The California State Senate has passed Assembly Bill 564, a measure designed to reverse the most recent hike in the state’s Cannabis Tax. The bill now awaits only Gov. Gavin Newsom’s signature to become law, and he has previously indicated he will sign it. If enacted, the legislation would undo the July 1 increase that raised California’s Cannabis Tax from 15 percent to 19 percent, a hike that many in the industry say has worsened financial pressures on legal operators.
Industry advocates from Humboldt County to Los Angeles argue that the legal market remains fragile and cannot afford another blow from a higher Cannabis Tax. They say the increase has made it harder for dispensaries and cultivators to compete with the still-thriving black market. Critics of AB 564, on the other hand, contend that reducing the Cannabis Tax could strip as much as $180 million annually from programs such as law enforcement, child care, environmental cleanup, and services for at-risk youth.
Under the amended version of AB 564, the Cannabis Tax will revert to 15 percent at the end of this month and remain at that level through June 30, 2028. After that, the Department of Cannabis Control will review the rate every two years, though the bill caps the Cannabis Tax at a maximum of 19 percent. The structure is meant to help stabilize the legal market while still giving the state flexibility to adjust revenue collection over time.
Ross Gordon, a policy analyst with the industry nonprofit Origins Council, said the jump to 19 percent has had a real impact, especially on small farmers and niche brands. “I think we’ve seen how the higher Cannabis Tax has squeezed smaller producers out of dispensary shelves,” he explained.
Some organizations celebrated the rollback. Amy O’Gorman Jenkins of the California Cannabis Operators Association said the Legislature recognized that smart policy “grows revenue by keeping the legal market viable.” She argued that a lower Cannabis Tax will encourage consumers to buy from licensed stores rather than unregulated sellers, thereby improving public safety and maintaining funding for critical programs.
But opponents such as Jim Keddy of Youth Forward and Tom Wheeler of the Environmental Protection Information Center worry that reducing the Cannabis Tax will mean less money for youth programs and environmental remediation tied to illicit cultivation. Despite these concerns, AB 564 passed the Senate 39–1 and appears likely to become law, marking a significant shift in California’s Cannabis Tax policy.
