July 2, 2025 – California’s legal cannabis industry awoke on July 1st to a significant shift, as the state’s cannabis excise tax officially increased from 15% to 19% of gross receipts from retail sales. This 4% hike, mandated by a 2022 law (AB 195) that eliminated the cultivation tax, is already sparking widespread concern among consumers and industry stakeholders alike.

The new excise tax rate, designed to offset revenue lost from the cultivation tax, is expected to translate directly into higher prices for consumers. Estimates suggest the average cannabis purchase could now cost approximately $5 more, adding to an already substantial tax burden that, when combined with state, local sales, and business taxes, can push the total tax rate over 35% in some areas.

The cannabis industry has been vocal in its opposition to the increase, warning that it will exacerbate the challenges already faced by legal businesses. Dispensary owners and growers argue that the market is currently struggling under the weight of high taxes, stringent regulations, and fierce competition from the thriving illicit market. Many fear that the price increase will only push more consumers towards untaxed, unregulated products, undermining the legal market and ultimately reducing overall tax revenue for the state.

Despite significant legislative efforts to prevent this hike, including a strong push to delay it within the state budget, these attempts were unsuccessful. Governor Gavin Newsom had expressed support for halting the increase if a suitable proposal reached his desk, but no such measure materialized in time.

One ray of hope for the industry remains in Assembly Bill 564, introduced by Assemblymember Matt Haney. This bill aims to cap the excise tax at 15% until 2030 and has already passed the Assembly unanimously. However, it still requires Senate approval to become law.

As the higher excise tax takes effect, the long-term ramifications for California’s legal cannabis market are yet to be fully understood. The industry continues to grapple with the delicate balance of generating state revenue and fostering a competitive, legal marketplace that can truly contend with the pervasive illicit trade.