California, September 4, 2025
News Summary
Starting July 1, California will raise its cannabis sales tax from 15% to 19%, the highest allowed by law. This increase comes as the cannabis industry struggles with falling revenues and competition from the illicit market. Industry leaders fear the higher taxes will further disadvantage legal retailers, while lawmakers are debating measures to halt the hike. In 2024, cannabis excise taxes generated nearly $595 million for community programs, but ongoing declines in the market raise concerns about the sector’s viability.
California is set to increase its cannabis sales tax from 15% to 19% starting July 1, as part of a state response to the struggling cannabis industry, which is facing challenges from a significant illicit market. This increase, the highest rate allowable under state law, comes in the wake of declining revenues from the legal cannabis sector.
The California Department of Tax and Fee Administration announced that the 26% tax hike is mandated by law if cannabis excise revenue falls. This ruling follows a determination by the California Office of Tax Appeals regarding the Ryan Burns Collective, which is now liable for $120,600 due to a state ruling that mandates the inclusion of city business license taxes in the calculation of sales tax.
The audit covering the period from July 2018 to June 2021 revealed that gross receipts used for assessing the sales tax must factor in all applicable taxes charged to customers. The financial burden imposed by this tax liability and the forthcoming tax increase raises concerns among cannabis retailers who believe these measures could further disadvantage them.
Industry leaders have voiced their apprehensions regarding the impact of the elevated sales tax. They contend that high taxes and stringent regulations contribute to a pronounced decrease in sales for legitimate businesses, driving many consumers toward illegal sources for cannabis products. A recent study indicates that a large segment of cannabis users still procure their products from the illicit market, underscoring the ongoing challenges faced by licensed retailers.
In 2024, California’s excise tax generated nearly $595 million, with the revenues allocated to important community programs related to child development and environmental recovery efforts. However, the legal cannabis market in California has been significantly declining, with thousands of businesses shuttering their doors and revenue decreasing year over year. This decline has been exacerbated by the COVID-19 pandemic and the state’s inability to provide tax relief measures in the latest budget proposal put forward by Governor Gavin Newsom.
Governor Newsom’s administration implemented a law in 2022, stipulating that tax rates must increase if cannabis revenue declines. This rule is becoming a reality and is expected to complicate an already volatile market landscape. The climbing taxes are perceived by many in the industry as prohibitive, limiting their ability to compete with illegal market prices.
In response to the looming tax increase, San Francisco Assemblymember Matt Haney has introduced a bill, AB564, aimed at halting the tax hike. The bill successfully passed its latest committee vote on April 24 and is now advancing to the State Senate for final consideration. Despite this legislative initiative, the consensus among industry operators, such as the California Cannabis Operators Association, is that the cannabis sector will struggle to maintain viability under a tax rate of 19%.
As the legal market continues to confront these multifaceted challenges, the long-term outlook remains precarious. Without significant intervention to alleviate financial pressures, many fear that California’s legal cannabis retailers will find it increasingly difficult to sustain operations amidst a competitive landscape that leans heavily toward illegal sales.
FAQ
What will the new cannabis sales tax rate be in California?
The cannabis sales tax rate in California will increase from 15% to 19% starting July 1.
Why is the cannabis tax rate increasing?
The tax rate is increasing due to a decline in cannabis excise revenue, which triggers an automatic tax rate increase under state law.
What is the impact of the tax increase on cannabis retailers?
Industry leaders express concerns that the higher tax rate will worsen competition with the illicit market and hinder legal retailers’ profitability.
Is there any legislation to block the tax increase?
Yes, Assemblymember Matt Haney has introduced AB564 to block the tax hike, which is currently under consideration by the State Senate.
How much revenue was generated from cannabis excise tax in California in 2024?
In 2024, the cannabis excise tax generated nearly $595 million.
Deeper Dive: News & Info About This Topic
- SFGate: California Cannabis Tax Increase
- Wikipedia: Taxation in the United States
- Bloomberg Tax: California Cannabis Sellers Taxable Measure
- Google Search: Cannabis Tax California
- Cannabis Business Times: California Lawmakers Vote
- Google Scholar: California Cannabis Tax
- CBS News: California AB564 Cannabis Tax Hike
- Encyclopedia Britannica: Economics
- ABC10: California Cannabis Tax Increase
- Google News: Cannabis in California
Author: STAFF HERE COSTA MESA WRITER
COSTA MESA STAFF WRITER The COSTA MESA STAFF WRITER represents the experienced team at HERECostaMesa.com, your go-to source for actionable local news and information in Costa Mesa, Orange County, and beyond. Specializing in "news you can use," we cover essential topics like product reviews for personal and business needs, local business directories, politics, real estate trends, neighborhood insights, and state news affecting the area—with deep expertise drawn from years of dedicated reporting and strong community input, including local press releases and business updates. We deliver top reporting on high-value events such as the OC Fair, Concerts in the Park, and Fish Fry. Our coverage extends to key organizations like the Costa Mesa Chamber of Commerce and Boys & Girls Clubs of Central Orange Coast, plus leading businesses in retail, fashion, and technology that power the local economy such as Vans, Experian, and South Coast Plaza. As part of the broader HERE network, including HEREAnaheim.com, HEREBeverlyHills.com, HERECoronado.com, HEREHollywood.com, HEREHuntingtonBeach.com, HERELongBeach.com, HERELosAngeles.com, HEREMissionViejo.com, HERESanDiego.com, and HERESantaAna.com, we provide comprehensive, credible insights into California's dynamic landscape.
