California Governor Gavin Newsom has signed legislation reversing a 25% tax increase on the state’s legal cannabis industry.
AB 564 reverses the increase and sets the state’s cannabis excise tax rate at 15% until 2028, which the Governor’s office says allows legal businesses to remain competitive and promotes the industry’s long-term growth.
“We’re rolling back this cannabis tax hike so the legal market can continue to grow, consumers can access safe products, and our local communities see the benefits,” said the Governor.
California’s Cannabis Tax Law previously imposed an excise tax on purchases of cannabis or cannabis products sold in the state at the rate of 15% of the gross receipts of any retail sale by a cannabis retailer.
In 2022, imposition of a cultivation tax was discontinued. However, AB 195, beginning in the 2025–26 fiscal year and every 2 years thereafter, required the California Department of Tax and Fee Administration (CDTFA) to adjust the cannabis excise tax rate by a percentage that would make up for any shortfall. Observing that law, the department increased the cannabis excise tax rate to 19% (the maximum amount allowable) for the 2025–26 fiscal year.
While the 19% will remain in place until October 1, from October 1, 2025, to June 30, 2028 AB 564 decreases the excise tax rate back to 15%. After this date, increases will be on the cards again.
Medical cannabis isn’t subject to the sales and use tax. California was the first US state to establish a medical program; which was originally enacted by Proposition 215 in 1996 and then Senate Bill 420 in 2003.
In other cannabis news out of the state, measures have been enacted to enhance long-term enforcement efforts against illegal operators by dedicating cannabis tax revenue to fund civil and criminal enforcement activities.
To date, the Unified Cannabis Enforcement Taskforce (UCETF), has seized and destroyed over 317 tons of illegal cannabis worth an estimated retail value of $890 million through nearly 230 multi-agency operations. Among partners in the task force are the Department of Cannabis Control, the Department of Pesticide Regulation, the Department of Toxic Substances Control, and the Department of Fish and Wildlife. The UCETEF was established in 2022 by Governor Newsom.
In an update published in May, Governor Newsom said more than $316 million worth of illegal cannabis and $474,000 in cash had been seized since the beginning of this year.
