California’s legal marijuana industry is grappling with a significant tax hike that took effect on July 1, 2025. Under Assembly Bill 195, the state’s excise tax on cannabis has increased from 15% to 19%—a move that’s drawing criticism from dispensary owners and industry stakeholders who fear it may push consumers back to the unregulated market.
The tax increase is intended to compensate for the removal of the cultivation tax, which was previously levied on growers. While the change benefits cultivators, it shifts the burden further down the supply chain to retailers and ultimately, consumers. Now, buyers at legal dispensaries are faced with noticeably higher prices for cannabis products, with some dispensary owners warning that this could seriously hurt sales.
Ronald Allen, co-owner of a licensed dispensary in Bakersfield, expressed concern that the 4% spike could drive customers to the black market where prices are often lower and taxes nonexistent. “We don’t have the luxury of multiple locations or big-city volume,” he said. “Even a small drop in customer traffic could really hurt.”
While marijuana sales remain illegal in much of Kern County, they are allowed in specific cities like Arvin, California City, and McFarland. Legal businesses operating in these zones are now tasked with finding ways to stay competitive despite the tax hike.
A portion of the funds generated will go toward youth services, including child care and substance use prevention initiatives.
Advocates like the Coalition to Protect Youth Programs stress the importance of preserving this funding. “The data is clear,” said one spokesperson. “Positive youth development programs help kids succeed in school and in life, and the cannabis tax plays a vital role in making those programs possible.”
Still, industry representatives maintain that the state's approach to cannabis taxation is unsustainable. They warn that continually raising taxes could erode the legal market’s advantages and reignite the illicit trade the regulations were meant to suppress.
To address these concerns, a new proposal—Assembly Bill 56—is currently under review. The bill aims to reduce the impact of the excise tax spike and explore alternative funding mechanisms to maintain youth program support without harming cannabis businesses.
As California balances public service funding with industry sustainability, all eyes are on how the market and lawmakers will respond to this latest tax shift. The outcome could shape the future of cannabis regulation and retail in the state.