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The California Senate this week approved a bill to reverse an increase in the state’s cannabis excise tax, citing a need to support licensed businesses in the face of competition from unlicensed operators. If approved, the bill from Democratic Assemblymember Matt Haney would pause mandated increases in the cannabis excise tax.
The California Assembly approved the legislation (AB-564) in June, leading to the Senate’s passage of the measure with amendments on September 10. The bill will now return to the Assembly, where lawmakers must approve the changes made in the Senate before it can head to Democratic Gov. Gavin Newsom for consideration.
Before the Senate vote on Wednesday, Sen. Christopher Cabaldon, also a Democrat, told his colleagues that legalizing cannabis was supposed to “shut down the illicit market” and “support a wide variety of environmental, social, and educational programs” with tax revenue. The reality, however, has failed to live up to the goals of legalization.
“That deal is fraying because the market is collapsing,” Cabaldon said, according to a report from Marijuana Moment. “Today, legal businesses in California capture just 40 percent of the cannabis market. Sixty percent is in the illicit market, subject to no protections for consumers or for the environment.”
“California is losing ground to other states,” the lawmaker continued. “Michigan, Oregon, and others are raking in much more tax revenue and are doing a much better job at stopping illicit sales. And so this isn’t the time to be raising the tax by 25 percent.”
Democratic Sen. Jerry McNerney added that “we want to control and contain and reduce the illegal market.”
“Raising taxes right now is going to have an opposite effect,” he said. “It’s going to drive people into the illegal black market on cannabis, which is a bad outcome.”
California Cannabis Taxes Spiked This Summer
State officials announced in June that the cannabis tax would be adjusted from 15% to 19% in accordance with state law, with the increase set to become effective on July 1. Lawmakers had hoped to include provisions to stop the rise in the state budget bill, but the language was not included in the final version of the legislation.
Under Haney’s bill, the cannabis tax increase that went into effect in July would be rolled back. The California Department of Tax and Fee Administration (CDTFA) would be required to collaborate with the Department of Finance to “adjust the cannabis excise tax rate upon purchasers of cannabis or cannabis products” based on the “additional percentage of the gross receipts of any retail sale by a cannabis retailer that the department estimates will generate an amount of revenue equivalent to the amount that would have been collected in the previous fiscal year,” the text says.
The department would be required to “estimate the amount of revenue that would have been collected in the previous fiscal year pursuant to the weight-based cultivation tax” and “estimate this amount by projecting the revenue from weight-based cultivation taxes that would have been collected in the previous calendar year based on information available to the department.”
“The specific goal of the cannabis excise tax rate reduction is to provide immediate tax relief to the cannabis industry,” the bill reads. “The efficacy of this goal may be measured by the Legislature by the amount of gain or loss in cannabis excise tax revenues resulting from the cannabis excise tax rate reduction allowed by this act.”
The bill also mandates that CDTFA, on or before December 1, 2026, and each subsequent year, “submit a report to the Legislature…detailing the amount of gain or loss in cannabis excise tax revenues resulting from the cannabis excise tax rate reduction allowed by this act.”
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The information in this article and any included images or charts are for educational purposes only. This information is neither a substitute for, nor does it replace, professional legal advice or medical advice, diagnosis, or treatment. If you have any concerns or questions about laws, regulations, or your health, you should always consult with an attorney, physician or other licensed professional.
