California’s Legal Weed Industry Faces a New Challenge: A 19% Excise Tax Increase
Despite efforts to keep the tax rate lower, California’s legal cannabis market is facing a significant challenge: a 19% excise tax increase, effective July 1. The tax hike was left out of the state budget passed on Monday, and it is expected to have a devastating impact on the industry.
The excise tax is a levy imposed on cannabis products by the state before sales taxes are applied. The increase from 15% to 19% is a result of a political deal three years ago that aimed to give the legal market more time to stabilize. However, cannabis business operators are now warning that the tax increase could chase away customers and push them over the edge.
Genine Coleman, founder of the Origins Council, which represents small farmers in the historic Northern California growing region known as the Emerald Triangle, described the situation as “a dangerous space.” She said that cannabis growers, dispensary owners, and consumer advocates have been rallying for months at the state Capitol to avert the tax increase, which they argue could deal a fatal blow to businesses already operating with slim margins.
The price of weed has plummeted since voters legalized recreational cannabis in 2016, and the industry is struggling to bring its market out of the shadows. The state Department of Cannabis Control estimates that legal sales still comprise less than 40% of weed consumption in California, which the industry attributes to state and local excise and sales taxes that can increase prices for consumers by a third.
Taxable cannabis sales in California dropped to $1.09 billion for the first quarter of 2025, down 30% from their peak in early 2021 and the lowest quarterly sales in five years.
The industry is warning that further raising taxes will push price-sensitive customers back into the illicit market, hurting businesses and actually lowering cannabis tax revenue in the long run. Assembly Bill 564, which would set the cannabis excise tax at 15% through the end of June 2031, passed the Assembly unanimously in May and is now awaiting consideration in the Senate.
Assemblymember Matt Haney, the San Francisco Democrat who introduced the measure, said he will continue to fight to get it to the governor. However, he was furious that the Senate allowed the tax hike to take effect, which he said sent a message to legal cannabis operators that there is no incentive to follow the rules.
“This tax could kill this industry and there’s still not enough being done,” Haney said.