September 4, 2025

California’s Cannabis Sales Tax Rising to 19% Amid Industry Struggles

California, September 4, 2025

News Summary

California will increase its cannabis sales tax from 15% to 19% starting July 1 due to declining revenue from the legal cannabis market. This raises concerns for legal operators who struggle to compete against illegal market prices. Assemblymember Matt Haney has introduced AB564 to prevent the tax hike, as high taxation and strict regulations continue to burden the industry, which has already seen ongoing sales declines and a rise in business closures.

California is set to increase its cannabis sales tax from 15% to 19% starting July 1, marking the highest rate allowed by state law amid ongoing industry struggles. The increase follows a report indicating that cannabis excise revenue has declined, necessitating the rise in taxes as stipulated by state law.

This tax hike was initiated by Governor Gavin Newsom in response to shrinking revenues from the legal cannabis market, which is grappling with competition from the illicit market. A California Office of Tax Appeals ruling recently highlighted that cannabis retailers, such as Ryan Burns Collective, will be liable for substantial tax payments, including liabilities that arise from incorporating city business license taxes into their sales tax calculations. In the case of Ryan Burns Collective, the total tax owed is approximately $120,600 due to an audit covering operations from July 2018 to June 2021.

The increase in cannabis excise tax, a 26% hike, is based on a law signed by Newsom in 2022 which mandates higher taxes when revenues fall, following the elimination of the cultivation tax. Further complicating matters, the cannabis industry has been facing year-over-year sales declines since the COVID-19 pandemic. Industry leaders have voiced concerns that such tax rates would hinder legal stores in competing against prices offered by illegal market players.

Despite generating close to $595 million in excise taxes in 2024, the revenue has been allocated to children’s services and environmental recovery programs, leaving operators struggling. Around this issue, Matt Haney, a San Francisco assemblymember, has introduced AB564, a bill that aims to prevent the tax increase, which has already passed a committee vote and is now heading to the State Senate for further consideration.

In an alarming trend, many cannabis users in California still turn to illegal sources for their purchases, a situation attributed to the combination of high taxes and expensive regulatory requirements surrounding the legal market. The United Cannabis Business Association has indicated that the increased tax burden is already proving detrimental to legal businesses, making it challenging for them to operate effectively.

In the face of these ongoing pressures, Governor Newsom’s updated budget has not included tax relief measures for the struggling cannabis industry, raising concerns about the future sustainability of legal operations under the proposed tax rate.

Industry Challenges

The California cannabis market’s difficulties are numerous, with operators calling attention to the impacts of high taxation and strict regulations. The state is also witnessing thousands of cannabis business closures, alongside continuous drops in sales and tax revenue.

In summary, the cannabis industry in California is at a critical juncture, with the upcoming sales tax increase further compounding its challenges, and legislative actions like AB564 may hold the key to potential relief.

FAQ

What is the current cannabis sales tax rate in California?

The current cannabis sales tax rate in California is 15%, but it will increase to 19% starting July 1.

Why is the cannabis sales tax increasing?

The tax increase is mandated by state law in response to declining revenues from the cannabis industry.

What are the implications of the tax increase on cannabis businesses?

The tax hike is expected to hinder legal cannabis businesses from competing against prices in the illegal market.

What is AB564?

AB564 is a bill introduced by Assemblymember Matt Haney that aims to block the impending increase in cannabis sales tax.

What issues is the cannabis industry facing in California?

The cannabis industry is facing high taxes, stringent regulations, competition from the illicit market, and ongoing sales declines.

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Author: STAFF HERE LOS ANGELES WRITER

LOS ANGELES STAFF WRITER The LOS ANGELES STAFF WRITER represents the experienced team at HERELosAngeles.com, your go-to source for actionable local news and information in Los Angeles, Los Angeles County, and beyond, specializing in "news you can use" with coverage of product reviews for personal and business needs, local business directories, politics, real estate trends, neighborhood insights, and state news affecting the area—with deep expertise from years of dedicated reporting and strong community input, including local press releases and business updates, while delivering top reporting on high-value events like the Academy Awards, LA Auto Show, and Los Angeles Marathon, extending coverage to key organizations such as the Los Angeles Area Chamber of Commerce and the Los Angeles Tourism & Convention Board, plus leading businesses in entertainment and technology like Warner Bros. and SpaceX, and as part of the broader HERE network including HEREAnaheim.com , HERECostaMesa.com , HEREHuntingtonBeach.com , and HERESantaAna.com , providing comprehensive, credible insights into Southern California's dynamic landscape. HERE Anaheim HERE Beverly Hills HERE Coronado HERE Costa Mesa HERE Hollywood HERE Huntington Beach HERE Long Beach HERE Los Angeles HERE Mission Viejo HERE San Diego HERE Santa Ana

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