California Cannabis Tax Rollback: What AB 564 Means for the Industry

Image | adobe.stock/Steve Cukrov

California Governor Gavin Newsom, recently signed Assembly Bill 564 (AB 564) into law (1). The new piece of legislation prevents an excise tax that was recently enacted and would have retained a 25% tax hike that first began on July 1, 2025. With Assembly Bill 564, the tax will be rolled back starting on October 1, 2025. The legislation additionally, will pause “future tax hikes on retail adult-use cannabis products until June 30, 2028,” (1).

“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,” said Governor Newsom in a recent press release (2).

“California’s cannabis economy can bring enormous benefits to our state, but only if our legal industry is given a fair chance to compete against the untaxed and unregulated illegal market,” said Assemblymember Matt Haney (2). “AB 564 helps level the playing field. It protects California jobs, keeps small businesses open, and ensures that our legal cannabis market can grow and thrive the way voters intended.”

The press release mentions that the regulated cannabis market in California, is one of the “largest” in the world (2). With AB 564 set to take effect next week, California’s excise tax rate will be set to 15% until 2028, this will help legal cannabis businesses “remain competitive” and also encourage long-term growth in the state (2).

The California NORML organization helped lobby for the bill through the coordination of a lobby day, as well as having a press conference that took place at the state capitol (1). AB 564 was supported by the United Food and Commercial Workers – Western States Council, the California Cannabis Industries Association, along with other groups. More than 10,000 letters and emails were sent to state lawmakers, encouraging for support of the legislation.

“California NORML is proud to have taken a leadership role sponsoring this bill,” California NORML Coordinator Dale Gieringer said (1). “Cannabis is already heavily over-taxed relative to comparable products like beer, wine, and tobacco in California.”

“Consumers in many legal states already pay artificially high prices for retail cannabis products,” said Paul Armentano, NORML Deputy Director (1). “Imposing additional taxes on these goods undoubtedly drives prices out of reach for some consumers. This pushes consumers back to the unregulated market, thereby undermining the primary goal of legalization, which is to provide adults with safe, affordable, above-ground access to lab-tested products of known purity, potency, and quality.”

In 2022, Governor Newsom created the Unified Cannabis Enforcement Taskforce (UCETF). The organization has confiscated and destroyed more than 317 tons (or more than 635,303 pounds), of illegal cannabis. This equates to around $890 million in retail value and stems from 230 multiagency operations (2).

The taskforce works together with local, state, and federal agencies. These include Department of Cannabis Control, the Department of Pesticide Regulation, the Department of Toxic Substances Control, and the Department of Fish and Wildlife (2).

As mentioned in the press release (2), “The Administration recently enacted measures to bolster long-term enforcement efforts against illegal operators by dedicating cannabis tax revenue to fund civil and criminal enforcement activities. This will reduce the burden on legal businesses while ensuring sustained actions against illegal operators. In addition, Board of State and Community Corrections (BSCC) grant eligibility has expanded to local jurisdictions, especially those allowing retail access, to further enhance and support local enforcement efforts against illegal cannabis activity.”

References

1. Norml. California gov. signs legislation halting cannabis tax hike https://norml.org/blog/2025/09/12/california-lawmakers-advance-legislation-to-governors-desk-halting-tax-hike-on-commercially-available-cannabis-products/ (accessed Sep 24, 2025).
2. Governor Newsom signs legislation cutting taxes on cannabis, promoting the long-term success of the legal industry https://www.gov.ca.gov/2025/09/22/governor-newsom-signs-legislation-cutting-taxes-on-cannabis-promoting-the-long-term-success-of-the-legal-industry/ (accessed Sep 24, 2025).