Governor Newsom has signed the Cal NORML-sponsored bill, AB 564 (Haney), to roll back the cannabis excise tax increase that happened on July 1 from 19% back to 15% on October 1, 2025.

Thanks to all Cal NORML’s supporters who helped lobby for the bill (including at our Lobby Day in March), and all who wrote letters via Cal NORML’s Action Network.

Support Cal NORML’s efforts to stop a tax increase in California by making a membership donation today! Business Memberships starting at $50 monthly include a directory listing and other perks.

Cal NORML focused on AB 564 at our March 24 Lobby Day in Sacramento, and has worked since then to secure necessary votes in favor of the bill in the Assembly and Senate. A pair of NORML Action Alerts, one pointing out the vast overtaxation of cannabis compared to comparable products, and a second pointing out that failed businesses don’t pay taxes, generated over 10,000 letters to lawmakers in support of the freezing taxes.

Cannabis Is Taxed At a Much Higher Rate Than Comparable Products

California raised its excise tax on cannabis from 15% to 19% on July 1, 2025.

Cannabis was already heavily over-taxed relative to comparable products like beer, wine, and tobacco in California.

The excise tax on one average, noninfused cannabis pre-roll is $1.24. In contrast, the excise tax on one glass of wine is $.01; a glass of beer $.02, a shot of liquor $.05-.08, and a tobacco cigarette $0.14. Adding in state sales tax and local taxes, cannabis products are taxed at a rate as as high as 38% (44% if delivered), and since taxes are compounded at the retail level, increasing the excise tax to 19% will increase the total tax to as much as 48%, roughly adding another $5 in taxes onto a $100 purchase, on top of the $38–$44 consumers are already being charged.

Cannabis taxes currently contribute more to California’s coffers than do alcohol taxes, despite far less sales. Gov. Newsom’s 2023/24 budget estimated an income of $440 million from alcohol taxes. By contrast, state excise taxes on cannabis brought in $624 million in 2023.

Any tax increase negatively impacts cannabis consumers and businesses in California.

Cannabis needs a tax decrease, not an increase.  The California cannabis industry is struggling to compete against overtaxation, the illicit market, resistance to local licensing, and the proliferation of hemp-derived products. Medical marijuana patients in particular are unable to meet their needs for cannabis products under current pricing. Initial impacts of the July 1 cannabis tax increase can already be felt by businesses and consumers.

Failed Businesses Don’t Pay Taxes

California’s cannabis market has lost 30% of its active licenses in the past two years

Inactive cannabis licenses are climbing as California companies struggle to stay in business. Inactive licensees don’t make money, or pay taxes. 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.

California’s licensed retail footprint has flatlined at roughly 1,225 active stores since mid-2023, as 57% of the state’s cities and counties still prohibit cannabis dispensaries, according to the California Department of Cannabis Control (DCC).

6 out of every 10 cannabis sales in CA is from the illicit, untaxed market

A new report from the CA Department of Cannabis Control estimates that total California cannabis consumption is 3.8 million pounds, and that only 1.4 million pounds is sold from the licensed market. This means the majority of cannabis sold in California is untaxed. High tax rates in the licensed market are a big reason consumers look elsewhere for their cannabis.

Total excise tax collected in calendar year 2024 was $593.6 million compared to $626 million in calendar year 2023. Cannabis tax revenues peaked in fiscal year 2021-22 at over $800 million.

Total cannabis tax revenue from the fourth quarter 2024 was $219 million, including $127.8 million in excise taxes and $91.2 in state sales tax, according to the CDTFA. This is down 13.7% from the total $253.8 million in the third quarter. The excise tax dropped 14.9% from $150.1 million.

California lost 17,600 cannabis jobs in the last two years

California led the nation with 12,600 cannabis jobs lost in 2023 and 5,000 cannabis jobs lost in 2024, according to industry employment agency Vangst.

Other states with lower taxes outperform CA’s cannabis sales

Michigan, with its 10% state excise tax that is shared with local jurisdictions (which have no taxes of their own), is pointed to as a model for a successful roll-out of marijuana legalization. Missouri has a 6% state excise tax and caps local taxes at 3% (California has no such cap).

