Are Marijuana Taxes Too High? They Already Beat Alcohol And Tobacco And They're About To Get Worse

The price of legal cannabis in California is about to get higher—literally. Starting July 1, 2025, the state’s excise tax on cannabis is set to increase from 15% to 19%, a move that could push the total tax burden on consumers to nearly 48% when combined with local taxes. But how does this stack up against other taxed goods and is the cannabis industry being unfairly targeted?

The question of cannabis taxation has been hotly debated since California legalized adult-use sales in 2018. Supporters argue that cannabis should be taxed heavily, like tobacco and alcohol, to generate state revenue and discourage excessive consumption. Critics contend that the industry is already overburdened, making legal businesses uncompetitive against the illicit market.

A Heavy Tax Burden

According to data from the Legislative Analyst's Office (LAO), cannabis is taxed more aggressively than many comparable products. A single pre-roll, for instance, carries a $1.24 state excise tax. By comparison, a glass of wine is taxed at just $0.01, a glass of beer $0.02 and a shot of liquor between $0.05 and $0.08. Even a cigarette is taxed at a lower rate of $0.14.

The gap widens further when factoring in state sales tax and local taxes, which can push total cannabis taxes as high as 38% (44% for deliveries). Once the new excise tax kicks in, the cumulative tax rate could reach 48%, effectively adding another $5 in taxes to a $100 purchase.

I just wrote a letter: Stop Higher Taxes on Cannabis in California . Write one here: https://t.co/ZFcSVjeRDp

— California NORML (@CaliforniaNORML) March 7, 2025

This tax disparity has raised eyebrows among industry advocates. California NORML, a pro-cannabis reform organization, is backing a bill, AB 564 (Haney), that aims to block the upcoming tax hike.

“The industry needs a tax decrease, not an increase,” warns Cal NORML. “The industry is struggling to compete against overtaxation, the illicit market, resistance to local licensing, and the proliferation of hemp-derived products.”

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The Impact On Legal Sales And Market Growth

Legal cannabis sales in California have failed to reach their projected potential, largely due to high costs and limited access. According to the California Department of Cannabis Control (DCC), only 1.4 million pounds of cannabis were sold in the legal market in 2024, while an estimated 2.4 million pounds were sold in the illicit market—meaning nearly two-thirds of all cannabis in California is unregulated and untaxed.

Retail access is another challenge. As of early 2025, 57% of California cities and counties still do not allow cannabis sales, leaving vast portions of the state without legal purchasing options. Consequently, California’s per capita cannabis sales in 2023 were $98.40, significantly lower than states like Michigan ($295.39), Montana ($288.96) and New Mexico ($254.43).

Michigan, often cited as a successful model for cannabis taxation, levies only a 10% state excise tax while sharing tax revenue with local governments. Unlike California, Michigan does not allow additional local cannabis taxes, making its legal market far more competitive.

The Case For Tax Relief

California Attorney General Rob Bonta has been vocal about the issue. In 2023, when announcing efforts to curb illegal cannabis operations, he stated: “The barriers to entry [to the licensed cannabis market] are too high. The costs to stay in operation are too high. We should be lowering taxes at least temporarily for our cannabis businesses.”

Industry advocates argue that lowering cannabis taxes could increase legal market participation, boosting overall tax revenue in the long run. A recent analysis from Whitney Economics found that in Washington state, where cannabis taxes are similar to California's, legal market participation is only about 50% due to excessive taxation. The report suggests that reducing tax rates would expand the regulated market and, ironically, increase tax revenue over time by pulling more consumers into the legal system.

Yet, not everyone supports the idea of lowering cannabis taxes. Many youth education and drug prevention programs are funded by cannabis revenue, and some groups worry that a tax reduction could impact funding. According to state data, as of March 2024, California had a $607 million surplus in cannabis-funded programs, including $260 million for law enforcement and $357 million for childcare services.

The Road Ahead

The debate over cannabis taxation is unlikely to be resolved anytime soon. While policymakers weigh the trade-offs, businesses continue to shut down: 7,100 cultivation licenses, 1,100 distribution licenses and nearly 500 delivery licenses are inactive.

If AB 564 fails and the tax hike proceeds as planned, California's total tax burden on cannabis could become one of the highest in the nation. Whether this will push more consumers toward the illicit market or generate the revenue the state hopes for remains an open question.

Read next: Big Tobacco’s Latest $86.8 Million Cannabis Investment Signals Growing Industry Influence

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