California, September 4, 2025
News Summary
Effective July 1, California will raise its cannabis sales tax from 15% to 19%, the highest allowed by state law. This increase, driven by declining sales and revenue shortfalls in the cannabis sector, puts further strain on legal retailers competing against the illicit market. Governor Gavin Newsom’s decision follows a ruling that local business licenses must be included in tax calculations, adding financial pressure on companies like Ryan Burns Collective. Industry leaders warn that the tax hike could lead to increased closures of cannabis operations and are pushing for legislative changes.
California is set to raise its cannabis sales tax from 15% to 19% effective July 1, marking the highest rate permitted by state law. The increase comes amid significant challenges faced by the state’s cannabis industry, which is grappling with declining sales and competition from the illicit market.
This 26% increase in tax was initiated by Governor Gavin Newsom in response to ongoing revenue shortfalls in the legal cannabis sector, as revealed in discussions during a cannabis advisory meeting held by the California Department of Tax and Fee Administration (CDTFA). As mandated by state law, tax rates must increase if cannabis excise revenue declines. This dynamic adds further pressure on legal cannabis retailers, already burdened by high taxes and stringent regulatory requirements.
Ryan Burns Collective, a cannabis retailer in California, recently became liable for a tax payment of $120,600 following a ruling by the California Office of Tax Appeals. This ruling clarified that the gross receipts involved in sales tax calculations must include local business license taxes charged to customers. The CDTFA had audited the company for the period spanning July 2018 to June 2021, and this ruling adds to the financial strain already felt by legal cannabis businesses.
Industry leaders have expressed concerns that the increased tax burden will further complicate the ability of legal retailers to compete with illegal distributors, who offer lower prices due to the absence of taxes. A study indicated that many cannabis users still prefer to purchase from illegal sources, underscoring the challenges facing licensed businesses. With thousands of cannabis operations closing amid these pressures, leaders within the industry are calling for policy changes to alleviate the financial strain.
Background and Legislative Action
The California cannabis market has been experiencing a steady decline in sales since the COVID-19 pandemic, with reports showing diminishing revenue streams. In 2024, the state generated nearly $595 million from the excise tax, funds that are typically directed toward child development and environmental recovery programs.
In 2022, a law signed by Governor Newsom stipulated that tax rates would rise if revenues fell, a consequence of eliminating the cultivation tax. Amid these developments, Assemblymember Matt Haney introduced a bill (AB564) that seeks to halt the impending tax increase. This bill has already passed a committee vote unanimously and is now awaiting action in the State Senate.
Despite these legislative efforts, the Governor’s updated budget proposal failed to include any relief measures for the cannabis industry, further adding to the industry’s worries about sustainability at a tax rate of 19%.
Industry Impact
Significant voices within the cannabis business sector, including representatives from the California Cannabis Operators Association, warn that the impending tax hike could render many businesses unsustainable, with closure rates potentially increasing as financial pressures mount. High taxes, expensive regulations, and increasing competition from the illicit market are cited as the primary reasons for the current downturn in the legal cannabis industry.
FAQ Section
What is the new cannabis sales tax rate in California?
The cannabis sales tax rate in California will increase from 15% to 19% starting July 1.
Why is the tax rate increasing?
The tax increase is a response to declining revenues from the legal cannabis industry and is required by state law when cannabis excise revenue falls.
What impact will the tax hike have on cannabis retailers?
The tax hike is expected to hinder legal retailers’ ability to compete against illegal market prices, which may lead to a worsening of current industry struggles.
What legislative actions are being taken regarding the tax increase?
A bill (AB564) has been introduced to block the tax hike and has successfully passed a committee vote, now awaiting consideration in the State Senate.
What are the major challenges currently faced by the California cannabis industry?
The major challenges include high taxation, expensive regulations, and strong competition from the illicit market, which continues to attract a significant portion of cannabis consumers.
Deeper Dive: News & Info About This Topic
- SFGate: California Cannabis Tax Increase
- Wikipedia: Cannabis in California
- Cannabis Business Times: CA Lawmakers Vote on Cannabis Tax
- Google Search: California Cannabis Tax Increase
- CBS News: California Cannabis Tax Hike Halted
- Encyclopedia Britannica: Cannabis
- MJBizDaily: Newsom Won’t Stop Tax Increase
- Google News: California Cannabis Industry
Author: STAFF HERE CORONADO
The Coronado Staff Writer represents the experienced team at HERECoronado.com, your go-to source for actionable local news and information in Coronado, San Diego County, and beyond. Specializing in "news you can use," we cover essential topics like product reviews for personal and business needs, local business directories, politics, real estate trends, neighborhood insights, and state news affecting the area—with deep expertise drawn from years of dedicated reporting and strong community input, including local press releases and business updates. We deliver top reporting on high-value events such as the Coronado Island Film Festival, productions at Lamb’s Players Theatre, community workshops at John D. Spreckels Center, and iconic celebrations at Hotel del Coronado. Our coverage extends to key organizations like the Coronado Chamber of Commerce and Visit Coronado, plus leading businesses in hospitality, dining, and tourism that drive the local economy. As part of the broader HERE network, including HERESanDiego.com, HEREHuntingtonBeach.com, HERELongBeach.com, and HERELosAngeles.com, we provide comprehensive, credible insights into Southern California's dynamic landscape.
