SAN DIEGO (KGTV) — California will consider a bill that would prevent a planned tax increase on cannabis, intended to help the industry that legislators say is struggling.
Assembly Bill 564 from member Matt Haney (D – San Francisco) would repeal a required tax rate increase that was passed in 2022 as part of a bill that removed a statewide cultivation tax.
When legislators removed the tax on growing cannabis, the bill directed the state Department of Tax and Fee Administration to increase the retail rate up to 19% to make up the difference.
Haney’s bill would repeal that requirement, leaving the statewide retail tax rate at 15%.
“California is widely known as the birthplace of cannabis culture in the United States, with an industry boasting hundreds of thousands of employees and generating hundreds of millions in revenue annually,” Haney said in a press release. “But over the past five years, the licensed cannabis market has been in a sharp decline as evidenced by plummeting sales and tax revenue.”
The bill would prevent an increase that would devastate the legal industry, according to Haney, and drive more consumers to the illicit market.
An annual report from the California Department of Cannabis Control says that while retail sales are increasing by volume, since 2020, wholesale prices have been declining and, since 2021, retail revenues have gone down as well.
Tax revenue from cannabis sales also declined in 2024, compared to 2023, and is down from a peak in 2022 that the report says was “aligned with nationwide trends” and “fueled by Americans receiving multiple stimulus checks.”
Roughly 40% of cannabis consumed in California comes from the legal market, up from just 25% in 2019, according to the report.
The San Diego City Council voted earlier in March toincrease the local cannabis tax rate to 10%. Along with the state’s 15% retail tax and the 7.75% local sales tax, consumers in the city pay a 31.75% tax on top of the retail price.
If the statewide rate increases, the total tax rate could be pushed higher than 35% on all cannabis sales in the city.
Opponents of the bill argue it would reduce revenues that were promised for programs aimed at children’s health and well-being, environmentalism, and public safety.
Zack Kaldveer, from the Public Health Institute’s Getting it Right from the Start Project, says that AB 564 could “slash as much as $180 million annually from critical programs” and “overwhelmingly benefit large, multi-state cannabis corporations, not small businesses or equity operators.”
Cannabis retailers have told ABC 10News since 2019 that tax increases are likely pushing more consumers into the illicit market.
AB 564 was introduced on March 10 and was referred to the Assembly Business and Professions Committee.
