California Lawmakers Advance Bill to Halt Cannabis Excise Tax Increase

LOS ANGELES- California’s legal cannabis industry is confronting a potential tax increase that stakeholders warn could exacerbate existing challenges. Assembly Bill 564 (AB 564), introduced by Assemblymember Matt Haney (D-San Francisco), seeks to prevent the scheduled rise in the state’s cannabis excise tax from 15% to 19%, set to take effect on July 1, 2025.

The proposed tax hike stems from Assembly Bill 195, enacted in 2022, which eliminated the cultivation tax but included provisions to adjust the excise tax to compensate for potential revenue shortfalls. Under this framework, the excise tax is set to increase if cannabis tax revenues fall below a specified threshold.

Industry representatives argue that the impending tax increase could further strain legal cannabis businesses already grappling with high operational costs and competition from the illicit market. Caren Woodson, President of the California Cannabis Industry Association, emphasized that additional taxes might drive consumers away from regulated retailers, undermining public health and safety objectives.

Supporters of AB 564 contend that maintaining the current tax rate is essential to stabilize the legal cannabis market and encourage consumer participation in the regulated system. They assert that a higher tax burden could lead to decreased sales and further entrenchment of unlicensed operations.

Conversely, opponents of the bill express concerns about potential reductions in funding for programs supported by cannabis tax revenues, including youth education, public health initiatives, and environmental projects. These stakeholders argue that the scheduled tax increase is necessary to sustain these services.

As the July deadline approaches, the debate over AB 564 underscores the complexities of balancing fiscal responsibilities with the viability of California’s legal cannabis industry. The outcome of this legislative effort may significantly influence the state’s approach to cannabis regulation and taxation moving forward.