California Assembly Blocks Cannabis Tax Hike Amid Industry Struggles

The California State Assembly voted unanimously on Monday to delay a planned 25% tax increase on cannabis retailers, preventing a rise in the retail excise tax from 15% to 19%. The bill, known as AB564 and introduced by Assemblyman Matt Haney (D-San Francisco), received a 74-0 vote in favor.

Haney emphasized the need to protect small cannabis businesses from additional financial burdens, stating, “If we continue to pile on more taxes and fees onto our struggling small cannabis businesses, California’s cannabis culture is under serious threat of extinction.”

In the first quarter of 2025, taxable cannabis sales in California reached $1.088 billion, marking the lowest figure in five years. This represents an 11% decline compared to the same period in 2024, the largest downturn in the history of the state’s legal cannabis market. Retailers must still pay the tax regardless of their sales performance, highlighting the financial strain on these businesses.

Haney pointed out that states like Colorado and Michigan have seen better cannabis sales growth due to lower tax rates and fewer regulatory hurdles. He stated, “If we want to support our cannabis industry that drives millions of visitors to California every year, adding more costs makes absolutely no sense.”

Caren Woodson, president of the California Cannabis Industry Association, also expressed concern, stating, “Nearly a decade after Californians overwhelmingly approved cannabis legalization, the industry is struggling under the crushing weight of a 15% excise tax. Any increase, particularly a 25% increase, would not only be bad public policy, but devastating to operators already on the brink.”

Proposition 64, passed by voters in 2016, legalized the possession, cultivation, and sale of cannabis for recreational use, initially imposing a 15% retail excise tax. A law passed in 2022 removed California’s cultivation tax, allowing adjustments to the excise tax to maintain revenue levels. AB564 seeks to eliminate the requirement to adjust the tax rate.