A last-ditch effort to help California’s fledgling cannabis industry has failed, raising questions about the future of the legal market.
On July 1, the state excise tax will increase from 15% to 19%. The nonpartisan Legislative Analyst’s Office projects the tax increase will reduce the number of legal cannabis businesses in California. The industry is warning of possible market collapse.
Last week, there was a glimmer of hope that lawmakers might pass a trailer bill for the final budget, suspending the tax increase. That did not pan out.
“It would not be a budget if there weren’t things to be disappointed about,” said Senator Christopher Cabaldon (D-Yolo). “I wish we had reached an agreement on the cannabis tax increase.”
The Governor could still sign a bill authored by Assemblymember Matt Haney (D-San Francisco), which would bring the excise tax back to 15%. But it would take time to get it through the Legislature, and it wouldn’t take effect until January. In the meantime, many businesses would not survive.
Local Governments Try to Stave Off Collapse
Local governments have been preparing for this for months. Desert Hot Springs, Palm Springs, Palm Desert, and Cathedral City all slashed local cannabis taxes by roughly half this year in an effort to help businesses survive.
Even under the current tax structure, the industry is flailing. The number of licensed dispensaries in Palm Springs dropped from 31 to 20 between April 2023 and 2025, according to an analysis by SF Gate.
Growers are struggling too. Sonoma County's legal pot farms have decreased by 57%. To aid the industry, supervisors recently reduced cultivation taxes by 45%.
In Santa Barbara, so many growers have exited the market that the county is now spending more to regulate the industry than it collects in cannabis tax revenue. That’s according to a civil grand jury report released last week.
A Policy-Driven Crisis
Seven years ago, cannabis looked like the crop of the future, poised to bring a “green rush” to state and local coffers. Today, it is withering, with the black market far eclipsing the legal one.
This wasn’t inevitable. Experts blame poor planning and bad policy—namely the high taxes, fees, and regulations imposed on legal marijuana in this state.
California Cannabis Operators Association Executive Director Amy O’Gorman Jenkins recently spoke with Capitol Weekly Podcast about the situation, which she calls an outright “crisis.” She said the legal market could lose 10% of its consumer base after July 1, leading to a combined $13 million loss in excise and sales tax revenue. Jenkins has pushed relentlessly for relief. But with a $12 billion shortfall to close and enormous uncertainty out of Washington, cannabis just wasn’t a top priority for lawmakers this year.
Initial hopes of a thriving cannabis economy have been crushed, and California’s market is now buckling under the weight of excessive taxation and regulatory burdens. Whatever happens next, we’ll own it.