If California were on par in per capita sales with Michigan or Montana, it 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 $4.6 billion. Source

Adding in state sales tax and local taxes, cannabis products are taxed at a rate as high as 38% (44% if delivered) in California. Since local taxes are compounded at the retail level, including packaging and service fees, increasing the excise tax to 19% will increase the total tax on cannabis to as much as 48%. This is far more than comparable products like beer, wine and cigarettes.

Please take action to support AB 564.

The Cannabis Tax Account Has a Budget Surplus

In fiscal year 2023-2024, the Cannabis Tax Account had a balance of $469.6 million and took in $629.4 million in taxes, according to the DCC’s Condition and Health of the Cannabis Industry in California supplemental report. But it spent only $560.5 million because legislators contributed $150 million from the general fund. For this fiscal year, estimated revenue is $603.7 million and expenditures are nearly $674.0 million, leaving a balance of $468.2 million.

For fiscal year 2025-26, the governor’s budget projects that cannabis tax revenues will be about $761.9 million, assuming the excise tax will increase to 19% on July 1. Expenditures are budgeted at only $610.2 million.

Who is Opposing a Cannabis Tax Freeze? 

AB 564 is being opposed by groups that receive cannabis tax money for Youth Education Treatment and Prevention Programs, which have not been evaluated for their effectiveness, despite legislation requiring accountability.

In 2022, Governor Newsom signed AB 2925  (Cooper), requiring DHCS to provide to the Legislature by July 10, 2023 a spending report of funds from the Youth Education Prevention, Early Intervention and Treatment Account (YEPEITA) paid for by the Cannabis Tax Fund for the FY 2021–22 and 2022–23. In addition, the 2022 Budget Act stated that by March 1, 2023, and on the same date until 2025, the DOF shall submit a report to the Legislative Analyst’s Office, relevant policy committees, and the relevant budget committees of each house of the Legislature on Cannabis Tax Fund Spending.

Both AB 2925 and the 2022 Budget Act called for evaluations of YEPEITA programs, with AB 2925 stating: “The departments shall periodically evaluate the programs they are funding to determine the effectiveness of the programs.” Although DOF has provided some data in Budget Committee hearings about YEPEITA program expenditures, that data is incomplete, and no evaluations of the programs have been provided by DHCS.

Cal NORML put out word through our email alert list this week asking cannabis consumers and businesses to tell us about the initial impacts of the 26% excise tax increase that hit cannabis in California on July 1. Several consumers and businesses reported damaging repercussions; some of the responses are below.

“To be honest even the old tax had me wanting to go back to the black market but with the new tax it’s even more likely that I will start looking to get my cannabis from some place cheaper,” wrote one consumer. Another wrote, “I drive to Oregon to buy it instead. I’m retired on an extremely small income.” A man from Yolo county who drives to downtown Sacramento for his cannabis writes that with the tax increase, “What I’m able to afford won’t last. This tax is excessive, and blatantly targets the lower income and fixed income medical and recreational users.” Someone from Duarte wrote, “Sure hope the tax gets repealed–I can’t consume anymore due to the insane taxes.”

“The additional taxes, on top the already high taxes on cannabis (higher tax rates than anything else I buy) means I will purchase less from licensed dispensaries,” wrote one Marin county consumer. She added, “I (as well as everyone I know) want to be law abiding and want to support local businesses however I have financial limits and also do not want to be taken advantage of–which is certainly what these new taxes feel like. It’s like the State is trying to destroy the legal cannabis business–because excessive taxation will only drive people to deal with unlicensed sources.”

On the business side, Kevin Reed of The Green Cross in SF writes, “Even in this short window, we’ve had regulars voice frustration about pricing, particularly on items they purchase frequently. We’re anticipating further downward pressure on basket sizes, and the increased cost is likely to drive more price-conscious consumers back to the illicit market unless something changes.”

