California Cannabis Industry Wins Big: How Advocacy Rolled Back a Tax Hike and Regulated Hemp

California is the largest cannabis market in the United States. It's also one of the most challenging, and this legislative session proved that licensed operators refuse to back down from that challenge.

The California Cannabis Operators Association (CaCOA) led the charge and supported three critical bills that will reshape the future of cannabis in California. Assembly Bill 564 (Haney), AB 8 (Aguiar-Curry), and Senate Bill 378 (Wiener) were all passed through the California Legislature and were signed into law by Governor Newsom. 

These aren't just policy wins… they're essential protections that prevented catastrophe for cannabis businesses already operating under immense pressure.

And let's be clear: these victories stopped the worst from happening. 

Now comes the more complex work of building the legal cannabis market California deserves: one that expands access to safe, regulated products, unleashes innovation to create jobs, and generates sustainable tax revenue for the community programs that depend on it.

Rolling Back  the Cannabis Tax Hike That Threatened Market Collapse

On July 1, 2025, California's cannabis excise tax automatically increased from 15% to 19%, under a prior bill (AB 195, 2022). For consumers and patients already paying combined tax rates of up to 40-50%, this sudden hike, representing an almost 27% tax increase, was devastating, driving more consumers to the illicit market and forcing more operators to close their doors.

The data was undeniable. Legal sales have declined 30% since Q2 2021, with Q1 2025 marking the steepest quarterly drop since Proposition 64 was passed. Today, more licenses have been surrendered or inactivated (12,000+) than remain active (7,928), and over 22,000 jobs have been lost in just two years. Meanwhile, Michigan, with just one-quarter of California's population, was outselling us in legal cannabis sales.

AB 564 (Haney), proudly co-sponsored by CaCOA, rolled back the excise tax rate to  15%, effective October 1, 2025, a critical step to stabilize the legal market and protect programs funded by cannabis tax revenue. 

“For years, we've watched the legal cannabis market contract while illegal operators thrive,” said Amy O'Gorman Jenkins, Executive Director of CaCOA. “AB 564 was essential. Higher taxes would have driven more consumers to the illicit market, where products are untested and untaxed. By restoring the 15% rate, we protected public health, jobs, and the tax revenue that supports vital community programs.”

Regulating Intoxicating Hemp Products to Protect Consumers and Fair Competition

While fighting the cannabis tax battle, CaCOA simultaneously tackled the unregulated intoxicating hemp crisis that is undermining both consumer safety and licensed businesses. These products (often containing delta-8 THC, delta-9 THC, or synthetic cannabinoids and masquerading as “hemp”) are being sold in gas stations, convenience stores, and online without age verification, safety testing, or regulation. 

The Hemp Hoax white paper exposed a shocking reality: 95% of tested hemp products contained illicit substances.

“These products endanger consumers, stealing market share from licensed businesses, while generating zero tax revenue for California,” said Jenkins. “AB 8 will create the level playing field the legal market desperately needs.”

AB 8 (Aguiar-Curry), sponsored by CaCOA, permanently regulates intoxicating cannabinoid products under California's cannabis laws, beginning January 1, 2028. That means that any product containing cannabinoids derived in part or exclusively from hemp can only be sold through licensed dispensaries, where they're subject to testing, age verification, and the same safety standards as all cannabis products.

SEE ALSO: AB 8 Guide: Protecting Consumers and Ensuring Fairness for California’s Licensed Cannabis Industry

The bill also enhances enforcement authority, beginning January 1, 2026, allowing state and local agencies to seize and destroy illicit hemp products. It creates a clear regulatory pathway for hemp-derived cannabinoids, allowing licensed cannabis businesses to incorporate natural hemp inputs like CBD and CBN while maintaining strict safety standards.

In addition, the law strengthens tax compliance by prohibiting unlicensed tobacco and convenience retailers from selling or storing cannabis or hemp products containing THC, ensuring those products are only sold through licensed dispensaries that remit state excise taxes. State and local agencies, including CDTFA, DCC, and local law enforcement, will have explicit authority to inspect, seize, and destroy unlawful products, closing enforcement loopholes that have long undermined legitimate cannabis operators.

