Top Takeaways:
- Governor Gavin Newsom signed legislation reducing California’s cannabis excise tax from 19% to 15%, holding the rate until 2028.
- Lawmakers and industry advocates say the rollback is critical to keeping legal dispensaries competitive against the state’s dominant illicit market.
- Despite legalization in 2016, legal sales account for only about 40% of consumption, with enforcement efforts seizing $890M in illegal cannabis since 2022.
California has reversed a cannabis tax hike, cutting the excise rate from 19% back to 15% in a bid to stabilize its struggling legal marijuana industry. Governor Gavin Newsom signed Assembly Bill 564 this week, cementing the new rate through 2028.
“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,” Newsom said in a statement.
Supporters argue the measure is vital to helping licensed businesses compete with the entrenched illicit market. “AB 564 helps level the playing field,” said Assemblymember Matt Haney (D–San Francisco). “It protects California jobs, keeps small businesses open, and ensures that our legal cannabis market can grow and thrive the way voters intended.”
The rollback comes amid signs of weakness in the legal sector. State data show taxable cannabis sales have slipped from more than $1.5 billion in 2021 to $1.2 billion in 2025. Analysts estimate the regulated market represents just 40% of overall consumption, with the rest dominated by untaxed and untested products.
California is also intensifying enforcement against illegal operators. The Unified Cannabis Enforcement Taskforce, created by Newsom in 2022, has carried out nearly 230 operations, seizing over 317 tons of illicit marijuana worth an estimated $890 million.
Industry groups welcomed the tax relief, saying it would give licensed businesses breathing room to expand, retain customers, and continue displacing the black market.
