The cannabis industry in California, once poised for rapid growth following the legalization of recreational marijuana in 2018, is now facing a significant downturn. The largest cannabis delivery company in the state, Eaze, announced its impending closure by the year’s end due to numerous “ongoing challenges.” CEO Cory Azzalino disclosed in a letter on LinkedIn that the company’s assets were foreclosed on August 6th and that operations would be winding down, with a complete shutdown anticipated by December 31. This closure will likely result in around 500 layoffs, according to the United Food and Commercial Workers union, which represents the affected employees. Eaze, which launched in 2014, expanded quickly in the burgeoning marijuana market but has since encountered a series of financial and legal setbacks.
The journey of Eaze has been fraught with difficulties over recent years. It was once valued at $700 million and served adults across California and Michigan with on-demand cannabis delivery. However, the company has grappled with significant management and legal issues. Former CEO James Patterson pleaded guilty to conspiracy to commit bank fraud in 2021, tying him to a case involving deceptive credit card practices regarding marijuana transactions. These scandals, coupled with a volatile investment climate, have hindered the company’s financial stability. Notably, tech investor James Henry Clark’s involvement introduced additional complications; despite his substantial loans to Eaze, he ultimately took ownership of the company following its foreclosure.
Eaze is not alone in its struggle within California’s cannabis sector, as the industry faces a wave of closures and financial hardships. Since the start of 2023, several other cannabis businesses have either downsized or shut down entirely, including MedMen, Herbl, Flow Kana, High Times, and GrassDoor. The collective troubles highlight the challenges of an industry that was once seen as a lucrative venture. MedMen had previously closed most of its stores due to financial distress, while Herbl faced a complete collapse in operations by the end of 2023. High Times struggled with repayment issues and had to sell off certain assets to manage its debts.
The financial woes of these cannabis companies align with a broader tax dilemma in California, where marijuana businesses collectively owe approximately $732 million in unpaid sales, excise, and cultivation taxes, with penalties and interest accruing as time goes on. Alarmingly, the vast majority of this owed tax—72 percent—comes from businesses that are no longer operating, showcasing how the market’s instability has left many unable to meet their obligations. These financial troubles are compounded by regulatory pressures that complicate operations for cannabis businesses.
In response to the tumult in the cannabis industry, California’s Governor Gavin Newsom has proposed emergency regulations aimed at limiting the accessibility of THC-containing foods and beverages to individuals under 21. This is part of a broader strategy to address concerns about youth consumption of cannabis products. Additionally, the governor signed Assembly Bill 1775, which allows for the operation of cannabis consumption lounges statewide, potentially creating new market opportunities even as existing businesses shutter their doors.
As Eaze winds down its operations, the future of California’s cannabis delivery market remains uncertain. The ongoing challenges and closures signal a broader shift in what was once considered a growth sector. Potential new ownership for Eaze may bring about a change in strategy or operations, but the hurdles faced by current and former cannabis businesses in the state paint a grim picture of sustainability. As many companies pivot or close entirely, the landscape of California’s legal cannabis market may continue to evolve in unpredictable ways, influenced by both regulatory changes and the ongoing financial realities of operating within this increasingly competitive industry.
