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AB 564 will Protect Public Health/Safety & Community Program Funding
- Laura Braden
- Aug 27
- 3 min read
The legal cannabis market is in crisis, with declining sales, widespread business closures, and plummeting tax revenue. Assembly Bill 564 (Haney) restores the excise tax rate from 19% to 15%, a critical step to protect public health and stabilize the legal market. This bipartisan legislation has received widespread support in both chambers and from Governor Newsom.
“Legal cannabis businesses saw an over 10% drop in sales last year, the city of Los Angeles’s cannabis department says, which most analysts say is a result of price-undercutting by old-fashioned, unlicensed weed dealers.” (LA Daily News)
“California’s cannabis market has suffered 15 consecutive quarters of revenue decline, prompting urgent calls for tax reform… It was a warning sign 12 quarters ago. This is an industry imploding.” (North Bay Business Journal)
“Revenues from legal sales of cannabis are already dropping, and if we keep raising the tax, they’ll drop even more. That penalizes cannabis businesses that are doing the right thing and working within the legal market. And, it makes illegal sales from cartels and criminals more competitive… If we want to supplement education and youth programs, cannabis tax dollars will only exist if we steady the legal market and go after those illegal operators.” (Assembly Majority Leader Cecilia Aguiar-Curry (D-Winters)
“We can both support the legal cannabis industry and protect child care. If the measure reaches the governor’s desk and is signed into law, we will work with the Legislature to ensure there are no cuts to child care due to this policy change.” (Diana Crofts-Pelayo, a spokesperson for Governor Newsom)
By the Numbers
Cannabis Sales & Revenue in Sharp Decline
Legal cannabis sales have dropped 30% since Q2 2021. (CDTFA)
Q1 2025 = 11% drop, the steepest quarterly decline since Prop 64 passed. (CDTFA)
State excise tax revenue is down 22% since FY 2023-24, with projections for FY 2024–25 already revised from $603M to $594M. (CDTFA)
In San Diego, cannabis tax revenue has declined by 40% in just two years, from $24.6 million in 2022 to $14.7 million in 2024. (NBC San Diego)
Business Closures Are Mounting (data as of August 5, 2025)
Sixty percent of DCC licenses are inactive, including 65% of manufacturers, 64% of cultivators, and 69% of delivery-only retailers. (DCC)
More licenses surrendered or inactivated (12,000+) than remain active (7,928). (DCC)
8,000+ small farms closed (DCC), and 22,000 jobs lost. (Vangst Report)
Consumer Price Sensitivity is Driving the Illicit Market
Just 1% price increase can shift consumers to the illicit market. (Reason Foundation)
Legal cannabis carries a 78% tax burden at wholesale (vs. 8.4% for alcohol and 29.5% for tobacco). (CDTFA)
Consumer tax burden = 30–50% of the retail price at current rates.
The Illicit Market is Winning
Looking to Michigan for Fair Taxation (SFGATE/BDSA)
Outsells California, despite having ¼ the population.
10% excise tax + 6% sales tax = 16% total burden.
No local cannabis taxes compared to California’s 30–50% total burden.
Setting the Record Straight on AB 564
MYTH: The cannabis industry is choosing profits over children
FACT: If AB 564 doesn't pass, community programs will receive less money, not more. The industry supports the programs funded by cannabis taxes. We just want to ensure there's actually revenue to fund them. You can't squeeze blood from a stone, and you can’t collect taxes from sales that never happen. Legal cannabis sales have dropped 30% since Q2 2021, and state excise tax revenue is down 22% since FY 2023-24. More taxes do not mean more revenue when you're taxing a market into collapse.
MYTH: AB 564 will cost the state $180 million annually
FACT: This is backwards math. The current 19% tax rate is already costing the state revenue. This figure assumes current sales levels remain constant, but they're collapsing. Economic research shows that even a 1% price increase drives consumers to the illicit market. With current tax burdens of 30-50% of retail price, the 19% excise tax rate is accelerating the market's decline. Michigan outsells California despite having one-quarter of our population precisely because they maintain reasonable tax rates (16% total vs. California's 30-50%). Higher taxes = fewer sales = less total revenue.
The choice is clear: Pass AB 564 to protect the legal cannabis market AND the programs it funds, or watch both collapse together under the weight of unsustainable taxation.
Learn more at cacao.org/dont-raise-taxes
