California Assembly Blocks Proposed Cannabis Tax Increase
On June 2, 2025, the California Assembly decisively voted against enacting a 25% tax hike on the state’s legal cannabis industry, a move that was slated to take effect on July 1. This decision highlights the ongoing struggles faced by small cannabis businesses, which are already navigating a complex regulatory environment. Assemblymember Matt Haney emphasized the potential peril to California’s cannabis culture, warning that additional financial burdens could drive independent operators to the brink of extinction.
The proposed legislation, known as AB564, will now move to the Senate for further evaluation. AB564 outlines the current tax framework under the Cannabis Tax Law, which includes a 15% excise tax on retail cannabis sales. The bill also addresses amendments from Chapter 56 of the Statutes of 2022 (AB 195), which eliminated the cultivation tax starting July 1, 2022. It mandates adjustments to the excise tax every two years to recoup revenue lost from the discontinued cultivation tax, with the rate capped at 19%.
California’s Cannabis Revenue Challenges
In May 2025, the California Department of Tax and Fee Administration revealed plans for a 25% tax increase, rooted in a 2022 legislative decision to adjust tax rates following the repeal of the blanket cultivation tax. This adjustment mechanism was triggered by a noticeable decline in cannabis revenues, with reports indicating an 11% drop in Q1 sales. High operational costs and persistent competition from the illicit market continue to impede the legal industry’s ability to thrive.
California’s voter-approved Proposition 64 in 2016 legalized recreational cannabis, instituting a 15% retail excise tax as part of the new regulatory framework. Despite initial optimism, the industry has been grappling with financial constraints, exacerbated by existing tax pressures. Caren Woodson, president of the California Cannabis Industry Association, remarked that the proposed 25% tax increase could exacerbate challenges for operators who are already on the edge of sustainability.
Impact on the Cannabis Industry’s Future
The decline in cannabis sales revenue in California, compounded by stringent regulations and tax policies, highlights the delicate balance needed to sustain the legal market. Industry insiders and stakeholders are urging lawmakers to reconsider fiscal strategies that could inadvertently stifle growth and innovation. The Assembly’s latest decision signals a pivotal moment for the industry’s future, warranting a reevaluation of how tax structures affect the vitality of the cannabis sector.
As discussions around AB564 progress, Canna Daily News will continue to provide in-depth coverage and analysis on how these developments unfold, impacting both the local cannabis landscape and broader industry trends.
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