California’s embattled legal cannabis industry is facing a significant spike in taxation in the coming weeks, but efforts are underway to block the potentially ruinous bill before it is enforced.
Last week, in an expected but no less painful blow, the California Department of Tax and Fee Administration (CDTFA) confirmed in a special notice that it ‘will increase from 15% to 19% of gross receipts from retail sales of cannabis or cannabis products’ on July 01, 2025.
In 2022, the state removed the cultivation tax (a tax growers used to pay), and in order to make up for that lost revenue, the excise tax was designed to rise automatically after three years, should tax revenues fall below a promised threshold.
Following years of stagnation and decline in the market, tax revenues have been lower than expected in 2022. Last month, Whitney Economics adjusted its state-by-state projections for cannabis sales, with California seeing the largest drop in the US of $606m.
A further price increase for Californian consumers will exacerbate an already terminal threat for legal sellers, who are failing to compete with the thriving illicit market.
In a study commissioned by the Department of Cannabis Control (DCC) earlier this year, figures showed that the illicit market still accounted for around 60% of total consumption in the state.
As part of a desperate effort to prevent this increase, Assembly Bill 564 was introduced by Assemblyman Matt Haney (D-San Francisco), which seeks to suspend the increase.
On May 06, the bill passed unanimously through the Assembly Revenue and Taxation Committee, following an earlier 14-0 vote in the Business and Professions Committee.
AB 564’s future now rests with the Assembly Appropriations Committee, where it will be assessed alongside other budgetary considerations on May 14.
With the deadline rapidly approaching, the pace of AB 564’s progress will be welcome to industry stakeholders, but the race is well and truly on.
“Any increase, particularly a 25% increase, would not only be bad public policy, but devastating to operators already on the brink,” said Caren Woodson, President of the California Cannabis Industry Association.
