California, September 4, 2025
News Summary
California’s cannabis industry faces new challenges as the state implements a tax increase from 15% to 19% on July 1. This raises concerns among retailers about competition from the illegal market. The tax increase comes after a decline in revenues and is mandated by state law. Industry leaders fear the high tax rate may threaten the viability of legal cannabis retailers, with ongoing discussions about tax reform as closures loom.
California’s cannabis industry is facing new challenges as the state prepares to implement a tax increase from 15% to 19% on July 1. This marks not only the highest tax rate allowed by state law but also raises concerns among retailers about their viability in a market heavily influenced by illegal competition.
The decision to raise taxes comes after the cannabis sector experienced a decline in revenues, with Governor Gavin Newsom initiating the hike in response to these struggles. The increase follows a determination by the California Office of Tax Appeals that businesses, such as Ryan Burns Collective, must include city business license taxes in their calculations for sales tax. Ryan Burns Collective now faces a liability of $120,600 due to this ruling.
State law requires cannabis tax rates to increase when excise revenues fall. The California Department of Tax and Fee Administration announced this requirement during a recent cannabis advisory meeting. The law aims to address the financial shortfall attributed to competition from the illicit market.” According to industry leaders, high taxes and stringent regulations have severely affected the legal cannabis market, with many consumers still opting for illegal sources.
The legal cannabis market in California has been struggling for several years, particularly since the COVID-19 pandemic took hold. Year-over-year sales declines have led to significant reductions in tax revenue. In 2024, the California excise tax generated nearly $595 million, which funds essential programs like child development and environmental recovery initiatives. Despite the industry’s need for support, Governor Newsom’s latest budget proposal did not include any tax relief measures.
In a proactive effort to mitigate the tax increase, San Francisco Assemblymember Matt Haney introduced a bill (AB564) aimed at blocking the impending hike. Having recently received unanimous backing in its latest committee vote, the bill is currently progressing to the State Senate for consideration.
Industry representatives have voiced their concerns about the viability of legal cannabis retailers under a 19% tax rate. The president of the United Cannabis Business Association has remarked that the tax hike may hinder legal stores’ ability to compete against lower prices offered by the illicit market. Meanwhile, data from a recent study reveals that a significant number of cannabis users still resort to illegal sources for their purchases.
Despite these challenges, some progress has been made in reshaping the regulatory landscape. In 2022, Governor Newsom signed a law that mandated tax increases in the event of revenue declines, coinciding with the elimination of the cultivation tax. However, industry leaders caution that such measures may not be sufficient to sustain operations amid ongoing pressures.
As the July 1 deadline approaches, both industry insiders and lawmakers remain engaged in discussions about the potential for tax reform. The legal cannabis market’s future in California hangs in the balance, with many businesses facing closure unless significant changes are made.
Frequently Asked Questions
What is the new cannabis tax rate in California?
The new cannabis tax rate will increase from 15% to 19% starting July 1, making it the highest rate allowed by state law.
Why is the tax rate increasing?
The increase is a response to declining revenues in the cannabis industry and is mandated by state law if excise revenue falls.
What implication does the tax increase have on cannabis retailers?
Cannabis retailers may find it more challenging to compete with prices in the illicit market, which can result in increased financial strain and potential closures.
Is there any legislative effort to block the tax increase?
Yes, Assemblymember Matt Haney has introduced a bill (AB564) aimed at stopping the tax hike, which has passed its latest committee vote and is heading to the State Senate.
How have cannabis sales been affected recently?
The legal cannabis market in California has been experiencing ongoing sales declines since the COVID-19 pandemic, significantly affecting tax revenues.
Deeper Dive: News & Info About This Topic
- SFGate: California Cannabis Tax Increase
- Bloomberg Tax: California Cannabis Sellers Taxable Measure
- Cannabis Business Times: California Lawmakers Vote
- ABC10: California Cannabis Tax Increase Takes Effect
- Wikipedia: Cannabis in California
Author: STAFF HERE BEVERLY HILLS WRITER
The Beverly Hills Staff Writer represents the experienced team at HEREBeverlyHills.com, your go-to source for actionable local news and information in Beverly Hills, Los Angeles County, and beyond. Specializing in "news you can use," we cover essential topics like product reviews for personal and business needs, local business directories, politics, real estate trends, neighborhood insights, and state news affecting the area—with deep expertise drawn from years of dedicated reporting and strong community input, including local press releases and business updates. We deliver top reporting on high-value events such as the Rodeo Drive Concours d'Elegance, the Beverly Hills artSHOW, Concerts on Canon, and holiday celebrations throughout the city. Our coverage extends to key organizations like the Beverly Hills Chamber of Commerce and Visit Beverly Hills, plus leading businesses in luxury fashion, hospitality, and entertainment that drive the local economy. As part of the broader HERE network, including HERELosAngeles.com, HERESantaAna.com, HEREHuntingtonBeach.com, and HERECostaMesa.com, we provide comprehensive, credible insights into Southern California's dynamic landscape.
