California Moves Forward With Higher Marijuana Excise Tax

The cost of legal cannabis will increase starting on July 1. Sellers say the higher price will drive more customers to the black market.

A customer buys cannabis products at a store in West Hollywood, Calif., on Jan. 2, 2018. David McNew/Getty Images

Buying legal weed and marijuana products in California will get slightly more expensive starting on July 1 after state legislators failed to stop a state excise tax increase on the industry in June.

Effective July 1, marijuana retailers will pay 19 percent of gross receipts from cannabis and cannabis product sales—a 4 percentage-point jump.

The excise tax is paid in addition to state sales tax and any city or county taxes applicable to the business’s location.

California cannabis industry attorney Jared Schwass said the decision to move ahead with the tax was “disappointing.”

“California legislators fail to act,” Schwass posted on social media platform X on June 26. “Due to that failure, the California cannabis tax is still on schedule to increase from 15 percent to 19 percent on July 1st. It is disappointing to read that [state Sen.] Mike McGuire was against freezing the automatic increase because his constituents, who are already struggling to stay in the regulated market, will feel the pain of this increased tax.”

McGuire, a Democrat from Ukiah in Northern California, is leader of the California Senate.

The state Assembly unanimously approved Assembly Bill 564 by Assemblyman Matt Haney of San Francisco on June 2. The legislation, as introduced, would have repealed the proposed tax hike. However, it was amended by lawmakers to delay the implementation until the 2030–2031 fiscal year.

The bill then stalled in a Senate committee in June, and the delay allows the tax hike to kick in.

The United Food and Commercial Workers (UFCW) Western States Council applauded the bill’s passage in June.

“California’s plans to raise the cannabis excise tax rate to 19 percent will only increase the number of failed legal cannabis businesses,” UFCW Local 1167 President Joe Duffle said in a statement. “As the leading cannabis union, UFCW sees how difficult it is for businesses that play by the rules.”

Duffle said freezing the cannabis excise tax would give legal cannabis businesses a “fighting chance” to stay afloat in the struggling industry.

“Without this bill, the illicit cannabis industry will only flourish more and keep putting untested, untaxed, and unregulated cannabis products into the hands of consumers,” he said.

A baker sells marijuana cookies at the medical marijuana farmers market at the California Heritage Market in Los Angeles on July 11, 2014.  David McNew/Reuters

The California Cannabis Operators Association, the largest industry association in the state, started a petition to urge legislators to pass the bill.

“Sacramento politicians decided that you should now pay 25 percent more in excise taxes on safe and regulated cannabis products at your local dispensary,” the association wrote in the petition. “This short-sighted policy decision will only drive more consumers to the illicit market, accelerate the ongoing market collapse, and (ironically) reduce overall tax revenue, hurting the community programs that rely on these funds.”

The organization said the tax increase falls on consumers and patients at a time when many are struggling with inflation and cost-of-living challenges. The group also said it puts public health and safety at greater risk by driving even more Californians to illegal sellers.

“For nearly five years, California’s licensed cannabis market has been in a steep decline,” the organization stated.

However, on a statewide level, Haney’s legislation faced strong opposition from a coalition of 98 organizations, including Youth Forward, Getting it Right from the Start, Child Action Inc., and other nonprofits that favored raising the excise tax.

The groups said they risked losing at least $150 million per year for child care, youth, and environmental programs if the tax increase was stalled.

“This translates into thousands fewer child care slots for low-income children, fewer youth benefiting from substance abuse prevention programs, continuing environmental degradation of our watersheds, and other harms,” the organizations told the state, according to a legislative analysis.

Indigenous Justice, a nonprofit tribal organization, also opposed the bill, saying it would strip critical funding from tribal-focused grants that support cultural revitalization, land restoration, youth substance use prevention, sacred site access, and tribal youth leadership development, according to a legislative analysis.

California receives millions of dollars each year in cannabis excise tax revenues that pay for child care programs, health initiatives, and environmental programs.

The state’s Legislative Analyst’s Office projected in March that the state would receive $607 million in cannabis tax revenue between July 1, 2024, and June 30, 2025.