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SACRAMENTO, Calif. — California Gov. Gavin Newsom signed Assembly Bill 564, which eliminates a 25% tax increase on the state's legal cannabis industry and reduces the excise tax rate from 19% back to 15%. The measure takes effect Oct. 1 and maintains the lower rate through June 2028.
The legislation reverses a tax hike that took effect on July 1, when the cannabis excise tax increased from 15% to 19%. The bill passed with overwhelming support, receiving a 74-0 vote in the Assembly in June and a 39-1 vote in the State Senate on Sept. 11.
"We're rolling back this cannabis tax hike so the legal market can continue to grow, consumers can access safe products, and our local communities see the benefits," Newsom said in a statement. The governor emphasized that the measure builds on the administration's efforts to ensure the long-term success of the legal cannabis market.
Assemblymember Matt Haney, a San Francisco Democrat who authored the bill, said the legislation addresses competitive disadvantages facing legal operators. "California's cannabis economy can bring enormous benefits to our state, but only if our legal industry is given a fair chance to compete against the untaxed and unregulated illegal market," Haney stated. "AB 564 helps level the playing field. It protects California jobs, keeps small businesses open, and ensures that our legal cannabis market can grow and thrive the way voters intended."
California operates the world's largest regulated cannabis market, fostering environmental stewardship, compliance-tested products, and fair labor practices, while driving economic growth and funding vital programs in education, public health, and environmental protection, according to the governor's office. The administration noted that high tax rates in some areas, reaching 45%, have weakened the licensed industry and allowed other states with lower taxes to surpass California in sales.
The tax reduction comes as the state intensifies enforcement against illegal operators. The Unified Cannabis Enforcement Taskforce, established by Newsom in 2022, has seized and destroyed over 317 tons of illegal cannabis worth an estimated retail value of $890 million through nearly 230 multiagency operations. The task force includes multiple state agencies working with local and federal partners.
Beginning in fiscal year 2028-29, the California Department of Cannabis Control will evaluate the tax rate every two years, with the goal of recouping revenue lost when the state discontinued its cultivation tax in June 2022. The excise tax rate cannot exceed 19% under the new law.
Cannabis tax revenues fund youth education and prevention programs, public safety and enforcement activities, and environmental restoration efforts stemming from illegal marijuana cultivation sites. The administration has expanded grant eligibility to local jurisdictions to enhance enforcement efforts against illegal cannabis operations.