Jennifer Copenhaver, Human Resource Manager at A Therapeutic Alternative in Sacramento writes, “We want to give our employees stable jobs. They have families. We want to serve our community. But we cannot absorb this 4% AND do all of those things. Instead, we collect the tax, as required, from our customers. As a result, many are upset with paying more and we will lose some. Either way, we will lose money. How much is yet to be quantified….Given that consumers are already watching every penny due to increased costs for rent, food, gas, and healthcare, at least some percentage of consumers will be much more likely now to seek cannabis outside of the taxed market before simply accepting the higher taxes. Some just won’t be able to afford not to.”

Jennifer Pratt from ATA added, “The increase from 15% to 19% may appear modest on paper, but for patients who are already navigating financial and medical hardship, it has been devastating. Many of our members were already at the edge of affordability—and now some have been forced to stop their regimens altogether. What’s most painful to hear is that some patients are now feeling pushed to return to the unregulated market. They are afraid—afraid of what they might be consuming, afraid that it won’t be the quality or formulation their condition requires, and afraid that they are losing control over the one treatment that had finally brought them some measure of relief. Cannabis is not a luxury for these individuals; it is medicine. For many, it’s the only effective option after exhausting pharmaceutical routes that failed to help or caused unbearable side effects. This tax hike doesn’t just affect access—it affects health outcomes, safety, and dignity.”

Annie Aubrey, CEO of Chuck’s Wellness Center in Placerville writes, “With inflation and current economic struggles, we are seeing a dramatic decline of over 20% in the customer spend in the last year. The customers have always expressed heavy disdain for the high taxes on the cannabis products, and are very upset with us that the increase went through this last week. Many continue to supplement their cannabis purchases from sources other than legal retail dispensaries. Consumers do not find excessive taxes in the hemp or illicit market and find excessive taxation of the legal market. That needs to change! The city and state do not gain revenue from these alternative markets either. These products are not safe and scare people from our products and continue to hurt our industry.”

David Hudson wrote, “I work for KSS, which distributes 28 brands to retailers throughout California and this tax increase has led to retailers asking for additional discounts on all products to be able to maintain the price of goods on their shelves. Licensed retailers are already extremely price sensitive and a common concern seems to be that this tax will drive the prices up and will then drive consumers away from their stores (and possibly back to the traditional market).  This is putting pressure on the entire supply chain, as retailers are now asking for KSS and its suppliers to provide deeper discounts, and therefore work on thinner margins. Most cannabis suppliers are barely profitable (if profitable at all) so this only adds more pressure on the entire supply chain.”

On top of the 4% state excise tax hike, the city of Berkeley enacted a 5% tax on purchases on July 1, when efforts to extend their tax moratorium failed. Other cities are lowering their cannabis taxes to help out struggling cannabis businesses, while the state continues to gobble the largest portion of the pie.

Meanwhile, a new report shows that Michigan, with its lower tax rate, is about to overtake California in cannabis sales.

AB 564, the Cal NORML-sponsored bill to roll back the cannabis tax hike passed the Senate Revenue and Taxation committee by a vote of 5-0 on July 9. It will be heard in Senate Appropriations on or after August 18, when the legislature reconvenes after its summer recess.

UPDATE July 9, 2025 – On the 50th anniversary of cannabis decriminalization in California, AB 564 passed through the Senate Revenue and Tax committee, its first stop in the Senate after passing in the Assembly by a vote of 74-0. An amendment would roll the tax back from 19% (enacted on July 1) back to 15% on October 1. It will next head to the Appropriations committee, sometime after the legislature reconvenes after its summer break on August 18. Thanks to all who have taken action and continue to do so!

WRITE TO GOVERNOR NEWSOM AND ASK HIM TO SIGN AB 564 TO REPEAL THE CANNABIS TAX INCREASE 

Retailers: Download our new flyer with QR code for your customers to take action. 

Support Cal NORML’s efforts to stop a tax increase in California by making a membership donation today! Business Memberships starting at $50 monthly include a directory listing and other perks.

Cal NORML Leads the Charge

“California NORML is proud to have taken a leadership role sponsoring this bill,” California NORML Director Dale Gieringer said. “Cannabis is already heavily over-taxed relative to comparable products like beer, wine, and tobacco in California.”

In March, Cal NORML organized coordinated a lobby day and press conference at the state capital in support of AB 564, bringing together a coalition of groups including the United Food and Commercial Workers – Western States Council, the California Cannabis Industries Association, and others.

