Marijuana "mother" plants are grouped by each plant's strain April 19, 2019, at Pacific Reserve nursery and cultivation site. The mother plants, all female, are instrumental in creating the clones sold at retail joints. Male plants generally are discarded because they don't produce flower and pollinated female plants don't produce near as much potent flower. Marijuanaseedtosalemalevfemale
Sacramento, California – A tax hike on legal cannabis took effect in California on July 1, raising the state’s excise tax from 15% to 19%, despite months of lobbying from industry groups, small farmers, and even Governor Gavin Newsom. The increase comes at a precarious time for the legal cannabis market, which has struggled to gain traction amid widespread overproduction, patchy access to retail outlets, and competition from a still-thriving illicit sector.
The increase stems from a 2022 political compromise that eliminated the cultivation tax but allowed the excise tax to rise after a three-year pause. The intent was to stabilize the industry and safeguard state revenues, but many within the cannabis sector now fear the move may hasten its collapse.
“We are in survival mode,” said Genine Coleman, founder of the Origins Council, which represents legacy growers in the Emerald Triangle. “People are deflated. There’s a sense that we’re being pushed to the brink.”
Since the legalization of recreational cannabis via Proposition 64 in 2016, the market has faced a paradox: oversupply in production, but underperformance in retail. Despite being a national leader in cannabis cultivation, fewer than half of California cities allow dispensaries. And as legal businesses navigate layers of regulation and tax obligations, illegal operators continue to flourish, often offering lower prices and easier access.
The numbers paint a stark picture. Taxable cannabis sales fell to $1.09 billion in the first quarter of 2025 — a 30% drop from their peak in 2021, and the lowest in five years. According to state data, legal cannabis accounts for less than 40% of overall consumption, with the rest flowing through the illicit market. Operators argue the new tax burden will only widen that gap.
Governor Newsom, along with Assembly Speaker Robert Rivas, supported extending the tax freeze during recent budget negotiations, citing concerns for small businesses and the industry’s long-term viability. But they failed to reach an agreement with Senate President Pro Tem Mike McGuire, who ultimately backed the tax hike due to its fiscal implications. Analysts estimate the 19% rate could generate an additional $180 million annually, helping fund child care, environmental programs, and impaired driving prevention.
Critics say the logic is shortsighted. “The math isn’t there,” said Amy O’Gorman Jenkins of the California Cannabis Operators Association. “Raising taxes doesn’t help if your customer base disappears.”
A bill that would return the excise tax to 15% through 2031 is still alive in the Legislature, but now faces an uphill battle. For many in the industry, the tax hike doesn’t just hurt profits — it threatens their survival. As Assemblymember Matt Haney put it: “This tax could kill the industry. And we’re not doing enough to stop it.”
