AFTER WINNING approval in California State Assembly, legislation that would temporarily reverse a controversial cannabis excise tax hike that took effect July 1 passed out of key Senate committee in a unanimous vote in early July.
Assembly Bill 564, introduced by Assemblymember Matt Haney (D-San Francisco), would roll back the state’s cannabis excise tax from 19% back to 15%, but not until Oct. 1. That means cannabis retailers and consumers would pay the higher tax rate for three months before the temporary freeze kicks in if the bill becomes law as currently written. The measure is temporary, and taxes would revert back to 19% after five years.
A temporary rollback
The 19% excise tax took effect on July 1 under a 2022 law that included an automatic tax hike trigger if certain revenue benchmarks weren’t met. Under that law, the state was required to raise the excise tax rate to ensure revenue continuity after California eliminated the weight-based cultivation tax last year.
AB 564 was introduced to delay that tax hike by five years, effectively giving the struggling legal cannabis industry a reprieve.
Although advocates hoped the measure would be included in budget trailer bills and take effect immediately, that effort was blocked during budget negotiations.
Tax relief for an embattled industry
Supporters of AB 564 argue the tax freeze is critical to the survival of California’s licensed cannabis market. The industry has long struggled under the weight of layered taxes, burdensome regulations and competition from both the illegal market and unregulated hemp-derived products.
The bill has received support from multiple stakeholder groups, including the California Cannabis Operators Association, which represents 300 licensed businesses. Others, including the United Food and Commercial Workers, emphasized the consequences for workers, pointing to job losses and the inability of businesses to compete with untaxed rivals.
California lost 12,600 cannabis jobs in 2023 and another 5,000 in 2024, according to employment firm Vangst.
The next step
After the State Senate Revenue and Taxation Committee passed AB 564, the bill next heads to the Senate Appropriations Committee. If approved, it would go to the full State Senate floor for a vote. Gov. Gavin Newsom has not yet indicated if he would sign the measure should it reach his desk.