California bill would derail planned marijuana tax hike of up to 25%

A California lawmaker wants to cancel a scheduled increase in the state’s marijuana excise tax of nearly 25% that many operators say would be ruinous.

If the state Legislature were to pass Assembly Bill 564 – written by Assembly Member Matt Haney, a San Francisco Democrat – the state’s cannabis excise tax would stay at 15% – with no adjustments allowed.

That would mean relief from an increase in the excise tax, which could take effect in July, to as high as 19%, though many operators contend the current baseline is still too high.

The state’s excise tax rate is now adjustable after the cancellation of the state’s per-ounce cultivation tax in 2022.

But as part of the agreement to cut that tariff, state law allows the excise tax to be increased in order “to generate revenue equal to the amount the cultivation tax would have generated were it still in effect,” according to Gov. Gavin Newsom’s annual budget summary.

California collected more than $625 million in cannabis excise taxes in 2023, according to state data.

That number was on pace to dip in 2024: Through the first three quarters of 2024, the most recent data available, the state collected only $463 million.

At its peak, the cannabis cultivation tax netted California about $165 million a year.

The state Department of Cannabis Control is also facing a $23 million budget deficit as part of an overall economic malaise, a shortfall that the agency is considering covering with increased licensing fees, according to SFGate.

Hiking the excise tax to 19% would lead to marijuana retailers paying an extra $160,000 on average, according to the Cannabis Business Times.

Newsom last year declined to include any tax relief in an initial budget proposal.

California cannabis is subject to both state sales taxes as well as the state excise tax, plus any local levies added by a city or county.