Cannabis Business Times
California legislation to repeal the state’s forthcoming cannabis excise tax increase cruised through another unanimous committee vote on May 5, providing industry stakeholders hope in avoiding an existential threat to their retail businesses.
The Assembly Revenue and Taxation Committee members voted, 6-0, to advance Assembly Bill 564, which aims to stop the excise tax rate from increasing from 15% to 19% on July 1, 2025, under trigger language that Gov. Gavin Newsom orchestrated in a budget trailer bill three years ago. The four percentage points reflect a 26.7% increase.
A.B. 564, sponsored by Rep. Matt Haney, D-San Francisco, also commanded a 15-0 vote in the Business and Professions Committee on April 22, meaning more than a quarter of the full chamber’s members have united behind the legislation that now heads to the Appropriations Committee.
“This is a tax increase that is solely going to be on this single industry,” Haney told Revenue and Taxation Committee members on Monday. “It is one that was put into place a few years ago, and during that time, over the past few years, we’ve seen an industry that has experienced incredible challenges to be able to survive in an environment where the illegal, untaxed illicit market continues to grow.”
Specifically, unlicensed cannabis cultivators produce an estimated 11.4 million pounds of unregulated cannabis annually, including 2.4 million pounds that are consumed in California and 9 million pounds that leave the state, according to an ERA Economics report commissioned by the state’s Department of Cannabis Control (DCC). That unlicensed market represents roughly 63% of what’s consumed in California and 89% of what’s produced in California annually.
In other words, California is missing out on more than $1 billion in annual excise tax revenue based on what’s being consumed in the state, not to mention local and state sales tax revenues.
The CDTFA collected $600,000 in excise tax revenue from licensed operators in 2024, falling short of an annual $670-million benchmark established in the 2022 law to avoid the tax hike. However, many industry participants and advocates fear that raising taxes will only lead to fewer licensed operators and smaller revenue totals.
“More and more small cannabis businesses are succumbing to the pressure of overtaxation,” Haney said.
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