Categories: California Business NewsCalifornia State News

California Increases Cannabis Excise Tax to 19%

A bustling cannabis dispensary in California as local taxes rise.

News Summary

California is raising its cannabis excise tax from 15% to 19% starting July 1, as mandated by state law amid declining revenue in the legal cannabis market. This 26% increase is designed to offset financial losses due to a previous law eliminating the cultivation tax. Industry experts fear the hike will further challenge legal retailers competing against illicit markets. As legal sales continue to face significant difficulties, Assemblymember Matt Haney has introduced a bill to block the tax increase, highlighting ongoing concerns within the industry about sustainability and market viability.

California is set to implement a significant increase in its cannabis excise tax, raising the rate from 15% to 19% starting July 1. This adjustment marks the highest permissible tax rate allowed under state law and represents a 26% increase over the current rate. The announcement was made by the California Department of Tax and Fee Administration during a recent cannabis advisory meeting.

The new tax hike is in accordance with a state law that mandates an increase in the cannabis tax rate whenever excise tax revenues decline. This decision comes as California’s legal cannabis market faces significant challenges, including declining revenues, which have led to thousands of business closures across the state. The administration of Governor Gavin Newsom crafted this tax increase in response to ongoing financial contractions within the legally operating cannabis industry.

The decline in revenue is partially attributed to a law signed by Governor Newsom in 2022, which eliminated the cultivation tax but required a rise in cannabis tax rates to offset revenue losses. Industry experts have warned that this tax increase will further hinder the ability of legal cannabis retailers to compete with illicit sellers, who do not pay cannabis taxes. Observations indicate that a majority of cannabis users still obtain their products from illegal sources.

Recent studies suggest that approximately 63% of the cannabis consumed in California comes from unlicensed production. The elevated tax burden faced by legitimate businesses in the cannabis sector, combined with extensive regulatory demands, has made it increasingly difficult for them to operate effectively. Notably, prominent industry representatives have voiced concerns over the existing tax rate, arguing that it threatens the long-term viability of the legal cannabis market.

In the California Legislature, Assemblymember Matt Haney has introduced Assembly Bill 564, which aims to block the impending tax hike. This bill is currently advancing through the legislative process, reflecting the ongoing concerns of the cannabis industry. Advocates within the sector argue that the existing tax framework is already excessively burdensome and that the proposed increase would discourage further investment in legal cannabis operations. This could lead to a reduction in demand for cannabis licenses, exacerbating the issues faced by established dispensaries.

Although the cannabis excise tax generated approximately $595 million in revenue for the state in 2024, there are growing fears among industry stakeholders that the persistent financial troubles could potentially lead to the collapse of the legal market. The California Department of Tax and Fee Administration emphasized its obligation to implement the tax increase in the absence of any legislative changes.

Consumers can expect that the new excise tax will affect the total purchase prices at dispensaries, raising costs for customers looking to buy legal cannabis. As the state moves forward with this tax adjustment, the impact on the legal cannabis industry and consumer behavior in California remains to be seen. The balance between regulatory demands and market viability will play a important role in shaping the future landscape of cannabis sales in the state.