Politics
California Marijuana Tax Cut Officially Takes Effect, With Planned Increase Delayed Through At Least 2028
Three months into a major marijuana tax hike in California, a new law putting a pause on the increase has officially taken effect.
Gov. Gavin Newsom (D) signed the tax relief legislation from Assemblymember Matt Haney (D) late last month. Now, as of Wednesday, consumers will not be paying the increased excise tax—at least until October 2028.
“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 at the time of the bill signing.
Haney said that “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.”
“AB 564 helps level the playing field,” he said. “It protects California jobs, keeps small businesses open, and ensures that our legal cannabis market can grow and thrive the way voters intended.”
State officials announced in June that the cannabis excise tax rate would increase from 15 percent to 19 percent on July 1, prompting concern from industry stakeholders and consumer advocates.
Newsom previously supported including a tax freeze in a budget trailer bill, but that didn’t come to fruition. Assembly Speaker Robert Rivas (D) also backed the delay, but Senate President Pro Tempore Mike McGuire (D) reportedly blocked it from the budget legislation.
Before being amended in committee, the newly enacted 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 Senate Appropriations Committee, however, moved to shorten the period that the reduction will be in effect, to October 2028.
The new law will make it so the California Department of Tax and Fee Administration (CDTFA), working with the Department of Finance, will 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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Meanwhile, a leading veterans group is calling on the governor to sign a bill that would streamline research on marijuana and psychedelics.
The legislation from Assemblymember Christopher Ward (D) would empower the Research Advisory Panel of California (RAPC) to expedite reviews of research proposals for cannabis on marijuana and psychedelics, through January 2028.
California officials are also 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.
