California’s cannabis industry has seen a rare step of bipartisanship to reduce the costs. Legislators just passed a measure that reduces the tax excise on cannabis by Reduced from 19% to 15%The rate is locked in until June 30th 2028. Next, the measure will be sent to Governor Newsom who has indicated that he intends to sign it. (turn0view0)
This move was not inevitable
The 2022 law required raising the excise tax to 19%, but the legal market pushed back—with licensed operators claiming that high rates pushed consumers toward unlicensed (and untaxed) weed. California’s cannabis industry has a long-standing reputation of complex tax and regulation burdens, in contrast to many other states which balance taxes with low prices so as to compete against illicit markets. (turn0view0)
What has changed? Combination of falling legal sales, in part because of sticky costs and increasing pressure by small businesses. Lawmakers saw falling taxable sales—8-figure drops—and recognized that revenue projected under higher tax rates wasn’t materializing without undermining the market’s viability. (turn0view0)
Trade-offs: revenue lost vs market preserved
It is not free. According to a legislative analysis, a total loss of approximately The $135 million In the first year, $ 180 million The second year’s revenue from excise tax was a record high. (turn0view0) That revenue had previously funded a number of social programs—child care for low-income families being among the most visible, per nonprofits speaking out. (turn0view0)
Nonprofits warn that promises to “backfill” lost funding are nice words—but implementation is what matters. Public Health Institute advisers wonder if funding vital services can survive a fluctuating tax base. (turn0view0)
Policy and equity implications over the long term
California reformers claim that by lowering its tax they are preventing the illegal cannabis industry from further eroding California’s legal cannabis market. Pricing that is more competitive could encourage growth and help keep small businesses afloat. It may also bring in additional revenue, if the cannabis market grows enough. (turn0view0)
Others worry more about stability. When cannabis taxes are used to fund programs (childcare programs, public health programs, and social equity), they create a vulnerability. Some suggest California should decouple those services from volatile tax income—creating more stable funding sources. (turn0view0)
Watch Now
- Governor Newsom’s actions: Will he hurry up and sign? Will he fully support programs (including those that serve children) threatened by the revenue cuts?
- Budget Adjustments How will the state distribute funding to programs heavily dependent on cannabis excise revenues? Are there any gaps, delays or reductions?
- Market response Does this tax break help reverse or slow the trend of non-licensed cannabis sales returning? Will the legal cannabis sales increase modestly?
- Equity impact: Are there any small operators who will finally benefit, or are the larger operators more likely to reap the benefits?
👉 Ask the Audience:
Is lowering the cannabis tax worth risking cuts to social programs—if it means more robust legal market health and fewer unlicensed sellers? California should prioritize keeping the cannabis industry legal or funding services that depend upon tax revenue.