By Mrinalika Roy

(Reuters) - Small-scale cannabis farmers in California are calling it quits, crushed by crop damage from devastating wildfires and sliding prices, and industry experts expect the exodus to continue near-term in the largest pot market in the United States.

Unlike for traditional crops, pot cultivators cannot claim government monetary support for damage from extreme weather because cannabis remains on the federal list of controlled substances.

"These operators don't have the ability to go to FEMA (Federal Emergency Management Agency) to get reimbursement for losses in a federal disaster zone because of the federal classification," said Anthony Coniglio of NewLake Capital Partners.

California has also seen prices plummeting since 2021 due to oversupply.

The Golden State has witnessed an influx of new producers as demand peaked during the pandemic, when wholesale flower prices went above $2,000 per pound, but the buzz has waned and prices are currently around $1,200 per pound.

"The lower price point of wholesale doesn't create enough margin for people to take on risk of wildfires. As we continue to see elevated risk of wildfires, fewer people will invest in outdoor grows," Coniglio said.

Climate change is also raising insurance costs for cannabis farmers, who are already restricted to a limited pool of insurers.

"We've seen increased costs, such as electricity, water, and labor, which has not pushed through to crop pricing... pressuring margins and causing more farmers to exit," said Morgan Paxhia, co-founder and managing partner, Poseidon Investment Management.

Many have surrendered cultivation permits and left Lake County in northern California, a once popular growing region, several farmers told Reuters.

In Q1 2024, active business licenses declined over 20% year-over-year, according to cannabis data firm CRB Monitor.

California sold $5.3 billion worth of cannabis products in 2023, according to the state's tax department, versus nearly $6 billion recorded in 2021, losing the top spot to Colorado in the first quarter this year.

"Industry dynamics continue to pose significant challenges for legal cannabis operators in California. As a result, other state markets are seen as more attractive," said Verano founder and CEO George Archos.