California’s cannabis industry is bracing for a substantial excise tax increase, set to rise from 15% to 19% on July 1, 2025, raising concerns among operators about the viability of the legal market. The tax increase, mandated by Assembly Bill 195 (A.B. 195), has sparked debate about Governor Gavin Newsom’s responsibility.
California Department of Cannabis Control (DCC) Director Nicole Elliott recently emphasized on social media that the increase results directly from legislative action, rather than a unilateral decision by Governor Newsom. However, the controversial legislation that established this tax hike was signed by Newsom in 2022 as part of a compromise involving the elimination of the state’s cannabis cultivation tax.
Industry groups, including California NORML and major cannabis trade organizations, previously opposed the excise tax increase, arguing it would drive consumers back to illicit markets by making legal products more expensive. They urged alternative approaches to sustain licensed cannabis operators and prevent market destabilization.
Assembly Member Matt Haney introduced legislation to prevent the excise tax hike, but this effort has made little legislative progress.
Recent economic analyses commissioned by DCC revealed California’s legal cannabis market is already struggling, with sales declining from $5.35 billion in 2021 to $4.67 billion in 2024. Additionally, about 62% of cannabis consumed in California in 2024 still came from illicit sources, further underscoring concerns about the pending tax increase’s impact.
Cannabis advocates have urged Newsom to reconsider the excise tax hike, highlighting the necessity of fostering a competitive, regulated market to successfully reduce illicit cannabis activity in California.
