Fighting for Survival: California Lawmakers Oppose Cannabis Excise Tax Increase
California’s legal cannabis industry stands at a crossroads as lawmakers unanimously advance Assembly Bill 564, a measure to halt a scheduled 27% excise tax increase. This in-depth analysis explores the origins of the tax hike, the economic crisis facing legal operators, the fierce debate over cannabis tax revenue, and the broader implications for California’s communities and the future of regulated marijuana.
The Looming Tax Hike: Origins and Mechanics
California’s cannabis excise tax is set to rise from 15% to 19% on July 1, 2025-a move triggered by 2022 legislation (AB 195) that eliminated the cultivation tax but required that if annual revenues stayed under $680 million for three straight years, the excise tax would automatically go up. This mechanism was designed to ensure the state recouped lost revenue from the abolished cultivation tax, but it now threatens to further destabilize an already fragile industry.
Beyond the excise tax, California cannabis retailers must also navigate up to 10.75% in state sales tax and as much as 10% in local sales taxes, particularly in major hubs like Los Angeles, San Diego, and San Jose This means that, in some jurisdictions, the total tax burden on legal cannabis can exceed 30% before factoring in other regulatory costs.
A Legal Market in Crisis
The financial health of California’s legal cannabis sector has deteriorated sharply in recent years. Since 2020, the average price per ounce of cannabis flower has dropped 38%, and statewide legal sales have shrunk by 13% since 20212. The number of active retail stores has stagnated at around 1,225 since mid-2023, largely because 57% of California’s cities and counties still prohibit dispensaries.
The consequences have been severe:
California lost 12,600 cannabis jobs in 2023 and another 5,000 in 2024, leading the nation in industry job losses1.
Major cannabis companies-including Flow Cannabis Co., Herbl, MedMen, High Times, Statehouse Holdings, Gold Flora, and Grassdoor-have collapsed or exited the market.
Even leading brands with scale and investment have faced repeated layoffs and restructuring.
According to a March 2025 economic report commissioned by the Department of Cannabis Control (DCC), only 38% of cannabis used in California during 2024 was sourced from licensed providers. The illicit market, estimated at $10 billion annually, continues to dominate, with roughly two out of every three cannabis transactions occurring outside the regulated system.
The “Extinction Event” Warning
When Assembly member Matt Haney (D-San Francisco) introduced AB 564, he didn’t hold back—he called the proposed tax increase an “extinction event” for licensed cannabis businesses across the state. He argues that the legal industry needs a lifeline to keep small businesses open, preserve jobs, and fulfill the promise made to voters with Proposition 64 to create a safe, accessible, and regulated cannabis market.
Industry leaders echo these concerns. Caren Woodson of the California Cannabis Industry Association warned lawmakers not to confuse “survival with stability,” pointing out that even top-tier operators are not immune to the financial pressures of high taxes, inflation, tariffs, and shrinking margins “When even the big players with money, expertise, and brand recognition are closing shop, what chance does a mom-and-pop or a social equity business really have?” She asked.
The Revenue Dilemma: Who loses if the Tax is frozen?
The decision to keep the excise tax at 15% has led to strong protests from entities that depend on cannabis tax proceeds. These funds support a wide range of community programs, including child care, youth services, environmental remediation, job placement, mental health and substance use disorder treatment, and legal services for those affected by the War on Drugs.
For example, the California Community Reinvestment Grants (CalCRG) Program, funded by cannabis taxes, awarded over $45 million to nonprofits and local health departments in 2023-24 alone. These grants are vital for organizations serving the state’s most vulnerable populations, including those disproportionately impacted by past drug enforcement policies.
On April 22, 2025, Tona M. Pena represented the voices of 98 youth and environmental organizations during the committee hearing. She appealed to lawmakers to prioritize the allocation of funds for children, youth, and environmental initiatives, urging that industry relief be considered only after these needs are met. Heidi Keiser of Child Action Inc. Also she pointed out the urgent need for more child care slots funded by cannabis tax dollars, especially with thousands of kids currently on waiting lists in Sacramento County.
Policy Tensions and the Path Forward
The debate over AB 564 exposes a fundamental policy dilemma: how to balance the urgent need for community funding with the survival of the legal cannabis industry. Committee Chairman Marc Berman acknowledged the frustration of tying essential services to a volatile revenue stream, suggesting that community organizations should be funded through more stable means. However, he also recognized that “taxing California’s cannabis industry to death serves nobody” and that ensuring the industry’s survival is necessary to maintain any tax base at all1.
Broader Economic and Social Implications
The challenges facing California’s cannabis industry are compounded by broader economic pressures:
Inflation and new tariffs on imported packaging, hardware, and machinery have increased costs across the supply chain.
The Department of Cannabis Control faces a $23 million budget deficit, prompting consideration of higher licensing fees, which would further burden legal operators.
Local policy responses have varied: while some cities like San Diego have increased local cannabis taxes, others like San Rafael have reduced them to offset the expected state tax hike.
If the excise tax rises as scheduled, experts predict that more consumers will turn to the illicit market, further eroding the legal sector and reducing overall state tax collections-a lose-lose scenario for both the industry and the programs that depend on cannabis tax revenue.
Conclusion: The Stakes for California
· The fate of Assembly Bill 564 will have far-reaching consequences for California’s cannabis landscape.
· If passed, it could provide desperately needed relief to legal operators and help stabilize the regulated market.
· If the tax hike proceeds, the state risks accelerating the decline of its legal cannabis sector, undermining both economic opportunity and the funding of critical community programs.
As lawmakers, industry leaders, and community advocates continue to debate the best path forward, one thing is clear: California’s experiment with cannabis legalization is at a pivotal moment, and the decisions made in 2025 will shape the future of the industry-and the communities that depend on it-for years to come.
Source:-
https://www.sfgate.com/cannabis/article/california-cannabs-tax-rates-fall-20281817.php