Since California’s legalization of recreational marijuana, the legal market has struggled greatly. In the midst of this, California announced a 26 percent cannabis tax increase, much to the dismay of industry insiders. Operators, advocates, and political allies worked tirelessly to block the tax hike to no avail.
Starting today, the state cannabis excise tax rate increases from 15 percent to 19 percent.
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Days before the tax hike went into effect, California Governor Gavin Newsom announced his support for suspending the increase.
“If the Governor receives a proposal to halt the cannabis excise tax increase, he will sign it. His record speaks for itself — from supporting the legal cannabis industry to taking down illicit operations, he remains committed to further strengthening California’s growing legal cannabis market,” Diana Crofts-Pelayo, a Newsom spokesperson, told SFGATE.
The increase itself is a result of a 2022 law—signed by Newson—that rescinded a cannabis cultivation tax. While growers got a break on their taxes, the lost revenue was to be made up by sales tax at dispensaries.
Lauren Carpenter, CEO of dispensary chain Embarc, told GreenState ‘Hail Mary’ attempts to block the increase were thwarted.
“After Herculean efforts with the legislature for six months — resulting in support for a tax freeze by both the Governor’s office and the State Assembly — we are deeply disappointed to see a timely solve thwarted in the Senate,” she said.
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“Nail in the coffin…”
Cannabis industry professionals previously pushed for a tax suspension to be included in the 2025 budget bill, but it was not. According to Jerred Kiloh, president of the United Cannabis Business Association, the tax hike will only make legal retailers’ lives harder, as they will fail to compete with the low prices of the illicit market.
Eli Melrod, founder of dispensary chain Solful, echoed this sentiment.
“The high taxes in California already make it difficult for the legal market to compete with the illicit market,” Melrod told GreenState. “Increasing the excise tax will only exacerbate this problem as consumers will face even higher costs when purchasing their cannabis from legal storefronts.”
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California’s legal cannabis market is already drowning—as of February, inactive and surrendered pot licenses outweighed active ones by over 2,000. Market experts believe that the tax increase will cause the legal market to continue shrinking, allowing the illicit market to regain customers seeking cheaper products.
Judi Nelson, co-owner of Sol Spirit Farm in Trinity County, Calif., believes the new excise tax could decimate an already struggling community.
“I fear this tax increase will be the last nail in the coffin of California’s legacy cannabis small farms’ ability to remain in the market,” she lamented
Hope is not lost
Despite the bleak outlook, hope is not completely lost for California’s legal cannabis operators. Industry advocates have shifted focus to the passage of AB 564, which would delay the tax increase until 2030—and buy operators more time to convince lawmakers to possibly scrap the increase altogether
“We are doubling down on our commitment to California consumers and need all hands on deck to support AB 564,” Carpenter said. “We will continue educating California consumers who will need to keep the pressure on their senators to prevent this 25 percent tax increase from being implemented forever.
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Both Melrod and Nelson agreed with Carpenter on the best course of action for consumers and other advocates of the legal industry to help their cause: contact your elected officials. They argue freezing the tax would benefit not just the market and customers, but the State itself.
“The groups benefiting from these taxes would be way better served if they were reduced. People would then spend more at dispensaries, and the beneficiaries of the taxes would actually get more money,” Nelson concluded.