California cannabis tax cut inches forward

A push to cut the unpopular tax hike on California cannabis that went into effect in July is moving forward in the state Legislature.

If signed by Gov. Gavin Newsom, Assembly Bill 564 would see the 19% state excise tax on cannabis products revert back to 15% on Oct. 1.

That’s still far too high for many cannabis industry players and advocates – and is higher than the tax rate in other states with much higher per-capita legal marijuana sales.

But any cut is a welcome development for California’s struggling industry.

The state Assembly signed off on recent amendments made by the state Senate on Wednesday, according to a legislative record.

The full Legislature is expected to send the tax cut bill to Newsom’s desk for approval in the next few days, observers told MJBizDaily.

Authored by Assemblymember Matt Haney, a San Francisco Democrat, AB564 would see the 15% excise tax rate locked in until at least May 1, 2028.

At that time, state officials can recommend further adjustments – including the tax cut sought by many in the California marijuana industry.

Newsom supports marijuana tax cut, observers say

California’s excise tax increased from 15% to 19% on July 1 thanks to a 2022 arrangement that eliminated the state cultivation tax.

Many lawmakers, with Newsom’s support, tried to squeeze a tax freeze into a budget bill in late June.

However, that effort failed thanks in part to opposition from a top Senate lawmaker.

The bill would require state officials “to report the estimated amount of gain or loss in cannabis excise tax revenues resulting from this bill’s provisions, and find and declare that the specific goal of this bill’s reduction is to provide immediate tax relief to the cannabis industry,” according to the text.

As Haney observed, the number of active cannabis licenses in the state decreased by 18% in 2024 as sales dipped 4.4%.

That’s a phenomenon generally attributed to consumers seeking cheaper, untaxed cannabis on the illicit market.

California per-capita legal marijuana sales trail Michigan, Missouri

“California has just half the cannabis sales per capita of other states with lower taxes (Oregon, Michigan, Missouri),” according a statement from Haney’s office included in the bill’s legislative package.

Annual sales totaled about $4.1 billion in 2024, according to state data.

It’s estimated only 40% of the cannabis consumed in California is purchased from retail dispensaries.

“If California were on par in per capita sales with states like Michigan, it would be generating $13 billion in annual sales, and the state would be collecting substantially more tax revenue,” Haney’s author statement added.