CALIFORNIA’S CANNABIS industry is getting long-sought tax relief after Gov. Gavin Newsom signed Assembly Bill 564, rolling back the state’s excise tax on cannabis sales from 19% to 15%, effective Oct. 1.
The new law reverses an automatic increase that took effect in July under Newsom’s 2022 budget deal and keeps the lower rate in place until at least 2028.
The rollback marks a major victory for licensed cannabis operators who warned that the 19% rate, on top of local business taxes and state sales taxes, had pushed overall tax burdens above 40% in many areas. Advocates said that level of taxation made it nearly impossible for legal businesses to compete with untaxed, unregulated sellers that still dominate the market.
Industry groups had argued for months that the July tax hike came at the worst possible time, as legal operators faced plunging wholesale prices, declining retail sales and rising operating costs. The higher rate, they said, would only accelerate business closures and consumer migration to the illicit market.
“We’re rolling back this cannabis tax hike so the legal market can continue to grow, consumers can access safe products and our local communities see the benefits,” Newsom said in a statement.
Relief aimed at preserving jobs and tax revenue
Assemblymember Matt Haney, the bill’s sponsor, said the measure was necessary to keep small businesses open and preserve thousands of jobs in a market already under stress.
The 2022 budget had replaced California’s $161 per pound cultivation tax with a higher excise tax as a compromise meant to preserve funding for social programs tied to cannabis revenue.
But that approach proved unsustainable as taxable sales declined. Data from the California
Department of Tax and Fee Administration show that cannabis excise tax revenue is on track to fall about $100 million this year compared with 2021’s $680 million peak.
Industry advocates argued that lowering the tax rate could actually increase total revenue by encouraging more consumers to buy from licensed retailers rather than the black market.
Looking ahead
Under the new law, the California Department of Tax and Fee Administration will monitor the impact of the reduced rate and report annually to the Legislature on the change in tax revenue. Lawmakers could revisit the issue after 2028 depending on how the market and revenue streams evolve.
For now, the tax rollback is being hailed as a rare bipartisan win for California’s cannabis sector, one that could help stabilize an industry that has struggled under the weight of high costs, heavy regulation and a robust illegal market.