Holding Online Platforms Accountable for Illicit Cannabis Sales

SB 378 (Wiener) addresses the role online marketplaces play in facilitating illicit cannabis and hemp sales. The bill imposes stricter regulations on online platforms, introducing new reporting mechanisms, liability provisions, and enforcement measures. Online marketplaces that profit from illegal cannabis activity now face real consequences.

“Online platforms have enabled illicit operators to undercut licensed businesses without accountability,” Jenkins noted. “SB 378 ensures they can't continue profiting from illegal sales that dodge taxes, skip testing, and endanger consumers.”

Supported by CaCOA and sponsored by our partner, United Food and Commercial Workers (UFCW) Western States Council, the bill provides another critical tool in the effort to protect California's legal cannabis market from unfair competition.

How Cannabis Operators Made These Victories Possible

These legislative wins required strategic advocacy that combined multiple approaches:

• Policy expertise and leadership from CaCOA staff and board members who crafted workable solutions, backed by economic data and real-world evidence.

• Member mobilization that generated dozens of meetings and thousands of letters to California legislators, demonstrating the broad impact of these policy issues across the state's cannabis industry.

• Aggressive social media campaigns that amplified member voices, educated the public, and showed lawmakers the real-world consequences of inaction.

• Powerful testimony at legislative committee hearings.

• Building a coalition to show that cannabis industry advocacy serves the broader public interest.

• Positive working relationships with legislators and their staff, built on credibility, data, and a solutions-focused approach.

“We didn't just complain about problems—we brought real solutions backed by data, lived experience, and a unified industry voice,” Jenkins said. “And lawmakers enthusiastically responded.”

Building California's Cannabis Future

AB 564, AB 8, and SB 378 were critical victories, and yet they addressed immediate threats rather than long-term solutions. California's legal cannabis market still faces enormous challenges that require bold action:

• Expanding retail access: Right now, nearly 60% of California cities and counties still prohibit cannabis retail sales. That means millions of Californians (especially in low-income and rural communities) have no legal access to tested, regulated cannabis products. They're forced to choose between driving hours to the nearest dispensary or buying from unlicensed sources. CaCOA is going to change that through local advocacy, economic impact analysis, and resources for jurisdictions considering cannabis licensing.

• Unleashing innovation: California pioneered cannabis culture, but our regulatory framework often prevents licensed operators from innovating and competing effectively with the illicit market. We need policies that allow safe experimentation, product development, and business models that can compete with unregulated alternatives while maintaining consumer protections.

• Creating jobs and economic opportunity: A thriving legal cannabis market means family-sustaining jobs and careers, small business growth, and economic opportunity across California. And that requires a stable regulatory environment and policies that support licensed operators.

• Generating sustainable tax revenue: The community programs Californians care about (e.g., childcare, environmental protection, youth education) depend on tax revenue from legal cannabis sales. We can't fund these programs if legal sales continue declining. Stabilizing and growing the legal market isn't just good for the cannabis industry; it's good for all Californians.

“We've proven we can win critical fights in Sacramento,” Jenkins emphasized. “Now we need to expand access to safe, regulated cannabis and unleash the innovation that creates jobs and generates the tax revenue our communities depend on.”

Join the Movement: California Cannabis Operators Making a Difference

We’re proud to serve as California’s largest cannabis industry association, with over 200 cannabis retailers across more than 90 municipalities in California. Our members provide access to legal cannabis in over 80% of jurisdictions where it's allowed, serving more than 50% of the state's total population.

And the 2026 legislative session is already taking shape. The work continues. The challenges remain significant. When cannabis operators unite behind strategic advocacy, we can build the legal market California deserves.

Thanks to our members and coalition partners, we secured critical protections for California's legal cannabis industry in 2025. Now we're fighting to build the thriving, innovative, accessible market our state deserves. JOIN US.