Governor Gavin Newsom has signed a bill canceling a planned 25% tax hike on legal cannabis in California. The move is being celebrated by industry leaders, but some critics warn it will come at the expense of key state programs.
The new law is designed to help licensed growers and retailers stay afloat and better compete with the illegal market. Supporters argue that lowering the tax burden is essential to stabilizing the legal cannabis industry, which has been struggling with declining sales, widespread business closures, and shrinking tax revenue.
“The legal cannabis industry is in crisis,” said Amy Jenkins, executive director of the California Cannabis Operators Association. “There were already consumers that weren’t shopping at legal stores because they didn’t want to pay the 40-50% price increase they would see at illegal stores.”
The law not only cancels the planned tax hike but also locks in the state’s excise tax rate at 15% through 2028. Industry leaders say the goal is to bring prices down and win customers back from the illicit market.
The change comes as a special state task force continues to crack down on illegal cannabis. Since 2022, enforcement efforts have destroyed nearly $900 million worth of illegal products.
But not everyone is on board. Critics say the tax cut will strip away funding from programs that rely on cannabis revenue.
Dr. Lynn Silver with the Public Health Institute warned that childcare, youth substance-abuse prevention, and environmental programs are among those at risk. “The biggest single use from these taxes is to fund childcare costs for foster kids, emergency childcare for low-income families,” Silver said. “All of those activities will be significantly reduced by this.”
State officials argue that the long-term stability of the cannabis market is the best way to protect those programs. Jenkins agreed saying, “Until we can get to that point, where our businesses are thriving, you’re never going to see stable tax revenue to fund these nonprofit programs, which I acknowledge are very important.”
Since January 2018, California has collected more than $7.3 billion in cannabis tax revenue.