US Cannabis Revenue Falls for the First Time on Oversupply

The U.S. legal cannabis market shrank in 2025 for the first time since adult-use sales began more than a decade ago. The cause has less to do with consumers buying less than with operators unable to sell what they grow at a profit.

National retail sales came to an estimated $29.1 billion last year, down from about $30.1 billion in 2024, according to a report from cannabis staffing firm Vangst and the research consultancy Whitney Economics. It is the first annual contraction the two firms have recorded since Colorado and Washington opened the country’s first recreational stores in 2014. Whitney Economics, which separately forecasts a return to growth this year, called it the first decline in the regulated market’s history.

The drop is not a demand story. Unit volumes held steady or rose in most states; what fell was the price. Years of state regulators authorizing more cultivation than their markets can absorb have left the country structurally oversupplied, and that glut has driven wholesale and retail prices down far enough to erase the margin operators need to stay solvent. Cheaper cannabis is welcome news for shoppers and a problem for the businesses selling it, which are absorbing higher costs for labor, rent, and fuel while taking in less on each sale.

A price problem, not a demand problem

Beau Whitney, the consultancy’s chief economist, framed the shift as a sign of maturity rather than failure. For years, rapid growth in newly opened states masked a steady erosion in prices; now that the pace of new consumers entering the legal market has slowed, that erosion is showing up directly in revenue. “We are approaching the point where growth rates of legal participation are slowing while price declines have accelerated,” he said. “This is a sign of market maturity.”

The squeeze has been uneven. Mature markets drove the losses, led by Illinois, where some of the steepest cannabis taxes in the country have pushed shoppers toward cheaper products across the border in Michigan and Missouri. The pattern is a familiar one for operators watching high state taxes pull sales out of the legal channel, and it has compounded a broader collapse in flower prices that has hit older markets hardest, including Michigan, where wholesale prices have neared record lows.

Employment tracked the same divide. Cannabis payrolls fell about 2.7 percent in 2025, the report found, leaving roughly 412,500 workers as of early 2026, with nearly all of the losses concentrated in older markets. Newer ones ran the other way. New York added more than 16,000 jobs to reach about 28,660, making it the third-largest cannabis employer in the country on the strength of new retail licenses and a crackdown on unlicensed shops, while Ohio and Maryland also posted gains. California, despite its losses, remained the largest employer at roughly 57,500 workers. The contraction extends a longer thinning of the operator base, with the national license count falling for seven straight quarters as companies surrender permits they can no longer use profitably.

What rescheduling changes, and what it doesn’t

Both the report and the coverage around it raise the prospect that federal rescheduling could reverse the slide. The business case is real, but narrower than it first appears.

A Justice Department order that took effect April 28, 2026 moved state-licensed medical marijuana and FDA-approved cannabis products to Schedule III. The most immediate consequence is tax. Operators handling those products are no longer caught by the federal rule that bars sellers of Schedule I and II drugs from deducting ordinary business expenses such as payroll and rent — a disallowance that has pushed many cannabis companies’ effective tax rates well above those of an ordinary business.

That relief reaches only medical operators for now. The far larger adult-use market, which accounts for most of the $29.1 billion in sales, stays on the old footing until a broader process runs its course; the DEA is set to open a hearing on June 29, 2026 on whether to move all marijuana to Schedule III. Operators are already pressing the IRS for clarity on how the tax change applies. The report’s authors were candid that the payoff is uncertain, cautioning that it is too early to tell how federal reform will affect the industry’s economics and that it could take months or years for federal and state regulators to write the rules that follow.

The years ahead

Whitney Economics still expects growth to resume, projecting $30.5 billion in revenue for 2026, a 4.9 percent rebound, and about $43.3 billion by 2030. But the firm has cut those figures from earlier forecasts and now treats price deflation as a permanent input rather than a passing dip — a change that points to single-digit growth instead of the double-digit expansion the industry once counted on. For operators, the message is that prices are unlikely to recover on their own, and that the next phase of growth may depend on widening distribution beyond the dispensary into channels such as grocery and big-box retail. The era when a fast-growing market could paper over falling prices has ended.