California Lawmakers Omit Cannabis Tax Relief from 2025 Budget

LOS ANGELES- California legislators did not include a freeze on the planned cannabis excise tax increase in the state’s 2025–26 budget, declining last-minute proposals to maintain the current 15% rate. The absence of this relief ensures the scheduled rise to 19% will take effect on July 1, 2025. This decision follows negotiations in which Governor Gavin Newsom and Assembly Speaker Robert Rivas supported intervention, but Senate leadership ultimately blocked the amendment from the budget trailer bill.

The excise tax increase originates from legislation enacted in 2022, which eliminated the cultivation tax but required the excise levy to rise if revenue collections fell below prior-year levels. Data from the California Department of Tax and Fee Administration indicates first-quarter cannabis tax revenue totaled $237.4 million in 2025, suggesting the new 19% rate is set to generate significant revenue for state coffers.

Industry stakeholders warn that the tax hike could worsen declines in legal cannabis sales. In early 2025, total retail cannabis revenue dropped to $4.6 billion from $5.1 billion in 2023, narrowing the gap between legal and illicit markets. Licensed storefronts may need roughly 200 additional customers per month under higher taxes merely to sustain current revenues. Advocates highlight that over 60% of cannabis consumption in California now occurs through unregulated channels, with elevated taxes likely pushing more demand underground .

A standalone bill by Assemblymember Matt Haney (AB 564) aims to delay the excise rate increase or freeze it entirely, garnering unanimous Assembly approval (74–0). However, without incorporation into the July budget bill, any relief would be delayed until at least 2026 or later. Legislators and industry groups remain engaged as the Senate considers next steps, but the fiscal-year 2025–26 increase is now unavoidable.