WeedWeek covers CaCOA's efforts to freeze the impending state cannabis excise tax hike

Calif. cannabiz races to nix tax hike

WeedWeek - 21 February, 2025

California cannabiz interests are on the clock to avert a summer tax hike they warn would further devastate California’s teetering industry. 

If they fall short, the state excise tax could climb from 15% to as much as 19% on July 1. This would likely push up dispensary prices and send more consumers, and perhaps operators, to the unlicensed market. 

The pending change stems from a 2022 law, AB 195, which was itself an attempt to provide tax relief to the industry. The law ended the industry-hated cultivation tax and shifted the onus for remitting the 15% excise tax from distributors to retailers.

• The law has several downsides for retailers since it put them, rather than distributors, on the hook for the state’s 50% penalty for unpaid pot taxes. It also made license holders personally liable for unpaid cannabis excise taxes.

In a 2022 deal, a group of largely non-profit pot tax beneficiaries withdrew their opposition to AB 195 when Gov. Gavin Newsom (D) and lawmakers agreed that the law would be revenue neutral, targeting $670M in annual pot tax revenue. It accomplished this by requiring the California Department of Tax and Fee Administration (CDTFA) to adjust the excise tax up to 19% every two years to account for any shortfall. The first adjustment is due this year.

A February 2024 letter signed by many of the non-profit groups, known as “tier 3” groups, anticipated that revenues were $50M short in the then current budget. It also predicted a more than $100M shortfall for the state’s coming ( July 2024- June 2025) fiscal year, even based on what it called Gov. Newsom’s “optimistic” pot tax projections.

• The non-profit groups’ — known as “tier 3” groups — work includes childcare for low-income families, youth substance use prevention and environmental remediation.

CDTFA’s determination for how much to adjust the excise tax, due May 1,  is not yet clear. But based on the industry’s struggles, no one WeedWeek spoke to doubted that the agency would call for a tax hike.

Trailer bill hitch

“At the least we need a freeze this year,” on the excise tax at 15%, says industry lobbyist Amy O’Gorman Jenkins. She would like to go further and see the legislature pass a “fairly substantial tax reduction” for the industry. That may not be possible, she said, due to expensive wildfire relief efforts and the ensuing insurance crisis.

Along with combating unlicensed hemp products, heading off the tax hike is a top priority for the California Cannabis Operators Association (CACOA) a new industry group, where Jenkins is the executive director. CACOA’s membership includes some of the state’s largest dispensary chains including Catalyst, Stiiizy and Embarc.

The industry would like to see the tax hike blocked through a “trailer bill” which accompanies the state’s budget. Such a bill could pass in time to stop a tax hike from taking effect July 1. Jenkins said she would have a good sense of a trailer bill’s prospects by mid-June. 

• (The previous pot tax law, AB 195, was a budget trailer bill signed by Newsom on June 30, 2022.)

This week another option emerged. State Assemblymember Matt Haney (D-SF) introduced bill AB 564 which would repeal AB 195’s tax hike requirement. The bill, however, couldn’t pass before the hike takes effect on July 1.   

“We strongly oppose AB 564,” Dr. Lynn Silver, a pediatrician and senior advisor at tier 3 non-profit Public Health Institute, wrote in an email. The bill would “shamelessly put profits of retailers, increasingly multi-state operators, over the well-being of tens of thousands of children and youth.” 

• The group, which has repeatedly pushed for more stringent cannabis labeling requirements, estimates that repealing CDTFA’s adjustment would reduce annual tier 3 funding by approximately $125M. That includes $56M for childcare, almost 4,500 fewer slots.

“Absolutely insufficient”

Jonatan Cvetko, executive director of the United Cannabis Business Association (UCBA), which represents LA-area retailers, said stopping the AB 195 tax hike is “absolutely insufficient to save this industry.”

The group had criticized the 2022 bill. “I don’t really know what the cannabis industry got out of it,” UCBA president and CEO of The Higher Path dispensary in Sherman Oaks Jerred Kiloh told the Sacramento Bee days before it passed into law. “There was no relief for taxpayers or consumers of legal cannabis.”

After AB 195 failed to generate significant tax relief for the industry, Cvetko said it’s up to Gov. Newsom to figure out a solution. He “promised [the tier 3 groups] this tax increase, he’s the one that will need to lead and resolve this for all the stakeholders involved.”