A pair of NORML Action Alerts, one pointing out the vast overtaxation of cannabis compared to comparable products, and a second one aimed at incorporating AB 564 into the budget process, have generated over 8,000 letters to lawmakers in support of the freezing taxes.

Support Cal NORML’s efforts to stop a tax increase in California by making a membership donation today! Business Memberships starting at $50 monthly include a directory listing and other perks.

Failed Businesses Don’t Pay Taxes

California’s cannabis market has lost 30% of its active licenses in the past two years

Inactive cannabis licenses are climbing as California companies struggle to stay in business. Inactive licensees don’t make money, or pay taxes. 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.

California’s licensed retail footprint has flatlined at roughly 1,225 active stores since mid-2023, as 57% of the state’s cities and counties still prohibit cannabis dispensaries, according to the California Department of Cannabis Control (DCC).

6 out of every 10 cannabis sales in CA is from the illicit, untaxed market

A new report from the CA Department of Cannabis Control estimates that total California cannabis consumption is 3.8 million pounds, and that only 1.4 million pounds is sold from the licensed market. This means the majority of cannabis sold in California is untaxed. High tax rates in the licensed market are a big reason consumers look elsewhere for their cannabis.

Total excise tax collected in calendar year 2024 was $593.6 million compared to $626 million in calendar year 2023. Cannabis tax revenues peaked in fiscal year 2021-22 at over $800 million.

Total cannabis tax revenue from the fourth quarter 2024 was $219 million, including $127.8 million in excise taxes and $91.2 in state sales tax, according to the CDTFA. This is down 13.7% from the total $253.8 million in the third quarter. The excise tax dropped 14.9% from $150.1 million.

California lost 17,600 cannabis jobs in the last two years

California led the nation with 12,600 cannabis jobs lost in 2023 and 5,000 cannabis jobs lost in 2024, according to industry employment agency Vangst.

Other states with lower taxes outperform CA’s cannabis sales

Michigan, with its 10% state excise tax that is shared with local jurisdictions (which have no taxes of their own), is pointed to as a model for a successful roll-out of marijuana legalization. Missouri has a 6% state excise tax and caps local taxes at 3% (California has no such cap).

If California were on par in per capita sales with Michigan or Montana, it 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 $4.6 billion. Source

Adding in state sales tax and local taxes, cannabis products are taxed at a rate as high as 38% (44% if delivered) in California. Since local taxes are compounded at the retail level, including packaging and service fees, increasing the excise tax to 19% will increase the total tax on cannabis to as much as 48%. This is far more than comparable products like beer, wine and cigarettes.

Please take action to support AB 564.

The Cannabis Tax Account Has a Budget Surplus

In fiscal year 2023-2024, the Cannabis Tax Account had a balance of $469.6 million and took in $629.4 million in taxes, according to the DCC’s Condition and Health of the Cannabis Industry in California supplemental report. But it spent only $560.5 million because legislators contributed $150 million from the general fund. For this fiscal year, estimated revenue is $603.7 million and expenditures are nearly $674.0 million, leaving a balance of $468.2 million.

For fiscal year 2025-26, the governor’s budget projects that cannabis tax revenues will be about $761.9 million, assuming the excise tax will increase to 19% on July 1. Expenditures are budgeted at only $610.2 million.

Who is Opposing a Cannabis Tax Freeze? 

AB 564 is being opposed by groups that receive cannabis tax money for Youth Education Treatment and Prevention Programs, which have not been evaluated for their effectiveness, despite legislation requiring accountability.

In 2022, Governor Newsom signed AB 2925  (Cooper), requiring DHCS to provide to the Legislature by July 10, 2023 a spending report of funds from the Youth Education Prevention, Early Intervention and Treatment Account (YEPEITA) paid for by the Cannabis Tax Fund for the FY 2021–22 and 2022–23. In addition, the 2022 Budget Act stated that by March 1, 2023, and on the same date until 2025, the DOF shall submit a report to the Legislative Analyst’s Office, relevant policy committees, and the relevant budget committees of each house of the Legislature on Cannabis Tax Fund Spending.

