Cannabis tax increase will hurt consumers and public safety

OPINION – In just a few weeks, California plans to increase its cannabis excise tax by 25%, from 15% to 19%. This policy decision, made in a previous budget cycle, was based on revenue projections that have since proven wildly optimistic.

Without legislative intervention, this tax hike will accelerate the collapse of California’s regulated cannabis market, harming consumers, public health, and ironically, the state’s bottom line.

Let’s be clear: This is not about tax relief for businesses. It’s about preventing a misguided policy that will drive even more Californians to dangerous, unregulated products while actually reducing state revenue.

Critics ask, “Why should cannabis get special treatment when everyone pays taxes?” This fundamentally misunderstands the unique position of the cannabis industry. Unlike every other legal product, cannabis competes directly with a thriving illicit market that pays no taxes whatsoever. At current rates, legal cannabis already shoulders a tax burden of 78% of wholesale value, compared to just 8.4% for alcohol and 29.5% for tobacco, according to the Department of Cannabis Control’s own analysis.

The consequences of this imbalance are already devastating. From Q2 2021 to Q4 2024, taxable sales were down by 34%, and taxes (excise + sales) were down by 31%. There are now more shuttered cannabis licenses (10,828) than active ones (8,514). The industry has shed nearly 18,000 jobs in two years. Most alarming of all, states like Michigan (with just one-fourth of our population!) now outsell California in legal cannabis.

This isn’t market correction; it’s market failure.

The impact on everyday Californians is profound. A cancer patient seeking relief from chemotherapy side effects, a veteran managing PTSD, or a senior with chronic pain already pays up to 38% in combined taxes on legal cannabis. Add a tax increase at the register, and more will inevitably turn to untested products from unlicensed shops or delivery services, where pesticides, heavy metals, and dangerous additives go undetected.

From a fiscal perspective, the tax increase is equally misguided. Economic research shows cannabis consumers are highly price-sensitive. Even a modest 10% drop in legal sales following this tax increase would result in a net revenue loss for the state. We would raise taxes and collect less money—a lose-lose proposition that defies common sense.

Governor Newsom’s May Revise budget includes welcome proposals to strengthen enforcement against illicit operators. But raising taxes simultaneously undermines this enforcement by making legal cannabis even less competitive. It’s like stepping on the gas and the brake at the same time.

Some suggest the industry should simply become more efficient or innovative. This ignores the reality that legal operators already subsidize the entire regulatory apparatus through licensing fees, face restricted access to banking and normal business deductions, and operate in a market where only 43% of California jurisdictions allow retail access. These structural challenges make “just innovate more” a hollow suggestion, especially as unregulated competitors flourish.

The solution is straightforward: freeze the cannabis excise tax at 15% through budget trailer bill legislation. Assembly Bill 564 (Haney) would accomplish exactly this and has received overwhelming bipartisan support with no opposition votes in committee.

And with July 1st approaching rapidly, including this freeze in the budget trailer bill represents the most practical path forward.

When Californians voted for Proposition 64, we supported a system that would provide safe, regulated cannabis as an alternative to the illicit market. The text was explicit: taxes should ensure the legal market’s competitiveness. The scheduled tax increase betrays that promise and the will of voters.

Freezing the cannabis excise tax is smart policy that protects consumers, supports public health, preserves good jobs, and maintains vital tax revenue for community reinvestment programs.

We urge the Legislature and Governor to make the fiscally responsible choice: freeze the cannabis excise tax at 15% and give legal cannabis a fighting chance.

Alex Freedman is President of the California Cannabis Operators Association, the largest cannabis industry association in the Golden State, representing hundreds of licensed operators throughout the supply chain (cacoa.org).