California rolled back a 25% excise tax hike on legal marijuana products in October, but some owners of local cannabis businesses say their shops are still in trouble.

One lawyer says the tax break doesn’t change much, but a recent executive order from President Donald Trump rescheduling cannabis could bring more relief to struggling pot-related businesses.

The state’s legal market for recreational cannabis opened in 2016, with a 15% state excise tax and a state cultivation tax based on weight. The cultivation tax ended in 2022, but to make up for that lost revenue the state increased the excise tax to 19% in July.

LAist spoke with several L.A. cannabis business owners that month who said competition against illegal businesses who do not pay those taxes was nearly pushing them out of the market.

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The state acknowledged challenges facing legal marijuana businesses and passed Assembly Bill 564 to “provide immediate tax relief to the cannabis industry,” according to the bill. The law signed by Gov. Gavin Newsom in September rolled back the excise tax to 15%.

Newsom said in a news release after signing the bill that the tax rollback would allow the legal market to continue to grow. He said his administration also dedicated cannabis tax revenue to fund enforcement activities against illegal operators.

Still, some business owners say L.A.’s legal cannabis industry is hurting from high taxes and trying to compete with illegal shops.

“We were suffering before the tax hike,” Madison Shockley III, who owns the Cadre dispensary on Avalon and 61st Street, told LAist. “It’s not much of a change because we were already dying.”

The different taxes on L.A. cannabis

Every sale of cannabis from a legal dispensary in L.A. is taxed three times: 10% tax from the city, 15% state excise tax and then state sales tax of around 10%.

Trying to compete with illegal shops has been difficult for legal ones, and Elliot Lewis from Catalyst Cannabis Co. told LAist his business took a hit when the excise tax increased.

He said his shops ate the added cost of the tax until it was reversed, not wanting to pass it on to consumers. Lewis said he couldn’t have kept that up for long.

“It would have been a death sentence, because we’re all kind of on death’s doors,” he said.

Lewis and Shockley told LAist they think the state and local taxes are far too high.

Lewis, who owns 33 stores across 27 cities, said he thinks that along with reducing or eliminating L.A.’s tax on cannabis, more needs to be done to shut down illegal shops.

While he has seen some of his stores in other cities increase sales because of better enforcement of illegal shops by local police, his L.A. stores haven’t seen any such improvement.

“ Every city has shown some willingness to shut it down, except the City of Los Angeles,” Lewis said.

LAist reached out to the Los Angeles Police Department about Lewis’ concerns, but did not immediately receive a reply.

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The city weighing options

According to a Dec. 15 report by the city’s Department of Cannabis Regulation, the number of licensed cannabis businesses in L.A. more than doubled from 2021 to 2024, but the revenue the city collected from industry tax went down.

To blame for the decrease was “a struggling cannabis industry in need of aid pressured by a thriving illegal market, high taxes, predatory investors, and a federal ban on cannabis,” the report states.

Hundreds of businesses had closed their doors with outstanding taxes, which couldn’t be collected to fund city services.

To prevent more businesses from losing their licenses, the cannabis department recommended waiving penalties on overdue taxes, so long as business owners agreed to follow a payment plan. They also recommended a new “phased approach” of license renewals that “holds the businesses with the most egregious outstanding tax balances responsible” by limiting when they are able to apply for a renewed license.

Shockley said he’s concerned that instead of being helped to repay their taxes and grow successful businesses, entrepreneurs like him would be hurt even more if they’re prevented from renewing their licenses.

He said the city should instead focus on bringing down the taxes, and pointed to a recommendation made from the Cannabis Regulation Commission to city officials in July that called for a lower, tiered tax rate.

The city requested a study to determine options for lowering the tax rate in September, but no changes have been made.

What rescheduling would mean

Earlier this month, Trump issued an executive order calling for the rescheduling of cannabis from Schedule I of the Controlled Substances Act (CSA) to Schedule III.

While not yet in effect, Oren Bitan said this could have a much greater effect on the local cannabis industry than the slight rollback of state taxes.

Bitan is a lawyer who advises cannabis businesses.

Federal rescheduling would open up opportunities for medical research and new funding streams that are currently unavailable, Bitan told LAist.

The rescheduling would mean that there is a medical purpose for cannabis, Bitan added, promoting research for things like cancer, epilepsy, PTSD or anxiety.

Access to financial services has also been a longstanding issue for cannabis businesses and making marijuana sales federally legal, he said, would open up new lines of credit.

Bitan said cannabis businesses would also finally be able to write off their expenses on federal taxes.

A law from the 1980s currently prevents those who sell Schedule I drugs from deducting expenses on their tax returns, Bitan noted.

“ These are people with state licenses playing by all the rules, paying all the state taxes that we’re talking about,” he said. “But at the federal level, they are prohibited from deducting rent or any overhead.”