California Increases Cannabis Excise Tax to 19%

News Summary

California is set to raise its cannabis excise tax from 15% to 19% on July 1, following a significant drop in legal cannabis revenue. This tax hike, mandated by law, aims to address challenges faced by the struggling legal cannabis industry. Industry leaders warn that the increased tax burden will further hinder competition against illegal providers and threaten business sustainability. Despite generating substantial revenue, concerns escalate regarding the potential collapse of the legal market if financial interventions are not implemented.

California is set to increase its cannabis excise tax from 15% to 19% beginning July 1, marking the highest tax rate permissible under state law. This tax hike, which represents a 26% increase, was confirmed during a recent cannabis advisory meeting held by the California Department of Tax and Fee Administration.

This tax adjustment is mandated by state law, which stipulates an increase in the cannabis tax rate whenever excise revenue shows a decline. This measure is part of a strategy devised by the administration of Governor Gavin Newsom, aimed at addressing the significant struggles within California’s legally operating cannabis industry, which has been dealing with substantial financial contraction.

The decision to implement this tax increase comes on the heels of a noticeable decrease in legal cannabis revenue, which has led to the closure of thousands of cannabis businesses across the state. The change is rooted in a 2022 law signed by Governor Newsom that eliminated the cultivation tax but simultaneously mandated increases in cannabis tax rates when revenues dipped.

Industry leaders have expressed concerns regarding the implications of the tax hike. The president of the United Cannabis Business Association has highlighted that the increase will make it even harder for legal cannabis retailers to compete against illegal providers, which do not have to pay cannabis-specific taxes. A significant majority of cannabis consumers still heavily rely on the illegal market for their purchases, as indicated by a recent study.

Support for opposition to the tax increase has arisen, particularly from Assemblymember Matt Haney of San Francisco, who has introduced Assembly Bill 564 to block the tax hike, and this legislation has made progress through the state Legislature. Advocates from the industry emphasize that the existing tax rates are already placing a heavy burden on legal businesses, threatening their financial sustainability.

Furthermore, the anticipated tax increase is likely to deter investment in legal cannabis operations in California and diminish interest in acquiring cannabis licenses. Recent data indicates that approximately 63% of the cannabis consumed in California originates from unlicensed production, underscoring the ongoing struggle of the legal market to gain a foothold among consumers.

Despite California’s cannabis excise tax generating a reported $595 million in revenue for the fiscal year 2024, it is critical to note that industry advocates caution that if current financial challenges continue without intervention, the legal cannabis market could face potential collapse.

The California Department of Tax and Fee Administration has stated that it is obligated by law to increase the cannabis excise tax unless amendments are made legislatively. Consequently, the new tax will directly influence the overall purchase prices that consumers will pay at dispensaries, significantly raising their costs.

In summary, California’s impending tax increase poses serious challenges for the already struggling legal cannabis industry. As businesses grapple with fierce competition from the illicit market and mounting regulations, the impacts of this tax hike may stifle growth and threaten the survival of licensed cannabis enterprises throughout the state.

Deeper Dive: News & Info About This Topic

• SFGate: California Cannabis Tax Increase
• Wikipedia: Cannabis in California
• Cannabis Business Times: California’s Cannabis Excise Tax Increase
• Google Search: California cannabis excise tax
• MJBizDaily: California Cannabis Excise Rate Increase
• Encyclopedia Britannica: Cannabis
• ABC10: California Cannabis Excise Tax Increase
• Google News: California cannabis tax