California’s Cannabis Excise Tax Set to Increase Amid Industry Concerns

LOS ANGELES- California’s legal cannabis industry faces a significant fiscal challenge as the state’s excise tax on cannabis products is scheduled to rise from 15% to 19% on July 1, 2025. This increase stems from a 2022 legislative agreement that eliminated the cultivation tax but included provisions for a gradual escalation of the excise tax to offset revenue losses.

Industry stakeholders express apprehension that the impending tax hike could exacerbate existing financial strains. Dustin Moore, co-founder of the cannabis retail chain Embarc, characterized the increase as an “existential threat” to the sector, highlighting that the additional 4% tax could erode already thin profit margins and potentially drive retailers out of business.

Nicole Elliott, Director of the California Department of Cannabis Control, acknowledged the industry’s concerns regarding the scheduled tax increase. She advised cannabis businesses to proactively engage with state legislators to advocate for policy adjustments before the tax change takes effect.

Consultant Hirsh Jain of Ananda Strategy noted that the 2022 tax restructuring was intended to be revenue-neutral. However, he cautioned that the forthcoming tax increase could further diminish legal cannabis sales, which have been on a downward trajectory.

The California Department of Tax and Fee Administration reported that, as of May 16, 2023, total cannabis tax revenue for the first quarter was $216.2 million, comprising $104.3 million from the excise tax and $111.9 million from sales tax. These figures reflect the current tax structure and underscore the financial contributions of the cannabis industry to the state’s economy.

As the July 2025 deadline approaches, the cannabis industry is expected to intensify lobbying efforts to delay or prevent the tax increase, aiming to sustain the viability of legal operations in California’s competitive market.