In a unanimous 74-0 vote, the California State Assembly passed Assembly Bill 564 (AB564) on Monday, aiming to halt a looming 25% excise tax hike on the state’s legal cannabis industry, CBS News reports. The bill now heads to the Senate for further consideration.
The legislation, introduced by Assemblymember Matt Haney (D), seeks to prevent what many industry leaders and lawmakers view as a potentially devastating financial blow to California’s already struggling cannabis sector.
“If we continue to pile on more taxes and fees onto our struggling small cannabis businesses, California’s cannabis culture is under serious threat of extinction,” Haney stated.
“If we want to support our cannabis industry that drives millions of visitors to California every year, adding more costs makes absolutely no sense.”
Why the Tax Hike Was Triggered
The tax increase — set to go into effect July 1 — stems from a 2022 law that eliminated the state’s flat-rate cultivation tax but included a mechanism to increase excise taxes if cannabis tax revenue declined. Since then, California has seen drops in legal sales, prompting the Department of Tax and Fee Administration to trigger the increase.
If enacted, the excise tax would rise from 15% to 19%, placing additional pressure on cannabis businesses already facing overregulation, market oversaturation, and competition from unlicensed sellers.
Industry Leaders Warn of Collapse
Caren Woodson, President of the California Cannabis Industry Association, praised the Assembly’s action, warning that the industry is at a breaking point:
“Nearly a decade after Californians overwhelmingly approved cannabis legalization, the industry is struggling under the crushing weight of a 15% excise tax. Any increase, particularly a 25% increase, would not only be bad public policy, but devastating to operators already on the brink.”
Many in the legal market argue that California’s policy structure — once seen as a gold standard — is now overburdened with high costs, fragmented licensing, and inconsistent enforcement, allowing the unlicensed market to thrive.
AB564 now awaits consideration in the California Senate. Should it pass there, it would move to Governor Gavin Newsom’s desk for signature.
The state’s decision in the coming weeks could determine whether California’s legal cannabis industry regains stability or continues to see operators exit the market due to unsustainable financial pressure.
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