California Cannabis Operators Warn That New Tax Hike ‘Could Kill This Industry’

*“We have no objections to how cannabis tax revenues are being spent. All
we’re maintaining is that you can’t squeeze blood from a stone.”*

*By Alexei Koseff, CalMatters*

*This story was originally published by CalMatters. Sign up for their
newsletters.*

A substantial tax hike for California’s faltering legal cannabis market
took effect on Tuesday, despite an aggressive industry campaign to suspend
the increase that won the support of Gov. Gavin Newsom (D) and other
political leaders.

The excise tax for weed is 19 percent as of July 1, up from 15 percent—the
result of a political deal three years ago that was intended to buy more
time for the legal market to stabilize but which cannabis business
operators now warn could chase away customers and push them over the edge.

“I’ve never experienced collective malaise like this,” said Genine Coleman,
founder of the Origins Council, which represents small farmers in the
historic Northern California growing region known as the Emerald Triangle.
“People are so concerned with their survival and so deflated. It’s a
dangerous space.”

An excise tax is a levy imposed on a good by the state before sales taxes
are applied. While a push to freeze the cannabis excise tax through the
state budget failed last month, a bill that would lower the rate back to 15
percent for the next six years is still moving through the Legislature.
Newsom has pledged to sign a proposal halting the tax increase if it
reaches his desk.

“I’m intimately familiar with the conversations around that and have great
confidence that we’ll achieve our stated goals,” Newsom said during a press
conference Monday.

Cannabis growers, dispensary owners and consumer advocates rallied for
months at the state Capitol to avert the tax increase, which they argue
could deal a fatal blow to businesses already operating with slim margins.

The price of weed has plummeted since voters legalized recreational
cannabis through Proposition 64 in 2016, the result of a rush to
overproduction even as most cities and counties in the state remain closed
off to retail sales. Meanwhile, California is struggling to bring its
market out of the shadows; the state Department of Cannabis Control
estimates that legal sales still comprise less than 40 percent of weed
consumption in California, which the industry attributes to state and local
excise and sales taxes that can increase prices for consumers by a third.

Taxable cannabis sales in California dropped to $1.09 billion for the first
quarter of 2025, down 30 percent from their peak in early 2021 and the
lowest quarterly sales in five years.

*Tax was intended to offset cannabis harms*

It’s a crisis for the industry—communities that traditionally relied on
cannabis production have collapsed economically—but also a problem for the
state’s finances. Tax revenues from weed sales provide guaranteed funding
for child care slots, environmental cleanup, substance abuse education and
impaired driving prevention efforts as California faces a growing budget
deficit.

“This was a poor time to say, ‘let’s starve the state even more,’” said Tom
Wheeler, the executive director of the Humboldt County-based Environmental
Protection Information Center, which joined a coalition of child care,
environmental and tribal advocacy groups to lobby against a tax freeze.

He said it was important to uphold the promise of Proposition 64, which
includes using cannabis tax revenue for programs that offset the harms
caused by the cannabis industry, and expressed skepticism that the tax
increase would hurt sales.

“I think the average consumer would not notice that,” Wheeler said. “At
what point do we stop cutting taxes to benefit the industry?”

The 2022 agreement offered relief to growers by eliminating a cultivation
tax, but it allowed state regulators, after a three-year pause, to raise
the excise tax to make up for the lost revenue.

During budget negotiations last month, Newsom—who also wants to begin using
cannabis tax revenue for enforcement against illegal cultivation—and
Assembly Speaker Robert Rivas, a Democrat from Salinas, supported extending
the pause on the excise tax. They could not reach a compromise with Senate
President Pro Tem Mike McGuire, a Healdsburg Democrat who notably
represents the Emerald Triangle.

In a statement, McGuire said “taxes on California’s overregulated cannabis
industry have been a train wreck for years,” but he raised concerns about
the fiscal implications of freezing the tax. State analysts estimate that
increasing it to 19 percent could yield about $180 million per year for the
state.

“It’s important to acknowledge that any freeze will create a budget
shortfall which would impact critical community programs funded by cannabis
tax dollars,” he said.

*California could ‘forfeit a huge opportunity’*

Industry representatives warn that further raising taxes will push
price-sensitive customers back into the illicit market, hurting businesses
teetering on the edge and actually lowering cannabis tax revenue in the
long run.

“The math isn’t there,” said Amy O’Gorman Jenkins, executive director and
lobbyist for the California Cannabis Operators Association. “We have no
objections to how cannabis tax revenues are being spent. All we’re
maintaining is that you can’t squeeze blood from a stone.”

They haven’t given up, though repealing the tax increase now that it’s
taken effect will be even more challenging.

Assembly Bill 564, which would set the cannabis excise tax at 15 percent
through the end of June 2031, passed the Assembly unanimously in May and
now awaits consideration in the Senate.

Assemblymember Matt Haney, the San Francisco Democrat who introduced the
measure, said he will keep fighting to get it to the governor. But he was
furious that the Senate allowed the tax hike to take effect, which he said
sent a message to legal cannabis operators that there is no incentive to
follow the rules.

“This tax could kill this industry and there’s still not enough being
done,” he said. “California is going to forfeit what should have been a
huge opportunity for our state.”

*This article was originally published on CalMatters and was republished
under the Creative Commons Attribution-NonCommercial-NoDerivatives license.*

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This Industry’ appeared first on Marijuana Moment.