California Votes to Prevent 25% Cannabis Tax Hike

On Monday June 2, 2025, the California Assembly conducted an unanimously vote which would prevent a bill from implementing a 25% tax hike on “on the state’s legal cannabis industry that is set to take effect July 1,” (1).

"If we continue to pile on more taxes and fees onto our struggling small cannabis businesses, California's cannabis culture is under serious threat of extinction," Assemblymember Matt Haney said to CBS News (1,2). Additionally, Haney expressed (1), “If we continue to pile on more taxes and fees onto our struggling small cannabis businesses, California’s cannabis culture is under serious threat of extinction.”

The bill is known as AB564 (1-3) and will now be heading to the Senate for further deliberations. AB564 states (3), “Existing law, the Cannabis Tax Law, imposes an excise tax upon purchasers of cannabis or cannabis products sold in this state at the rate of 15% of the gross receipts of any retail sale by a cannabis retailer, and, as enacted by AUMA, imposed a cultivation tax on all harvested cannabis that entered the commercial market, as specified. Chapter 56 of the Statutes of 2022 (AB 195) amended AUMA to, among other things, discontinue the imposition of the cultivation tax on July 1, 2022. AB 195, beginning in the 2025–26 fiscal year and every 2 years thereafter, requires the California Department of Tax and Fee Administration to adjust the cannabis excise tax rate by a percentage that will generate an amount of revenue that would have been collected pursuant to the cultivation tax imposed prior to its discontinuation, as specified, not to exceed 19% of the gross receipts of retail sale.” Additionally, it mentions that the bill would “delay the requirement” entitling the state to increase the cannabis sales tax.

The California Department of Tax and Fee Administration disclosed in May 2025 (1,4) that there would be a 25% tax hike which was a part of a 2022 legislation which “removed a blanket cultivation tax but included rules to raise the tax rate if the state’s cannabis revenues start to fall,” (1). California has been witnessing a decline in cannabis sales and recently reported that cannabis revenue was down 11% in Q1 (5).

Strict industry regulations, high taxes, and black-market competition have been plaguing the cannabis industry and hindering its growth (1).

California voters decided to approve Proposition 64 in 2016, which (2) “legalized the possession, cultivation and sale of cannabis for recreational use, along with a 15% retail excise tax.”

“Nearly a decade after Californians overwhelmingly approved cannabis legalization, the industry is struggling under the crushing weight of a 15% excise tax,” Caren Woodson, president of the California Cannabis Industry Association, commented (1,2). “Any increase, particularly a 25% increase, would not only be bad public policy, but devastating to operators already on the brink.”

References

1. Abbott, G. California assembly votes unanimously to block cannabis tax hike https://www.ganjapreneur.com/california-assembly-votes-unanimously-to-block-cannabis-tax-hike/ (accessed Jun 9, 2025).
2. Fang, T. California lawmakers approve pausing 25% tax increase on legal cannabis industry https://www.cbsnews.com/sanfrancisco/news/california-ab564-cannabis-industry-tax-hike-halted-by-assembly/ (accessed Jun 9, 2025).
3. Bill text - AB-564 https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202520260AB564 (accessed Jun 9, 2025).
4. Abbott, G. Tax hikes coming to California cannabis industry https://www.ganjapreneur.com/tax-hikes-coming-to-california-cannabis-industry/ (accessed Jun 9, 2025).
5. Branfalt, T. Licensed California cannabis sales down 11% in Q1 https://www.ganjapreneur.com/licensed-california-cannabis-sales-down-11-in-q1/ (accessed Jun 9, 2025).