NEWS & RESOURCES

As of Tuesday, California’s cannabis excise tax has increased from 15% to 19%. It’s an adjustment that many businesses say could be detrimental to an already struggling industry.

Industry representatives warn that further raising taxes will push price-sensitive customers back into the illicit market, hurting businesses teetering on the edge and actually lowering cannabis tax revenue in the long run.

Initial hopes of a thriving cannabis economy have been crushed, and California’s market is now buckling under the weight of excessive taxation and regulatory burdens. Whatever happens next, we’ll own it.

Juan Manuel Garcia, a resident of Big Sur, said, "It's already pretty expensive living here. And like, there's already a lot of cannabis tax already. So like when you look at the receipt, like half of it is tax. So it's probably going to be a lot more. So definitely not happy about it." (California cannabis tax hike)

Democratic state Assemblymember Matt Haney introduced a standalone bill to eliminate the cannabis tax increase earlier this year, giving the state’s industry and consumers another shot at potential relief. If passed, however, the legislation is not likely to go into effect until next year, leaving the tax increase in place for at least six months.

EXCERPT: “If the Governor receives a proposal to halt the cannabis excise tax increase, he will sign it. His record speaks for itself —...

It has been observed that the power to tax is the power to destroy, and California’s state and local officials are testing that truism in an attempt to destroy the cannabis industry.

“This is a full-blown warning sign, not a seasonal low. Operators are saying they can’t compete with high taxes. The situation is dire. Retailers are dropping prices in order to compete,” said Amy O’Gorman Jenkins re: cannabis tax revenue.

As California grapples with budget pressures and the need for tax revenue, the cannabis industry's message is clear: sustainable revenue requires a sustainable industry, and that means policies that allow legal operators to compete effectively against their illicit counterparts.

“Raising taxes on a struggling industry—especially one already undercut by untaxed, unregulated operators—defies economic sense and contradicts Proposition 64’s core intent,” CaCOA argues.

Without legislative intervention, this tax hike will accelerate the collapse of California’s regulated cannabis market, harming consumers, public health, and ironically, the state’s bottom line.

The letter’s authors wrote that they support Newsom’s budget proposal that would shift funding for illicit market enforcement from fees on legal operators to excise taxes, but asked that the state’s government also freeze the excise tax at 15 percent.

“Even if we suffered a 10% reduction in sales as an industry, that at 19% tax, the state would actually end up losing money. And we feel with almost near certainty that an increase in the tax rate will further push folks from shopping in the licensed and legal market to the illicit, unlicensed market."

"This fight is far from over," CaCOA said in a statement. "We're working to ensure the freeze is included in the final budget through trailer bill legislation."

The conversation focused on protecting cannabis consumers and patients, who will ultimately bear the tax increase during challenging economic times. Jenkins explained how the tax increase threatens public health and safety by driving Californians to dangerous products in the unregulated market.

"Then the economic report, which has been referenced in your analysis and elsewhere, commissioned by the Department of Cannabis Control, affirms what operators have been saying,” Jenkins said. “California's excise taxes and licensing fees are 124% and 162% higher respectively than Michigan's. And altogether, our taxes and fees account for about 77.5% of total wholesale value. That is not a sustainable framework."

“We have an illicit underground industry that competes with them and doesn’t actually pay any of the fines and fees that aid in enforcement. And now we have a possible tax hike, an increase, which means that more and more people are going to lose their businesses, more jobs will be lost. This is not a tax decrease. This is simply a freeze. We’re just trying to fight another day.”

“We’re urging the Legislature and Administration to act quickly and freeze the tax at 15%. If we want a regulated market to survive in California, the time to intervene is now,” O’Gorman Jenkins said. 

"Raising the cannabis excise tax from 15% to 19% during a market collapse is the equivalent of throwing an anchor to a drowning industry,” wrote Alex Freedman to me by email. “AB 564 offers a critical lifeline to California’s legal cannabis market to help stabilize an emerging industry that supports tens of thousands of jobs and millions in state revenue.”

Congrats to Leslie Mortland, Senior Cultivation Manager with 710 Labs, a CaCOA member and multi-state cannabis brand that focuses on organic, small-batch cannabis. Cannabis Business Times spotlighted her cannabis cultivation expertise, sharing game-changing insights she's gained that help her team excel.