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Californians Consider Cutting Cannabis Excise Tax—but Child-Care Services May Take the Hit

On July 1, California rolled back its cannabis excise tax increase—from 19% down to 15%—via an industry-backed bill in the Assembly. The move, which was meant to boost a struggling market by lowering the tax to 15%, will also eliminate Revenues of up to $180,000,000 annually that currently funds critical services, including law enforcement, environmental cleanup, and—most notably—Approximately 8,000 low-income kids will receive child care subsidy of $81 Million.

This tax policy “sweet spot” raises fundamental questions about whether it’s sustainable—or wise—to fund essential community programs through so-called “sin taxes.” Funding that ebbs and flows with market trends is precarious at best—and the instability underscores old concerns about relying on volatile revenue sources for vital services.

Why the tax hike was imposed—and why it may now be reversed

This tax hike was part of an agreement reached in 2022 to compromise on the budget. Cannabis companies were temporarily exempted from cultivating taxes; however, later on they would be subject to a higher excise duty to compensate. But as legal cannabis revenue has tanked (down 30% in Q1 2025 from its 2021 high), retailers argue the added tax burden drives consumers back into illicit markets—and threatens licensed operators’ survival.

The regulators are concerned about this dynamic: If legal sales drop, businesses will lose out, and the state may lose a significant income source that could be used to compensate for cannabis-related harms, such as impaired driving or environmental damage.

Social-service Implications: A fragile Support System

Children’s advocates are raising alarms. The projected loss in funding represents a small fraction of California’s annual child-care budget—but with federal funding down and waiting lists notoriously long (“no hope lists”), every dollar matters.

Mary Ignatius Executive director of Parent Voices California says: “Each and every dollar must remain in the programs which serve our children, families and communities.” Environmental groups and tribal advocacy organisations are also calling for the preservation of state commitments to youth services and cleanup promised by Proposition 64.

A policy crossroads: prioritize industry survival—or kids’ futures?

The impending Senate debate and looming September deadline put real pressure on legislators—and Governor Newsom, who has pledged to protect child-care funding no matter what. However, the question remains how we can support the legal marijuana market without cutting other essential societal supports.

This dilemma underscores the need for smarter revenue strategies—whether diversifying funding away from cannabis excise taxes, stabilizing pricing frameworks, or providing tax relief to small operators and equity businesses.

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