Analysis: California’s Cannabis Catastrophe: Why the July 1 Tax Hike Threatens an Already-Struggling Industry

LOS ANGELES-California’s legal cannabis industry just got hit with a devastating blow. As of July 1, 2025, the cannabis excise tax jumped from 15% to 19% — a nearly 27% hike — pushing total taxes on legal cannabis to as high as 50% in some localities when state and local taxes are combined. For an industry already battling shrinking margins, a thriving illicit market, and inconsistent regulation, this could be the breaking point.

This tax increase, originally baked into a 2022 budget deal, was meant to be temporary. It was supposed to give the legal market time to stabilize after eliminating the cultivation tax. But instead of relief, California’s operators — especially small farmers, equity businesses, and retailers — are now bracing for another surge in costs that threatens to drive more consumers away from licensed shops and into the unregulated market.

A Dangerous Incentive: Pushing Consumers Underground

Let’s be clear: legal cannabis is already expensive. Between excise taxes, sales taxes, local business taxes, and regulatory fees, consumers often pay nearly double what they’d pay for an untested product on the street.

This tax hike only widens the price gap, making the legal option less accessible — especially for working-class and medical consumers. The result? Consumers seeking affordable relief will increasingly turn to the illicit market, where products are unregulated, untested, and often dangerous.

As the California Cannabis Industry Association (CCIA) and others have warned: “When you make legal cannabis unaffordable, people turn to dangerous illicit products.” It’s not just bad economics — it’s a public health risk.

Grassroots Advocacy Isn’t Done Fighting

The good news? The fight isn’t over. Thanks to coordinated grassroots pressure, Assembly Bill 564 (Haney) — a bill that would freeze the tax hike and give legal operators a fighting chance — is still alive. The bill has strong bipartisan support and the backing of Governor Gavin Newsom (below).

But it’s stuck in the State Senate, and time is running out.

Organizations like CANN (California Association for Responsible Cannabis) and CACOA (California Cannabis Owners Alliance) are mobilizing Californians to demand action. If passed, AB 564 would protect consumers, support licensed businesses, and help steer the state toward smart, sustainable cannabis policy.

How You Can Help

Visit cacoa.org/dont-raise-taxes to take two quick actions:

1. Contact your legislators – Tell them how this tax hike affects you or your business.
2. Share your story – The more voices the Senate hears, the harder it is to ignore.

California’s Cannabis Crossroads

California was the first state to legalize medical cannabis and set the tone for reform nationwide. But today, it’s becoming a cautionary tale. Overregulation, overtaxation, and political inertia have driven many of the state’s pioneers to the brink.

Small businesses — especially equity licensees and legacy operators — cannot survive a policy environment that punishes them for being compliant. Nor should consumers be penalized for choosing safety and accountability.

The July 1 tax hike isn’t just a fiscal policy. It’s a referendum on whether California still wants a legal cannabis market at all.

We’re not giving up. But we need action — fast.

If California still wants to lead on cannabis, it must start by protecting access, affordability, and equity. That starts with passing AB 564 and freezing the tax hike before more damage is done.