California county cuts cannabis taxes after short-lived increase

In an echo of last year’s statewide cannabis excise tax controversy, a central California county will cut its cannabis business tax this fall after a short-lived increase.

Cannabis cultivators in unincorporated San Luis Obispo County will pay a 6% tax again starting Oct. 1, after county supervisors earlier this month agreed to roll back an increase to 8% that began July 1.

It’s the second time county elected officials have intervened to cut the tax, according to The New Times. However, businesses must pay the increased tax until October.

There are about 22 cannabis business licenses in San Luis Obispo County, officials told The New Times.

Are politicians cutting cannabis taxes?

San Luis Obispo began taxing cannabis businesses at 4% of their gross receipts starting in July 2018, following voters’ overwhelming approval of the tax the previous month.

Under the law, the tax automatically increases by 2% every year up to a maximum of 10% unless county supervisors vote to maintain or to decrease the tax rate, according to a county analysis.

This year, the tax went into effect because supervisors took no action. But after just a few weeks of an 8% tax, supervisors agreed to cut the tax after hearing from cannabis operators, who told them that the extra levy caused additional problems for an already struggling industry, The New Times reported.

The tax has generated a total of $3.6 million in revenue since 2018, according to the county.

What happens to cannabis sales when taxes increase?

The situation is similar to a short-lived increase to the statewide excise tax that went into effect last year. On July 1, 2025, the statewide excise tax increased to 19%, up from 15%, despite howls of protest from cannabis operators and acknowledgement in Sacramento that the industry needed relief amid pressures from the illicit market.

California Gov. Gavin Newsom signed a bill into law last September that cut the excise tax rate back to 15% starting on Oct. 1, 2025. However, as many retailers had predicted, the damage had been done.

The tax hike sent quarterly California cannabis sales tumbling to a five-year low, state data showed. Annual sales now stand below $4 billion.

Heavy taxes are taking a toll in other jurisdictions across the country.

In Michigan, one licensed retailer closed five of its nine locations as a direct result of a new 24% wholesale cannabis tax that took effect on Jan. 1. That tax also generated barely one-third of the revenue supporters promised.

When state sales taxes as well as local cannabis taxes are accounted for, the total tax burden for California cannabis is still over 30% in many jurisdictions.