California officially eliminated a 25% tax increase on the legal cannabis industry on Monday, with Gov. Gavin Newsom’s signature on Assembly Bill 564.

The bill passed on September 11 with a 39-1 vote in the State Senate, following its passage in the Assembly in June with a 74-0 vote. 

AB 564, authored by Assemblymember Matt Haney (D-San Francisco), reverses an increase to the excise tax rate paid by consumers at dispensaries to 19%, and keeps the previous rate of 15% through July 2028.  The tax rate was increased in 2022 after the state eliminated a cultivation tax placed on growers, who were getting squeezed as prices of wholesale cannabis dropped while the cultivation tax adjusted upward with inflation.

The added cost made legal cannabis more expensive than that found on the black market, undermining the state’s effort to transition users from illegal sources to the legal cannabis market.

“We’re rolling back this cannabis tax hike so the legal market can continue to grow, consumers can access safe products, and our local communities see the benefits,” said Newsom in a prepared statement.

“California’s cannabis economy can bring enormous benefits to our state, but only if our legal industry is given a fair chance to compete against the untaxed and unregulated illegal market,” said Haney in a prepared statement. “AB 564 helps level the playing field. It protects California jobs, keeps small businesses open, and ensures that our legal cannabis market can grow and thrive the way voters intended.”

In 2016, California voters passed Prop. 64, which legalized the possession, cultivation and sale of cannabis for recreational use. Taxes collected from the legal cannabis industry are earmarked for youth education and prevention programs, public safety and enforcement, and the remediation of illegal marijuana grows. 

With the elimination of the excise tax increase – designed to offset the loss of the cultivation tax in 2022 – California would see a shortfall of $200-250 million a year for those programs, which would need to be covered by the state’s general fund.

The Governor’s Office said the state has recently increased its enforcement efforts against illegal cannabis operations and added grant eligibility for local jurisdictions to counter black market cannabis to reduce burdens on legal businesses.

• Marijuana
• Taxes
• California
• Cannabis