Photo courtesy of March and Ash
US STATES | CALIFORNIA
California Bill Aims
to Repeal Cannabis
Excise Tax Increase
The legislation would block the current 15% retail
tax from automatically jumping to 19% on July 1.
By — Tony Lange
Feb 19th, 2025
This article was updated on Feb. 20, 2025.
Plummeting prices, less revenue, fewer licenses, debt,
wildfires and the ongoing threat of a tax hike—that’s the tip of the iceberg for California’s cannabis market in early 2025.
5/8/25, 10:16 AM California Bill Aims to Repeal Cannabis Excise Tax Increase | Cannabis Business Times https://www.cannabisbusinesstimes.com/print/content/15737828 1/6 Specifically, California is set to increase its cannabis excise tax at retail from 15% to 19% starting on July 1, 2025, as a result of a compromise elected officials made three years ago with certain beneficiaries of cannabis tax revenue.
However, one legislator is planning to stop that increase from happening.
Assemblymember Matt Haney, D-San Francisco, who
chairs the Housing and Community Development
Committee, introduced Assembly Bill 564 on Feb. 12.
The legislation would repeal a requirement for the
California Department of Tax and Fee Administration
(CDTFA) to adjust the cannabis excise tax rate by a
percentage that was written into law in 2022.
This forthcoming tax hike comes after roughly 27% of
U.S. cannabis businesses reported being profitable in
2024, according to a Whitney Economics survey.
Meanwhile, approximately 65% of all small businesses in the country were profitable last year.
In California, where the average price per ounce for
cannabis flower has dipped 38% since 2020, and
statewide sales have shrunk 13% since 2021, according to the California Department of Cannabis Control (DCC),
many licensed operators are hanging on by a thread from market conditions alone, much less from some elected
officials treating the industry as merely a revenue stream.
At the beginning of 2024, 15% of California’s licensed
dispensaries were in default on their excise taxes.
According to California NORML, which sponsors A.B.
564, the state levies a 1-cent tax on a glass of wine, 2 cents on a can of beer, 8 cents on a shot of liquor and roughly 14 cents on a single cigarette, while one cannabis pre-roll is taxed at $1.24 under the current 15% excise tax.
5/8/25, 10:16 AM California Bill Aims to Repeal Cannabis Excise Tax Increase | Cannabis Business Times https://www.cannabisbusinesstimes.com/print/content/15737828 2/6 Source: California NORML (used with permission)
In January, Haney told SFGATE that increasing taxes on
cannabis businesses wouldn’t just impact their ability to turn a profit but likely drive many operators out of the licensed market.
“I definitely understand the regulatory authority needs more resources, but that can’t be at the expense of putting out businesses that are already hanging on by a thread,” Haney said.
The scheduled tax hike stems from when Gov. Gavin
Newsom signed Assembly Bill 195, which was attached
as a trailer to the California 2021-2022 budget. Although A.B. 195 eliminated the state’s $161-per-pound cannabis cultivation tax on July 1, 2022, the legislation included a compromise with Tier 3 entities to make up for the lost funding.
That cultivation tax, in particular, accounted for more than $166 million in state revenue in 2021, according to the CDTFA. Increasing the cannabis excise tax at retail an additional four percentage points would generate roughly that same amount under current market conditions.
Under A.B. 195, childcare programs and youth groups;
environmental, wildlife and conservation programs; law
enforcement and justice organizations; drug treatment
prevention centers; and other Tier 3 programs were to
receive a minimum of $670 million in baseline funding
from annual cannabis tax revenues to avoid a take hike.
Newsom’s 2025-26 budget estimates $468.2 million in
cannabis tax revenue will be available to allocate to Tier 3 programs for the fiscal year:
5/8/25, 10:16 AM California Bill Aims to Repeal Cannabis Excise Tax Increase | Cannabis Business Times https://www.cannabisbusinesstimes.com/print/content/15737828 3/6 Education, prevention, and treatment of youth
substance-use disorders and school retention—60
percent ($281 million)
Clean-up, remediation, and enforcement of
environmental impacts created by illicit cannabis
cultivation—20 percent ($93.6 million)
Public safety-related activities—20 percent
($93.6 million)
That’s more than $200 million less than the baseline
amount needed to avoid the tax hike.
