California Cannabis sales top half a Billion in 2025, even as tax debate rages

Sacramento, California – California’s legal cannabis market pulled in more than half a billion dollars in tax revenue in the first six months of 2025, a reminder of the sheer scale of the industry even as lawmakers scramble to keep it afloat.

The California Department of Tax and Fee Administration (CDTFA) reported Monday that the state collected $259.7 million in cannabis-related taxes in the second quarter of the year. That includes $147.3 million from the cannabis excise tax and another $112.4 million from sales tax. Add those numbers to the revised $243.1 million from the first quarter, and the total comes to $502.8 million for the first half of the year.

Since California voters approved Proposition 64 in 2016, cannabis sales have generated more than $7.3 billion in tax revenue — nearly $3.9 billion of it from the excise tax alone. The state’s vendor compensation program also allowed cannabis businesses to keep $1.3 million in the second quarter as part of an effort to stabilize the industry.

Still, the numbers tell only part of the story. At the same time the revenue was announced, lawmakers approved a cannabis tax cut that operators say is critical to keeping the legal market alive. For years, cannabis businesses have complained that high tax rates have made legal weed far more expensive than product sold through the illicit market. Industry advocates argue that this imbalance has driven consumers toward unlicensed sellers, undermining the purpose of legalization and starving licensed businesses of customers.

Amy O’Gorman Jenkins, executive director of the California Cannabis Operators Association, praised the Legislature’s move. “This vote saves thousands of jobs and prevents hundreds of small businesses from closing their doors,” she said in a statement.

The tax cut, however, comes with a price. A legislative analysis estimates it will reduce excise tax revenue by $135 million in the first year and $180 million in the second. Some nonprofit groups that rely on cannabis tax dollars — including programs that fund child care for low-income families — warn that the reduction could deal serious blows to their services.

Gov. Gavin Newsom has promised to backfill at least some of those cuts. A spokesperson for the governor said his office would work with lawmakers “to ensure there are no cuts to child care due to this policy change.”

Hirsh Jain, a Los Angeles-based cannabis consultant, called it a mistake to tie social programs so closely to cannabis revenue. “If we believe in these programs and believe in legal cannabis, we can’t pit them against each other, we have to support them both,” he said.

Lawmakers voted overwhelmingly for the tax cut, which Jain said showed they finally understood the link between high tax rates and the thriving illicit market. He pointed out that after an earlier excise hike from 15% to 19% in July, taxable cannabis sales fell 13% year-over-year in August — evidence, he said, of just how fragile the legal market has become.

For now, California’s cannabis industry remains a billion-dollar engine of revenue. But its future depends on whether lawmakers can strike a balance between keeping the legal market competitive and ensuring the social programs funded by its taxes aren’t left in the lurch.