California is set to increase its excise tax on cannabis from 15% to as much as 19% starting on July 1, 2025, as part of a budget compromise made when the cannabis cultivation tax was removed via AB 195 (2022), in order to assure adequate funding for programs funded by cannabis taxes.

California’s cannabis market has lost 30% of its active licenses in the past two years. Many of the inactive licenses are equity businesses, who are already facing a de facto tax increase as the vendor compensation program for cannabis equity businesses is set to expire on 12/31/25.

The Dept. of Cannabis Control estimates that 6 out of every 10 cannabis sales in CA is from the illicit, untaxed market. High taxes and restrictive regulations are chocking the legal cannabis industry, and sending consumers to the illicit market, where products are untested and untaxed.

Other states like Michigan that have more favorable tax structures have more cannabis sales per capita than California. If California were on par with Michigan, we would be generating an estimated $13 billion in annual sales, and the state would be collecting substantially more tax revenue. Instead, the taxable sales for cannabis in 2024 was only $4.6 billion.

AB 564 would amend the law that requires a tax hike on cannabis in California by delaying it to the 2030–31 fiscal year. It would also add specific goals that the tax expenditure will achieve, detailed performance indicators, and data collection requirements.