manufactured Cannabis Safety Branch (part of the Department of Public Health) managed licensing and oversight of cannabis product manufacturing, such as edibles, concentrates, and topicals.

In July 2021, these three programs were consolidated into the California Department of Cannabis Control (DCC) to streamline licensing and enforcement, enhance consumer protection, eliminate redundancies, and simplify compliance for businesses.

A Market Teetering on the Edge

Clint Kellum, the newly appointed DCC Director, faces a critical task- saving California’s cannabis industry from collapse. This is no small task in a state that serves as the genesis of cannabis culture and cultivation expertise—the very foundation on which the industry is being built.

Kellum is no newcomer to the challenge. He has served as the department’s chief operating officer for the past five years and brings more than 18 years of state government experience, including budget and policy development at California’s Department of Finance. The DCC’s responsibilities span issuing licenses for cultivation, retail, manufacturing, distribution, and laboratory services; monitoring operators to ensure compliance; and maintaining a law enforcement division focused on dismantling the illicit market.

Navigating the Framework of Prop 64

In a recent interview, Kellum broke down the hurdles facing the DCC, pointing out that many of the industry’s biggest pain points were baked into the original voter-approved initiative. Proposition 64 established high tax rates, dictated how revenue would be allocated, and granted 550 individual jurisdictions the right to “opt out” of the legal market.

While the industry often looks to the DCC for sweeping changes, Kellum notes that as a regulatory agency, his office does not have the authority to rewrite tax policy or override local land-use decisions. Instead, his strategy focuses on working within the existing legal framework to drive progress.

The Push for Local Expansion

One of Kellum’s primary objectives is addressing “cannabis deserts” across the state. Because many local governments remain hesitant to permit retail sales, the DCC is pivoting toward an educational role to bridge the gap between state legality and local reality.

“We have efforts to help educate and share information with local governments about the challenges of not having legal access in their jurisdictions,” Kellum explains.

He points to a recent Cal Poly research study demonstrating a direct correlation between the lack of retail access and the growth of the illicit market. By sharing this data, Kellum hopes to prove to local officials that “opting out” often creates the very public safety issues they were trying to avoid.

Beyond advocacy, Kellum recognizes the administrative burden placed on small municipalities. “It is complicated on their end, too,” he admits. “They may not have the resources to know how to run an RFP, a lottery, or a first-come, first-served licensing process.” To combat this, the DCC is actively absorbing and sharing best practices to help local governments navigate the complexities of retail implementation.

However, Hirsh Jain, CEO of Ananda Strategy, a business advisory firm working with many of California’s leading cannabis brands and retailers, offers a more cautionary perspective. While education has value, many California cities remain reluctant to license cannabis businesses not because of an information gap, but because of what they’ve observed in practice—widespread business failures and disappointing tax revenues.

“The hundreds of millions of dollars in cannabis tax revenue that the City of Los Angeles is owed, but will likely never collect, is frequently cited by other jurisdictions as evidence that California’s legal cannabis model is fundamentally flawed,” Jain notes, attributing the problem largely to state regulatory and tax burdens.

Education alone, he argues, will not overcome the deep skepticism many local governments have developed in the decade since Proposition 64 passed—skepticism that continues to drive their refusal to participate.

Jain suggests the state could go further by spotlighting successful local models already operating within California. “Cities such as San Francisco, which has adopted a 0% local cannabis tax rate and offers free medical cannabis ID cards, demonstrate how thoughtful local policy can support legal market participation,” he says. By elevating these proven practices, the state can provide cities with concrete, real-world examples of what works.

Reducing The Burden of Costs

It doesn’t take an MBA to understand that increasing taxes on already struggling operators could be the final blow for many in the California market. Director Kellum commended Governor Newsom for signing AB 564 in late 2025. The legislation effectively halted a planned 25% tax hike (which would have seen the excise tax jump from 15% to 19%) and locked the current rate until 2028

Beyond tax relief, the DCC has restructured its funding to avoid increasing operators’ costs. Previously, the department was funded almost entirely by regulatory fees paid by licensed operators during their annual licensing process. Last year, the department shifted approximately $70 million—40% of its budget—from licensing fees to the state’s cannabis tax fund.

“Which really avoided us having to do what would have otherwise been a significant licensing fee increase,” Kellum explains. “So, in some ways, I can understand if you’re an operator, you didn’t see that because you didn’t feel the actual increase, but it is a cost avoidance because we’re trying to be mindful of those.”