Both AB 2925 and the 2022 Budget Act called for evaluations of YEPEITA programs, with AB 2925 stating: “The departments shall periodically evaluate the programs they are funding to determine the effectiveness of the programs.” Although DOF has provided some data in Budget Committee hearings about YEPEITA program expenditures, that data is incomplete, and no evaluations of the programs have been provided by DHCS.

WRITE TO YOUR LEGISLATORS AND GOV. NEWSOM AND ASK THEM NOT TO RAISE CANNABIS TAXES IN 2025

Update 5/8/2025 – AB 564, to halt a cannabis tax increase this year, passed through its second committee with another unanimous vote. It now goes to Assembly Appropriations. Meanwhile, the Governor and both legislative houses are finalizing their budgets for the year.

Please take action on our new alert targeted at the full legislature and the Governor, asking them not to increase cannabis taxes in 2025.

April 22, 2025, Sacramento – By a vote of 15-0-3, the California Assembly Business and Professions Committee passed through AB 564 (Haney), to halt a cannabis excise tax increase from 15% to 19% scheduled for July 1.

Three hours into the committee’s hearing on 4/22, Asm. Matt Haney (D-SF) introduced the bill, along with supporting witnesses Caryn Woodson of the California Cannabis Industry Assn. and Kristin Heidelbach of United Food and Commercial Workers. Nothing that the legal cannabis industry is “constantly at threat of being overtaken by the illegal, untaxed industry. Fully licensed cannabis businesses in California account for just 40% of the state’s entire market, while the underground illegal market accounts for 60%.” Haney noted, “In 2024, active cannabis licenses decreased by 18%, meaning more and more cannabis businesses are succumbing to the pressures of overtaxation. States like Michigan last year surpassed California in cannabis sales per capita. This tax increase would be an extinction event.”

Woodson read a list of big cannabis businesses that have folded in the last three years: Flow Kana, Herbl, Med Men, High Times, StateHouse, Gold Flora, and Grassdoor. She asked, “If companies with investment expertise, scale and brand power are folding, if these what hope is there for a mom-and-pop operator, or for social equity licensees? Those businesses are folding without press releases or receiverships….and now we face another challenge: tariffs. Squeezing more from the remaining 40% of the market won’t raise revenues, it will shrink them. AB 564 is a step in the right direction towards fairness, towards feasibility, and towards fulfilling the promise of Prop. 64 to provide a safe and affordable cannabis supply.”

Pointing out that the bill would not decrease cannabis taxes, only keep them at their current level, Heidelbach ended her remarks by saying, “It is possible to tax an industry to death. Instead of punishing the legal operators and consumers with higher taxes, we should take steps to collect the taxes that have been stolen by the underground market and the intoxicating hemp market.”

Dozens of others stood up to express their support, including Cal NORML director Dale Gieringer, Richard Miller of American for Safe Access and the American Alliance for Medical Cannabis, and representatives from co-sponsors Origins Council, UCBA, and CaCOA. Many businesses were represented, among them Khemia, Kiva Confections, Proof Wellness, A Therapeutic Alternative, Cannacraft, Embarc, Jade Nectar, social equity business Natural High, The Highlands in Livermore, and WeHo’s  Door Number Six cannabis lounge.

Farmer advocates Good Farmers Great Neighbors and Nevada County Cannabis Alliance added their support, along with the Cannabis Distribution Assn., the Humboldt County Board of Supervisors, SEIU and Childcare Providers United. Luke Scarmazzo, who served nearly 15 years in Federal prison for operating a cannabis dispensary in Modesto, CA and now works with the social justice cannabis company Prophet Brands, expressed his support “on behalf of every man and woman who has been incarcerated for cannabis.”

The bill faced (and continues to face) strong opposition from a coalition of groups that receives “Tier 3” funding for youth programs from cannabis taxes, and has vociferously opposed any cannabis tax reform in California. One of the speakers said that as a cannabis consumer she agreed that the tax was high, but still wanted the money to go to youth programs. The groups also objected during the hearing to a provision that would freeze cannabis excise taxes in AB 8 from Asm. Aguiar-Curry, which would further regulate hemp products in California.

