Politics
California Governor Signs Bill To Roll Back Marijuana Tax Hike
The governor of California has signed a bill into law to put a pause on a recently enacted tax hike on marijuana products.
Weeks after the legislature delivered the measure from Assemblymember Matt Haney (D) to his desk, Gov. Gavin Newsom (D) gave it final approval on Monday.
“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 press release.
The bill will pause the tax increase for five years. The governor had until October 12 to take action on any measures delivered to him this session.
“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, the sponsor, said. “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.”
The legislation “will provide immediate tax relief to California’s struggling cannabis industry by reversing an unprecedented 25 percent excise tax increase,” Haney said on the Assembly floor earlier this month. “The bill has enjoyed overwhelming bipartisan support in both houses.”
An amendment adopted during a prior Senate committee stop, and later concurred with by the Assembly, makes it so the effective date will be in October, rather than immediately. The tax hike itself officially took effect last month.
“California’s cannabis industry was thrown an important lifeline today by Governor Newsom’s signing of AB 564,” Brian Camire, chief legal counsel of Weedmaps, said. “This rollback of a 25 percent hike in existing taxes will bring greater stability to a faltering market and disincentivize bad actors that undermine legitimate players,”
“Governor Newsom and the bill’s author Assemblymember Matt Haney recognized the need to act because they know a healthy cannabis industry brings jobs and tax revenues into the communities where they operate,” he said.
State officials announced in June that the cannabis excise tax rate would increase from 15 percent to 19 percent on July 1, and advocates held out hope that pending budget legislation would be amended to mirror Haney’s standalone bill. That didn’t come to fruition.
The passage of an earlier budget bill that Haney’s measure responds to came despite Newsom’s support for including a tax freeze in the trailer bill. Assembly Speaker Robert Rivas (D) also backed the delay, but Senate President Pro Tempore Mike McGuire (D) reportedly blocked it from the budget legislation.
Under Haney’s bill, which first advanced through the Assembly in June, the delayed implementation won’t take effect until October. Advocates wanted to see it included in the separate, recently enacted budget legislation because it would’ve taken effect upon enactment.
Before arriving at the Senate Appropriations Committee, the legislation’s pause of the cannabis tax increase would have been in effect until June 30, 2030. After that, on a biennial basis, regulators would adjust the tax rate “by a percentage that will generate an amount of revenue that would have been collected pursuant to the cultivation tax imposed prior to its discontinuation, as specified, not to exceed 19 percent,” according to a summary.
The Appropriations Committee, however, moved to “shorten the period that the 15 percent tax rate would be in effect, and add a reporting requirement,” according to the chair.
Haney’s proposal will make it so the California Department of Tax and Fee Administration (CDTFA), working with the Department of Finance, would be required to “adjust the cannabis excise tax rate upon purchasers of cannabis or cannabis products” based on the “additional percentage of the gross receipts of any retail sale by a cannabis retailer that the department estimates will generate an amount of revenue equivalent to the amount that would have been collected in the previous fiscal year,” the text says.
The department will need to “estimate the amount of revenue that would have been collected in the previous fiscal year pursuant to the weight-based cultivation tax” and “estimate this amount by projecting the revenue from weight-based cultivation taxes that would have been collected in the previous calendar year based on information available to the department.”
“The specific goal of the cannabis excise tax rate reduction is to provide immediate tax relief to the cannabis industry,” the measure states. “The efficacy of this goal may be measured by the Legislature by the amount of gain or loss in cannabis excise tax revenues resulting from the cannabis excise tax rate reduction allowed by this act.”
It also mandates that CDTFA, on or before December 1, 2026 and each subsequent year the California “submit a report to the Legislature…detailing the amount of gain or loss in cannabis excise tax revenues resulting from the cannabis excise tax rate reduction allowed by this act.”
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The Senate Appropriations Committee also recently unanimously passed legislation to integrate hemp-derived cannabinoid products into the state’s medical and adult-use marijuana program, while banning synthetically derived cannabinoids. The panel adopted amendments to the bill “to delete excise tax provisions, to revise and change definitions, to create a pathway for topical hemp salves and clarify and change requirements and prohibitions regarding industrial hemp and hemp-derived cannabinoids,” according to the committee chair.
The panel additionally approved a measure to amend the state’s cannabis law to make it so cannabis microbusinesses with a license to ship products directly to patients, with amendments.
Meanwhile, California officials are inviting research proposals for a second round of grants under a program meant to better educate the public on the state’s marijuana law and help policymakers make informed decisions on the issue.
In June, the Governor’s Office of Business and Economic Development (GO-Biz) announced the recipients of over $52 million in community reinvestment grants to nonprofits and local health departments, also funded by marijuana tax revenue.
That marked the seventh round of cannabis-funded California Community Reinvestment Grants (CalCRG) under the state program.
Legalization in California has created a number of new grant programs aimed at addressing the consequences of marijuana prohibition and attempting to nurture a strong, well-regulated legal industry.
California’s Supreme Court separately delivered a victory for the state’s marijuana program in June, rescinding a lower court ruling in a case that suggested federal prohibition could be used locally to undermine the cannabis market.
The state Supreme Court ruling also came just weeks after California officials unveiled a report on the current status and future of the state’s marijuana market—with independent analysts hired by regulators concluding that the federal prohibition on cannabis that prevents interstate commerce is meaningfully bolstering the illicit market.
The governor did sign a bill in 2022 that would have empowered him to enter into interstate cannabis commerce agreements with other legal states, but that power was incumbent upon federal guidance or an assessment from the state attorney general that sanctioned such activity.
Meanwhile, a California Senate committee recently declined to advance a bipartisan bill that would have created a psilocybin pilot program for military veterans and former first responders.
Photo courtesy of Mike Latimer.