Fifty-six of these entities signed a letter to Newsom and legislative leaders last year requesting to reinstate the cannabis cultivation tax or increase the excise tax, despite these programs having a surplus of more than $600
million as of March 2024, including roughly $260 million in each the law enforcement and childcare accounts,
according to a budget summary from the state Assembly.
Despite the Golden State’s promise to establish a
regulated ecosystem that would allow tax-paying
cannabis operators to thrive following the passage of
Proposition 64 in the 2016 election, the unlicensed market could become more attractive for businesses and
consumers alike following the excise tax increase on July 1, 2025.
“Cannabis taxes are already absurdly high, a tax increase would just drive more price-sensitive consumers to illegal shops, further undercutting licensed businesses like ours and lowering overall tax collections for the state,” Bret Peace, CEO at San Diego-based retailer March and Ash,
told Cannabis Business Times.
March and Ash, which merged with cultivator and
manufacturer CannaCraft in 2022, operates 10
dispensaries in Southern California.
5/8/25, 10:16 AM California Bill Aims to Repeal Cannabis Excise Tax Increase | Cannabis Business Times https://www.cannabisbusinesstimes.com/print/content/15737828 4/6 March and Ash cannabis dispensary in Imperial, Calif.
Source: Photo courtesy of March and Ash
Although the exact size of California’s unregulated
cannabis market is unknown, local media outlets
commonly cite a $10-billion estimate, meaning roughly
two out of three transactions occur outside licensed
dispensaries each year. The state’s licensed dispensaries sold $4.66 billion in cannabis in 2024, according to the DCC.
Angelica Sanchez, senior director of government affairs and compliance at vertically integrated Perfect Union,
also said California's taxes on cannabis businesses are already high enough.
“California’s legal cannabis retailers are already
struggling under excessive taxation, overregulation, and unfair competition from illicit operators and unregulated hemp," she said. "This tax hike only adds to the burden, making legal products less competitive and driving
consumers to the illicit market. It threatens the long-term sustainability of the legal market and places us at a severe disadvantage.”
The Perfect Union also operates 10 licensed dispensaries, mostly in Northern California.
Tiffany Devitt, director of regulatory affairs with March and Ash, compared California to Michigan, where a lessoppressive tax structure, in part, has allowed licensed retailers to reach a greater percentage of the state's
cannabis consumers.
“The fact that Michigan, with just a quarter of
California’s population, is selling more cannabis in its regulated market than we are highlights the failure of our state to fulfill the promise of Proposition 64—to ‘tax and 5/8/25, 10:16 AM California Bill Aims to Repeal Cannabis Excise Tax Increase | Cannabis Business Times https://www.cannabisbusinesstimes.com/print/content/15737828 5/6 regulate cannabis in a manner that eliminates the illicit market,’” Devitt said. “A tax increase on cannabis would only exacerbate the already significant price gap between the legal and illicit markets.”
Editor’s note: CBT reached out to nine of California’s
larger cannabis retail operators, asking how the pending tax hike would impact their businesses. This article will be updated with more comments as they come in.
While Michigan passed California in cannabis units sold in mid-2023, Michigan is still runner-up in overall sales with $3.3 billion reported from licensed retailers in 2024, according to the state’s Cannabis Regulatory Agency.
Still, Michigan’s licensed market sells nearly three times the amount of cannabis per capita as California.
This per-capita discrepancy, in part, is due to 57% of
California’s cities and counties prohibiting cannabis retail businesses from operating in their jurisdictions, according to the DCC.
California’s active license count for dispensaries in 2024 was 1,225, meaning the average store sold roughly $4
million of cannabis for the year. That equates to roughly $600,000 in excise taxes owed per dispensary.
For a business that operates 10 dispensaries, that’s $6 million in excise taxes, not to mention the state’s 7.25% to 10.75% sales tax, depending on the region, as well as various local tax structures.
Should A.B. 564 fail to stave off the pending tax hike, each dispensary would be on the hook for an additional
$160,000 in excise taxes per year on average.
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