UPDATE 7/10/2025 – Please send a letter to your state Senator asking them to pass AB 564 to roll back cannabis taxes.

California raised its excise tax on cannabis from 15% to 19% 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.

A bill sponsored by Cal NORML, AB 564 (Haney) would roll back this tax increase, as soon as October 1. 

Cannabis is already heavily over-taxed relative to comparable products like beer, wine, and tobacco in California.

The excise tax on one average, noninfused cannabis pre-roll is $1.24. In contrast, the excise tax on one glass of wine is $.01; a glass of beer $.02, a shot of liquor $.05-.08, and a tobacco cigarette $0.14. Adding in state sales tax and local taxes, cannabis products are taxed at a rate as as high as 38% (44% if delivered), and since taxes are compounded at the retail level, increasing the excise tax to 19% will increase the total tax to as much as 48%, roughly adding another $5 in taxes onto a $100 purchase, on top of the $38–$44 consumers are already being charged.

Cannabis taxes currently contribute more to California’s coffers than do alcohol taxes, despite far less sales. Gov. Newsom’s 2023/24 budget estimated an income of $440 million from alcohol taxes. By contrast, state excise taxes on cannabis brought in $624 million in 2023.

Any tax increase would negatively impact cannabis consumers and businesses in California.

The industry needs a tax decrease, not an increase. The industry is struggling to compete against overtaxation, the illicit market, resistance to local licensing, and the proliferation of hemp-derived products. Medical marijuana patients in particular are unable to meet their needs for cannabis products under current pricing. 

A new report from the CA Department of Cannabis Control estimates that total California cannabis consumption is 3.8 million pounds, and that only 1.4 million pounds is sold from the licensed market, with 2.4 million pounds coming from the unlicensed and untaxed market. Also see: California’s New Marijuana Database Shows The Legal Market Is Smaller And Weaker Than We Thought 

Inactive cannabis licenses are climbing as California companies struggle to stay in business. There are currently 7,100 inactive cultivation licenses, over 1,100 inactive distribution licenses, nearly 500 inactive delivery licenses and over 300 inactive retail licenses. Inactive licensees don’t make money, or pay taxes. Many of the inactive licenses are equity businesses, who are already facing a de facto tax increase this year as the cannabis equity tax credit is set to expire on 12/31/25.

According to the California Department of Cannabis Control, as of February 2025, 57% of California cities and counties do not allow any retail cannabis businesses, resulting in California having one of the lowest rates of retail stores per capita in the nation among states that support adult-use sales.

California is falling short of other states in per capita legal cannabis sales:

Source: https://www.cannabisbusinesstimes.com/news/state-cannabis-sales-trends-august-2023/

Michigan, with its 10% state excise tax that is shared with local jurisdictions (which have no taxes of their own), is pointed to as a model for a successful roll-out of marijuana legalization. Missouri has a 6% state excise tax and caps local taxes at 3% (California has no such cap).  If California were on par in per capita sales with Michigan or Montana, it 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 $4.6 billion. Also see: California dethroned as this state now sells more legal weed.

Support for Tax Reduction is Growing

California’s Attorney General Rob Bonta, who sponsored cannabis tax reduction legislation when he was in the Assembly, said when he announced his office’s CAPP Program to target illicit cannabis operations in August 2023: “The barriers to entry [to the licensed cannabis market] are too high. The costs to stay in operation are too high. We should be lowering taxes at least temporarily for our cannabis businesses, and we should make the regulatory burden less than it is while we target the illicit base that is undercutting them.”

A recent analysis from Whitney Economics found that in Washington state, whose taxes are comparable with California’s, legal market participation is only ~50%, largely due to excessive taxes, and argues that a reduction in the tax rate would substantially expand legal market participation (and tax revenue).

Recipients of Tier 3 cannabis tax funding for youth education and prevention programs have vociferously opposed any proposed tax reduction on cannabis. As of March 2024, Tier 3 programs had a surplus of $607 million ($260 in the law enforcement account, plus $357 million in the childcare account). Full accounting and evaluations of Tier 3 programs have been legislatively mandated, but have not been provided by the agencies receiving the funds.

