As the California cannabis industry’s anxieties mount over a forthcoming excise tax increase, the state’s top regulator implied that Gov. Gavin Newsom is not responsible for the hike.

In particular, California’s statewide cannabis excise tax levied on dispensary sales will jump from 15% to 19%—representing a 27% increase—starting on July 1, 2025. This is in addition to the state’s sales taxes and local taxes that have some retailers, such as those in Los Angeles, remitting an effective 34.5% combined tax on products sold.

In a social media post on March 24, California Department of Cannabis Control (DCC) Director Nicole Elliott asked comedian and HBO political talk show host Bill Maher about his familiarity with the state’s upcoming tax increase ahead of Newsom’s expected appearance on Real Time With Bill Maher on March 28.

“Hey @billmaher, did you know the state cannabis excise tax is slated to increase by force of law, not because @GavinNewsom says it must be so?” Elliott wrote on X. “Shoutout to all those people steering this type of energy to where it really belongs—on advocating for statutory changes.”

Elliott’s post was in response to a TV viewer asking Maher on the social platform if he knew that Newsom “wants” to raise the cannabis excise tax, relating the question to Maher’s stake in the industry: Maher co-founded a dispensary and consumption lounge, The Woods, in West Hollywood with actor and activist Woody Harelson and others.

Although Elliott is correct that the excise tax will increase by force of law, the law she was referring to, Assembly Bill 195, was one that Newsom helped orchestrate. A.B. 195 was attached as a trailer to California’s state budget and signed by Newsom in June 2022.

DCC Media Relations Manager David Hafner provided Cannabis Business Times a statement from the department that pointed to the fact that A.B. 195 passed with supermajority support in the state Legislature.

“It included several significant and beneficial reforms to California’s cannabis tax policy, including suspending the cultivation tax, streamlining collection and remittance of excise taxes, and establishing tax incentives and credits for equity and high-road operators,” the DCC told CBT. “This rate adjustment is not a discretionary administrative decision; it is required by law.”

As part of Newsom’s proposed budget revision in May 2022, he called for eliminating the state’s weight-based cultivation tax and shifting the excise tax collection and remittance from distribution to retail while maintaining the 15% rate in the short term.

However, in a compromise with certain beneficiaries of the cannabis tax revenue, the governor also proposed raising the excise tax rate to 19% if funding for Allocation 3 recipients fell below a baseline of $670 million annually for three years. The cannabis tax Allocation 3 beneficiaries include dozens of childcare programs and youth groups; environmental, wildlife and conservation programs; law enforcement and justice organizations; and drug treatment prevention centers.

Newsom’s 2022 proposal for the excise tax increase to 19% was to achieve “revenue neutrality” to compensate for the potential revenue loss from the state’s $161-per-pound cultivation tax being eliminated.

Although California Assembly Member Matt Haney, D-San Francisco, introduced Assembly Bill 564 on Feb. 12 to block the excise tax from automatically increasing to 19% on July 1, that legislation has yet to make headway in this legislative session.

RELATED: California Bill Aims to Repeal Cannabis Excise Tax Increase

Haney’s 2025 legislation wouldn’t be applicable had industry pleas not fallen on deaf ears nearly three years ago.

In response to Elliott’s social post from Monday, California NORML commented, “So, will the Governor support AB 564 and adjust his new budget accordingly, in support of California’s cannabis industry and its consumers?”

California NORML sounded the alarm on Newsom’s excise tax proposal in May 2022, when the advocacy organization backed a bill by former state Sen. Steven Bradford that not only would have eliminated the cultivation tax but also refrained from increasing the excise tax rate.

Also in May 2022, leaders from four of California’s leading cannabis trade organizations—the United Cannabis Business Association, the California Cannabis Manufacturers Association, the Cannabis Distribution Association, and the California Cannabis Industry Association—wrote a letter to Newsom objecting to the governor’s proposed 19% excise tax increase by July 1, 2025.

“While we are in favor of zeroing out the convoluted, weight-based cultivation tax, we do not view this [revised budget proposal] as a tax reduction effort when combined with shifting the point of tax collection from distribution to retail and the automatic increase up to 19%,” they wrote in the letter, which they also sent to legislative leaders.

“This proposal as it currently stands would, within three years, increase the effective tax rate far above the status quo, driving up prices to the end consumer, further destabilizing a fragile legal market and further empowering a formidable illicit market,” the trade organization leaders wrote to Newsom.

Instead of establishing a 15% excise tax floor with a mandatory increase in three years, they asked the governor to consider an alternative that would allow California to “balance the state’s dual goals of funding programs and migrating consumers to the legal market.”

While Allocation 3 funding recipients have a surplus of more than $600 million as of March 2024, according to a budget summary from the state Assembly, licensed cannabis businesses are struggling to stay afloat.

After California’s cannabis retail market peaked at $5.35 billion in dispensary sales in 2021, it slid 13% to $4.67 billion in 2024 sales, according to the DCC.

Alongside the shrinking sales revenues, the California Department of Tax and Fee Administration (CDTFA) has reported falling cannabis tax revenues since 2021, with roughly 15% of the state’s dispensary licensees in default on their cannabis excise tax obligations at the beginning of 2024.

In addition to a trigger provision to increase the excise tax, A.B. 195 required an economic report on the status of the cannabis industry by Jan. 1, 2025.

The DCC commissioned ERA Economics LLC to prepare that report, which the department released to state lawmakers on March 3.

In his determination that California’s licensed cannabis market is growing, ERA Principal Economist Duncan MacEwan pointed to a few specific findings in a press briefing:

• Licensed cannabis production increased by 11.8% from 2023 to 2024
• The nominal wholesale value (of what was produced) increased by 7.5%
• Units sold at retail increased by 5.2% (but unit prices were down)
• 38% of cannabis consumed in 2024 came from the licensed market, up from 33% in 2020

On that fourth bullet point, ERA Economics determined that Californians consumed roughly 1.4 million pounds of licensed cannabis and 2.4 million pounds of unlicensed cannabis in 2024. Drawing on that conclusion, if 1.4 million pounds of licensed cannabis consumed is worth nearly $4.7 billion retail, then the 2.4 million pounds of unlicensed cannabis consumed would be valued in the neighborhood of $7.8 billion at retail.

However, California’s unlicensed cannabis operators produce much more than what’s consumed just in the state.

According to ERA, an estimated 9 million pounds of unlicensed cannabis that’s grown in California is leaving the state, meaning 11.4 million pounds of unlicensed cannabis is being produced annually.

If that 11.4 million pounds has a similar retail value as licensed cannabis, then it’d be worth a staggering $37 billion—nearly eight times as much as California’s $4.7 billion in legal sales. However, that $37 billion figure wasn’t included in ERA’s report, perhaps because unregulated and untaxed cannabis is often sold for cheaper to undercut the licensed market.

The report did identify the state’s excise tax increase as a headwind for the licensed industry, indicating that the upcoming hike would “mute” some of the DCC’s efforts to streamline regulatory burdens for operators.

Although Newsom touted his administration’s Unified Cannabis Enforcement Task Force seizing $534 million of unlicensed cannabis in 2024—or roughly 1.5% of the unlicensed cannabis produced in California, per the ERA report—the governor hasn’t promoted the forthcoming excise tax increase that he orchestrated nearly three years ago.

Bill Maher could shed light on where Newsom now stands on this excise tax hike, should the governor make a guest appearance on the TV host’s show this Friday.