A substantial tax hike for California’s faltering legal cannabis market is set to take effect today, despite an aggressive industry campaign to suspend the increase that won the support of Gov. Gavin Newsom and other political leaders.

The excise tax for weed is 19% as of July 1, up from 15% — 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% 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% 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% from their peak in early 2021 and the lowest quarterly sales in five years.

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% 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.

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% 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.”