SOURCES FOR CHART: Legislative Analyst’s Office, “Comparing Taxes on Cannabis to Taxes on Other Products in California”
Department of Cannabis Control, “Price Per Unit Report”

DOWNLOAD A FLYER ABOUT CANNABIS TAX FAIRNESS IN CALIFORNIA

UPDATE 7/10/2023 – SB 512 (Bradford), to end double taxation on cannabis by including state and local excise taxes when calculating other taxes, was held in the Assembly Revenue and Taxation committee and will likely not advance this year in its present form.

Committee chair Jacqui Irwin, who authored a bill to make cannabis billboards illegal in 2012 and whose current bill AB 1207 to restrict cannabis packaging and flavorings was opposed by cannabis industry groups, commented at the hearing that it’s too soon to evaluate the results of AB 195 (2022), which eliminated the cannabis cultivation tax and shifted the responsibility for paying state excise tax from the distributor to the retailer, while making the changes SB 512 sought to correct.

Cal NORML supporters have sent in nearly 900 letters in support of the bill and our director Dale Gieringer spoke up in its favor at the hearing. We will continue to advocate for cannabis tax reform in California. Stay tuned.

Under the Adult Use of Marijuana Act, the cannabis excise tax is set at 15% of gross receipts from licensed retail cannabis sales.  Many local governments impose additional taxes on cannabis, ranging as high as 10% in some jurisdictions, including Los Angeles.

Local governments are currently required to include these state and local excise taxes in the definition of “gross receipts” when charging additional sales taxes of 7.25 – 10.5%.

SB 512 would end this double or triple taxation on cannabis, delivering much-needed relief to what is currently an unfairly overtaxed industry.

Please tell your lawmakers to support cannabis tax reform and SB 512. 

Cannabis is already heavily overtaxed relative to comparable goods in California.  Adding the sales and use tax of 7.25% to 10.5% on top of the excise tax raises the cost of a joint by another 8 – 11 cents—more  than the total state excise taxes for an alcoholic beverage.  If local cannabis taxes are added in, the difference ranges as high as 18 cents.

Cannabis sales currently contribute more to California’s coffers than do alcohol taxes, despite far less sales. Overtaxation impedes legal, tested, and taxed cannabis access for consumers and fuels the illicit cannabis market. California’s cannabis consumers want access to safe, tested, and fairly taxed products.

Please tell your lawmakers to support SB 512. 

BACKGROUND

The double taxation started not in Prop. 64 but when the 2022 budget bill AB 195 shifted the excise tax payment responsibility from the distributor to the retailer. The bill amended Section 34011(d) of the Revenue and Taxation Code to define gross receipts from the sale of cannabis or cannabis products for purposes of assessing the sales and use taxes to include the 15% excise tax. Subsequently, the CDFTA instructed retailers to add in delivery fees and local taxes to the definition of gross receipts for the purposes of accessing state excise taxes, making for triple taxation.

Compounding the issue of taxing the taxes, many jurisdictions have local cannabis tax laws that are now in direct conflict with the directive issued by the CDTFA. For example, the City of Los Angeles’s definition of their gross receipts tax (LA Municipal Code: Section 21.51 (a)4) is in direct conflict with the CDTFA’s guidance. This conflict leaves retailers in LA and elsewhere subject to fines or loss of licensure.

A $73.35 purchase made recently at a CA cannabis shop turned into the customer paying $97.20 at the register. SB 512 would have saved $2.03 off this sale by not re-taxing the excise taxes, a small step towards #cannabistaxfairness.

SB 512 would clarify and roll back the double and triple taxation on cannabis, which is helping to drive consumers back to the illicit market in California, in the end undercutting the tax base.

Newsom announced a $150 million “backfill” from the General Fund to cover any temporary tax income reductions that may affect youth, environmental, or law enforcement programs that are currently funded with Prop. 64 taxes, while announcing a $20.5 million grant program for local governments looking to open cannabis retailers, with additional funding to local jurisdictions that permit to equity applicants.

