California is preparing to raise its cannabis excise tax from 15% to 19% starting July 1, 2024. This increase has ignited a heated debate among lawmakers, industry representatives, and advocates, with concerns that it may push consumers back into the illicit market. The existing tax structure adds 15% to purchases made at dispensaries, with the revenue directed toward child care, substance abuse programs, law enforcement, and environmental recovery initiatives.
The state eliminated the cultivation tax in 2022, a move designed to stimulate the legal cannabis market. However, the planned increase in the excise tax aims to offset the loss of revenue from that tax cut. The cannabis tax is applied after local taxes, compounding the cost for consumers.
Dispensaries argue that raising the tax further could exacerbate already declining sales and push more customers to illegal sellers. Angelica Sanchez, president of Perfect Union dispensaries, stated, “For many of us, we’re already operating on razor-thin margins, so it’s really the difference between staying open and closing for good.”
In response to these concerns, San Francisco Assemblymember Matt Haney introduced a bill to maintain the current tax rate. He emphasized the need to support licensed dispensaries in competing with the illicit market, saying, “California has always been at the heart of America’s cannabis economy and culture. But since voters passed Prop 64, California has not seen the full potential of the legal cannabis industry.”
Despite these arguments, the bill faces opposition from organizations that rely on the tax revenue. Jim Keddy, executive director of Youth Forward, highlighted the importance of sustaining funding for social programs, especially in light of a declining state budget. He remarked, “At this time, where we’re seeing cutbacks everywhere, we need to protect and sustain this funding source.” Keddy pointed out that programs funded by the tax, such as child care subsidies, are vital for working families.
A report by ERA Economics for the Department of Cannabis Control noted that while cannabis consumption has grown, revenue has declined due in part to overproduction and lower retail prices. The same report indicated that approximately 60% of cannabis cultivated in California is sold illegally, raising concerns about how the tax increase might further drive consumers away from licensed retailers. Sanchez argued, “The reason people aren’t shopping legally is because it’s too expensive, so the state should actually go in the opposite direction to compete with the illicit market and, in the long run, they would make more tax revenue.”
The bill has advanced through the Assembly Taxation and Revenue Committee and is now in the Appropriations Committee, where it will continue to face scrutiny and debate from various stakeholders.
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