Governor Gavin Newsom spoke to the press at the end of his statewide homelessness tour, in Oakland, Calif. 38a2234
Sacramento, California – As California’s legal cannabis industry teeters on the brink, Governor Gavin Newsom has signaled his willingness to help block an imminent tax hike that many believe could push the industry closer to collapse. But with days to go before the July 1 deadline, advocates and operators are left wondering why the governor hasn’t done more to actively shepherd a fix through the Legislature.
On Wednesday, Newsom’s office released a statement affirming that he would sign any bill that halts the planned excise tax increase, which would spike from 15% to 19% next week. But the statement also put the burden on state lawmakers to deliver a plan to his desk. That leaves little time and even fewer guarantees, despite months of warnings that the higher tax could devastate the struggling legal market.
California’s cannabis industry had hoped this year’s budget would suspend the tax hike, but the final budget agreement released this week did not include that measure. Now, advocates are scrambling to attach a suspension to a “budget trailer bill” or push through a separate bill from Assemblymember Matt Haney that has already passed the Assembly unanimously. Haney’s bill still needs Senate approval before the governor can sign it, and with just days before the state’s new fiscal year begins, its fate is uncertain.
The sense of urgency is clear among those who have watched the legal industry contract under crushing taxes, persistent illicit competition, and slow-moving state regulation. Thousands of licensed operators have closed their doors in recent years, unable to keep up with the high costs of doing business.
Meanwhile, illegal cannabis sellers continue to thrive. State officials estimate that more than 60% of cannabis sales in California remain in the illegal market, where taxes are nonexistent and products can be sold far cheaper.
Industry representatives, including Amy O’Gorman Jenkins of the California Cannabis Operators Association, warn that raising taxes on legal operators would only drive more customers to unlicensed sellers. Even the state’s own budget analysts agree the tax hike could shrink the legal market further.
Ironically, the looming tax increase stems from a 2022 law Newsom himself signed, which eliminated a separate cultivation tax but tied future excise tax rates to maintaining stable revenue. As legal cannabis sales have declined, the law now forces the state to recoup revenue through higher retail taxes.
For now, the industry is pinning its hopes on a last-minute fix, whether through Haney’s bill or a legislative budget maneuver before July 1. But even if the tax hike is blocked, many believe California’s cannabis market still faces a long road to true stability. As Jim Araby of United Food and Commercial Workers Local 5 put it, stopping the tax hike “only slows down the implosion of the industry, but it doesn’t stop it.”