Newsom thanked the people leading this effort, including Sen. Bradford, who just picked up an award at the Cal NORML / ASA Lobby Day for his work toward equity and fairness for cannabis in California. Bradford’s bill SB 1281 was the only legislative proposal this year to end the cultivation tax without raising excise taxes. Cal NORML testified in favor of Bradford’s bill in the Senate Governance and Finance committee and lobbied on tax reform and Bradford’s bills SB 1281 and SB 1293, to grant $10K yearly income tax credits to equity businesses at Lobby Day last week.

TELL YOUR LEGISLATORS TO SUPPORT CANNABIS TAX REFORM IN CALIFORNIA. 

Also see: Newsom Pledges to Work for Cannabis Tax Reform in State Budget Proposal

It’s estimated that only one-third of cannabis sold in California currently comes from the legal market.  By reducing burdensome taxes, SB 1281 would expand the legal industry,  producing enough revenue to boost the state’s total cannabis tax receipts in coming years, according to a new report from the Reason Foundation on the economic impact of California cannabis taxes on the legal market.  

“Cannabis is grossly overtaxed in California,” says Cal NORML Director Dale Gieringer. “The state collects twice as much in excise taxes from cannabis as from alcohol, even though alcohol is more widely consumed and causes more societal harm.” See Dale’s introduction to the Reason report: California’s legal marijuana industry has been hard-pressed to compete with untaxed, unregulated providers.

State and local cannabis taxes currently amount to some $735 – $1,000 per pound, more than the wholesale prices that farmers receive, which range around $550 – $300 per pound or lower.  As a result, California’s legally licensed industry is hard pressed to compete with the untaxed illicit market.

“Cal NORML hears countless consumer complaints about the high cost of cannabis in our state,” says Gieringer. “Many low-income  and medical users tell us they can’t afford buy on the legal market.  SB 1281 would provide the kind of meaningful, permanent tax cuts that are needed to foster a viable legal industry in California and assure safe access to regulated and tested cannabis products for our state’s consumers.”

Californians can write to their legislators in support of SB 1281 here. 

Cal NORML and Americans for Safe Access will be bringing citizen lobbyists from around the state to Sacramento in support of cannabis users’ employment rights, pain patients’ rights, tax relief and more at its Lobby Day on Tuesday, May 10. Senator Bradford will stop in at Lobby Day at 10 AM to talk about his legislative efforts, which also include an bill aimed at tax relief for equity businesses. 

California Should Be Reducing, Not Increasing Cannabis Taxes

Cal NORML denounced the tax hike as wrong-headed and untimely. “The legal industry is already so burdened by excessive taxes and regulation that it cannot compete with unlicensed marketers,” says California NORML Director Dale Gieringer. “California needs to be reducing, not increasing cannabis taxes to make the legal market more competitive.”

The cultivation tax is especially burdensome on licensed farmers, who are struggling from a price collapse due to overproduction. Wholesale prices for outdoors flower have plummeted 60% in the past year to as little as $200 – $500 per pound according to MJBizDaily.com. At this rate, the new cultivation tax amounts to a whopping 30% – 80% of the cost of production. Even after the tax has been paid, producers have no assurance that the crop will ultimately be sold. Meanwhile, the costs are passed along to consumers and magnified at every subsequent stage of production.

The CDTFA is authorized by law to adjust the cultivation tax yearly in line with inflation; in the case of cannabis, however, prices have collapsed, not inflated.

“The cultivation tax was designed to bolster prices against a possible collapse in the legalized market,” says Gieringer, who once supported it. “The fear was that if cannabis became as cheap as comparable herbal products like tea, the price could drop to a few dollars per pound, or just pennies per joint. In actuality, however, California’s costly taxes and regulations have raised the price for legal cannabis substantially above what it was prior to legalization.”

A 2020 poll of Cal NORML members found consumers want lower taxes on cannabis, with 76% of respondents naming it as their top legislative priority. Prop. 64’s taxes and local restrictions sent many Californians back to unlicensed and untested suppliers when it took effect in 2017, leaving many medical patients and others without a safe and affordable source for cannabis, and fueling the illicit market.

“California has no need for further cannabis tax money. The Legislative Analyst’s Office has estimated that the state will have a budget surplus of $31 billion next year. The cultivation tax is particularly onerous and cumbersome to administer. We urge that it be eliminated,” said Gieringer.