While the change may not be immediately visible to operators who didn’t experience a fee hike, it represents a significant effort to prevent additional financial strain on an industry already struggling with high operational costs and illicit market competition.

Shifting The Regulatory Focus

Beyond financial relief, the DCC is actively working to reduce regulatory complexity for operators. This year, the department’s focus is on streamlining cultivation requirements. Currently, cultivators must tag each plant individually in the state’s track-and-trace system—a labor-intensive process that adds significant operational burden.

“We’re looking at ways to bring that into other groupings to track it, still maintain safety and integrity of our system, but not be so cumbersome on that front,” Kellum says.

Jain says this reform is particularly urgent in light of a December 2025 court ruling that found California’s implementation of the METRC track-and-trace system imposed unlawful and excessive burdens on licensees without adequate statutory authority. The decision, he notes, exposed long-standing flaws in how track-and-trace requirements have been administered and underscored the need for a more practical, legally sound approach.

There are also legislative efforts underway to develop a combined activities license. This new license type would allow businesses engaged in multiple activities—such as cultivation, manufacturing, and retail—to operate under a single license rather than maintaining distinct licenses for each activity. The change would eliminate friction points that currently exist when moving products between different license types within the same business.

“Both of those are in development now, they’re not released publicly,” Kellum notes, “but we are developing efforts to get those out.”

Combating the Illicit Market

Nearly everything the DCC does is focused on supporting the legal market while suppressing illicit activity, including burner distros that transport products out of state. According to Kellum, this requires a multi-pronged approach that goes far beyond enforcement alone.

“It is a confusing market for consumers and our law enforcement partners,” Kellum acknowledges. The department is working to establish deeper relationships with local governments and local law enforcement entities to clarify the distinctions between legal and illegal operations and build coordinated responses.

The DCC is also requesting additional resources to expand its enforcement capacity, though Kellum stresses the limitations. “We’re not going to enforce our way out of it, but it is a part of that effort,” he says.

Financial support for local enforcement is coming. The Board of State and Community Corrections, which receives funding from the Cannabis Tax Fund, will soon release a $125 million RFP prioritized for illicit market enforcement. This funding addresses resource constraints that prevent local governments from taking action against illegal operators in their jurisdictions.

Kellum believes expanding retail access reduces the illicit market’s foothold by providing legal alternatives for consumers and, by supporting licensed operators with reasonable regulations and costs, keeping them competitive with unlicensed sellers. “Having a legal market that’s functional for our operators supports against the illicit market, and so it’s doing all those things in combination that are really the work we’re trying to do,” says Kellum.

While the illicit market continues to erode legal market revenue, Kellum sees encouraging signs of stabilization. “If you actually look at the units sold at retail, that has continued to go up,” he notes. “However, while the lower prices are better for consumers, it does shrink margins for operators, and that becomes more and more challenging.”

He also pointed to signs that price compression is starting to reverse for cultivators—potential signals that the market is stabilizing. But Kellum is quick to temper optimism. That doesn’t mean the job is done or that the industry is out of the woods. “I just think it reinforces all the things I was describing here and the importance of continuing those,” he said.

Navigating the Future

Director Kellum recognizes the critical importance of transparency and clear communication to avoid misperceptions, confusion, or misdirected frustration within the industry.

“I do think it’s really important in all this that we try our best to understand each other and what levers we do control,” Kellum explains. He’s keenly aware that stakeholders often raise issues—such as taxes and local control—that fall outside the DCC’s direct authority. “Those policies and authorities don’t sit with me,” he notes, pointing out that many of these constraints were embedded in Proposition 64 itself and approved by California voters.

This complexity isn’t an excuse, Kellum emphasizes, but it’s essential to understand the context of the challenges. Statutory and regulatory changes require processes, which can be frustrating when the industry needs relief now.

Since stepping into the director role, Kellum has prioritized meeting with industry participants to understand their challenges firsthand and establish clear feedback loops. “I’m not going to be able to do everything each individual asks,” he acknowledges, “but are there themes and areas where we can pick up and make progress together?”

His approach centers on open communication, providing clarity about what the DCC can and cannot control, and consistent execution. “I can’t promise that everything’s going to change tomorrow, because that wouldn’t be realistic,” Kellum says. “What I can say is we know the areas of challenge, we’re putting forth efforts intentionally in those areas of challenge, and we’re hoping that steady progress will get us to the right outcome.”

And if the current strategies don’t deliver the needed results? “We’ll revise what we’re doing and continue to make efforts along those lines,” he says

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