California cannabis tax hike hurt legal sales, state data shows

Legal cannabis sales in California, the country’s biggest market, dipped to a five-year low after a since-repealed excise tax hike went into effect July 1, recent state data shows.

The predictable – and predicted – effect of increased taxes in an already lagging mature market spells potential trouble for other states where officials are raising taxes such as Michigan, where lawmakers recently approved a new 24% wholesale tax.

California cannabis retailers reported just shy of $940 million in cannabis sales in the third quarter of 2025, according to California Department of Tax and Fee Administration data.

That’s down from $993 billion in the second quarter of 2025 and represents the lowest quarterly haul since early 2020, before sales spiked during the COVID-19 pandemic.

“The sales decline is unsurprising,” said Hirsh Jain, a consultant and the principal of Los Angeles-based Ananda Strategy.

“California was already one of the highest taxed states for legal cannabis, which is why it has long had the lowest per-capita sales of any mature adult use state.”

California cannabis tax hike hurt legal sales – as predicted

Annual sales are also on pace to dip for the third consecutive year – and to drop before $4 billion for the first time since the market’s launch.

California legal marijuana sales in 2023 topped $4.4 billion, compared to $4.2 billion in 2024.

As MJBizDaily reported, stressed retailers predicted a sales drop would follow the tax hike.

However, it remains to be seen if the sales dip is temporary and whether sales will recover after the state cut taxes.

The state’s 15% excise tax increased to 19% on July 1 as part of a tax structure imposed when the state eliminated its per-ounce cultivation tax partially in response to complaints from struggling cultivators.

The excise tax reverted back to 15% as of Oct. 1 after Gov. Gavin Newsom signed a bill into law that will keep the excise tax at that level until at least 2028.

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.

Will lawmakers cut marijuana taxes to help out lagging markets?

New markets seem to recognize the problem posed by the tax burden in older markets like California, where legal sales began Jan. 1, 2018, after voters approved legalization in November 2016.

For example, the cannabis excise tax in Ohio, where sales began in August 2024, is only 10%.

Many operators are calling for a more dramatic cut to California cannabis taxes to reverse the yearslong trend of consumers drifting toward cheaper illicit market options.

Illicit, unregulated cannabis consumption in California is still more than twice as big as the legal market, according to a state-commissioned study published earlier this year.

Said Jain: “Barring tax and regulatory reform, it seems likely that California will in the coming years be overtaken in sales by some other state with a fraction of its population and will no longer be able to claim that it is the largest cannabis market in the world.”