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New California Data Shows AB 564 Was the Right Call at the Right Time
- Laura Braden
- Dec 11, 2025
- 2 min read
When Governor Gavin Newsom signed Assembly Bill 564 (Haney) into law this fall, California made a critical decision to protect the public health and safety of cannabis consumers and the community programs that rely on cannabis excise taxes for funding.
The bill, which repealed an automatic tax increase and locked the excise tax at 15% until at least 2028, was sound and necessary. And the early data now proves it.
This summer, California got a glimpse of what would have happened if the cannabis industry hadn’t rallied to stop the tax hike. For just three months, from July 1 to October 1, the state's 19% excise tax (the increase AB 564 was designed to prevent) was in effect. That brief window tells us everything we need to know about the consequences of overtaxing a struggling market.
Legal cannabis sales in Q3 2025 dropped to just $940 million, down from $993 million in Q2. That's the lowest quarterly sales figure in five years, according to data from the California Department of Tax and Fee Administration. Annual sales are now projected to fall below $4 billion for the first time since the market launched in 2018: a clear downward trajectory that was entirely predictable and entirely preventable.
Why does this matter beyond the cannabis industry?
Because consumers don't stop buying cannabis when taxes increase, they simply shift to the illicit market, where products are untested, unregulated, and untaxed.
California's illicit market is already more than twice the size of the legal market. Unlicensed products lack safety testing, contain unknown potency levels, pesticides, and contaminants. Young people have no way of knowing what they're consuming.
The regulated market exists to prevent exactly this.
Here's what matters for the broader conversation about funding: California's cannabis market has generated over $7.3 billion in tax revenue since legalization in 2018. Those dollars fund childcare and early childhood development, medical research, youth substance abuse prevention, environmental restoration, and more. They're real programs serving real Californians. And just like you can’t squeeze blood from a stone, you can't fund social programs with revenue that doesn't exist and legal sales that never happen.
When taxes push sales down 30% since 2021 (as they have), excise tax revenue declines right alongside it. The state's own projections show that even a modest 10% sales drop from a tax increase results in a net revenue loss of over $13 million. Stabilizing the legal market actually protects the tax base that funds these vital programs.
AB 564 proved that strategic tax policy can work. By maintaining a competitive tax structure, California signals that we’re serious about displacing the illicit market and protecting consumers.
And the work isn't finished. Fifty-seven percent of California jurisdictions still ban legal cannabis retail, forcing consumers toward illicit sources. Regulatory barriers continue to burden compliant businesses. Enforcement against illegal operations remains inadequate.
The victory of AB 564 is real, and it's just the beginning. With the right policies in place, California can achieve Proposition 64's vision: protecting public health and displacing the dangerous illicit market.
