Gavin Newsom's Budget Keeps Cannabis Tax Hike: Can It Be Stopped? What's Next For Operators?

California's cannabis industry was dealt a serious blow this week as Gov. Gavin Newsom's revised state budget confirmed the scheduled increase in the cannabis excise tax from 15% to 19%, effective July 1. The change, originally triggered by Assembly Bill 195 in 2022, will move forward despite calls from industry leaders and lawmakers to delay or freeze the hike amid ongoing market contraction and widespread business closures.

‘A More Than 25% Tax Increase’ On A Declining Market

The California Cannabis Operators Association (CaCOA), which represents over 300 licensed businesses across the state, warned the increase could be catastrophic.

"California's legal cannabis industry cannot withstand a more than 25% tax increase when sales have already declined by 19% and thousands of businesses have closed their doors," said Amy O'Gorman Jenkins, executive director of CaCOA. "Raising taxes on a struggling industry—especially one already undercut by untaxed, unregulated operators—defies economic sense and contradicts Proposition 64's core intent."

The tax bump stems from a 2022 policy change that eliminated California's cannabis cultivation tax and shifted revenue collection downstream to retail. Under that law, the excise tax rate was set to adjust based on revenue trends and the California Department of Tax and Fee Administration (CDTFA) announced in April that the rate would rise to 19% starting July 1, 2025.

The updated budget leaves the rate increase untouched. While it proposes tougher enforcement against illicit sellers and maintains licensing fee stability, it omits any relief for regulated operators facing rising costs and shrinking margins.

A Legislative Push To Freeze The Tax

Assemblymember Matt Haney (D-San Francisco) introduced AB 564 earlier this year to halt the tax hike. The bill passed early committee votes with bipartisan support, but time is running out. CaCOA says it's mobilizing with Haney and coalition partners to include the freeze in a trailer bill ahead of the final budget vote in June.

"This fight is far from over," CaCOA said in a statement. "We're working to ensure the freeze is included in the final budget through trailer bill legislation."

What It Means For Operators

The impact of the tax hike will be most visible at the cash register, where total taxes (state excise, sales tax and local levies) can already exceed 40% in many parts of California. Industry groups warn that such burdens will push more consumers toward unlicensed sellers, further eroding legal sales.

Companies like Glass House Brands GLASF, one of the state's largest cannabis producers and retailers, have already expressed concern about pricing pressures. Though Glass House has managed to gain market share by lowering production costs, CEO Kyle Kazan recently noted that California pricing remains "destructive," forcing many competitors into insolvency.

Other publicly traded cannabis companies with significant exposure to California, such as Planet 13 Holdings PLNH, StateHouse Holdings STHZF and Gold Flora Corporation GRAM, are navigating substantial financial challenges. Planet 13 remains operational, reporting revenue growth in its latest quarterly results. In contrast, StateHouse Holdings filed for bankruptcy in Canada in October 2024 and entered receivership proceedings in the U.S., with operations continuing under court supervision. Similarly, Gold Flora filed for voluntary receivership in March 2025 due to mounting debts and legal issues, including liabilities inherited from its 2023 merger with TPCO. Despite these proceedings, Gold Flora continues to operate its 16 dispensaries and cultivation facilities while preparing for an orderly sale of its assets. The impending excise tax hike may further complicate efforts for these companies to maintain market share and achieve profitability.

Budget Highlights: Enforcement, But No Relief

The revised budget does include proposals to expand enforcement powers for the Department of Cannabis Control (DCC), including authority to seal unlicensed businesses—similar to New York's "Operation Padlock to Protect." It also provides funding incentives for cities and counties to allow cannabis retail, even if they currently prohibit cultivation.

Still, those measures fall short of what many in the industry say is necessary to stabilize the market.

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