(Image Credit: IMAGN) Jamie Norton, left, and Joshua Saunook transport harvested marijuana on the Great Smoky Cannabis Company’s farm in Cherokee, August 8, 2024.
Sacramento, California – On Tuesday, Governor Gavin Newsom signed Assembly Bill 564 into law, rolling back a 25 percent tax increase that many legal cannabis business owners said was suffocating the industry rather than helping it grow.
The measure, authored by Assemblymember Matt Haney of San Francisco, sets the state’s cannabis excise tax at 15 percent until 2028. That stability, supporters argue, gives licensed growers, retailers, and distributors breathing room to survive in an environment where illicit sellers often don’t bother with taxes, compliance testing, or labor standards.
“We’re rolling back this cannabis tax hike so the legal market can continue to grow, consumers can access safe products, and our local communities see the benefits,” Newsom said in a statement. Haney, who carried the bill through the Legislature, was even more blunt: “California’s cannabis economy can bring enormous benefits to our state, but only if our legal industry is given a fair chance to compete against the untaxed and unregulated illegal market.”
That tension—between regulation and reality—has defined the state’s cannabis experiment since voters legalized adult-use sales in 2016. Proponents saw a chance to raise revenue while ensuring products were safe, tested, and sold under the oversight of state law. But the patchwork of local bans, high taxes, and sluggish licensing has meant that the illicit market continues to thrive, often undercutting legal dispensaries on price and access.
The new law is designed to ease some of that pressure. By holding the tax steady, lawmakers hope to keep small businesses afloat, preserve jobs, and prevent the very collapse of the regulated system. The stakes are high: California’s cannabis industry supports tens of thousands of jobs, contributes to state programs in education, public health, and environmental protection, and has been touted as a model for other states entering the market.
Still, protecting the legal market isn’t just about tax policy. Newsom’s administration has also poured resources into enforcement, trying to shut down large-scale illegal grows and distribution networks that siphon demand away from licensed shops. The Unified Cannabis Enforcement Taskforce, launched in 2022, has seized and destroyed more than 317 tons of illegal cannabis—worth nearly $900 million at retail value—through nearly 230 coordinated operations.
The task force draws on a wide array of state agencies, from the Department of Cannabis Control to Fish and Wildlife. The idea is not only to disrupt the illegal supply chain, but also to ensure that legal operators aren’t left holding the bag while competitors flout the rules.
Even with enforcement ramping up and the tax rate stabilized, the larger question lingers: can California’s legal cannabis industry finally live up to the promise voters imagined eight years ago? The rollback of the tax hike is, at the very least, an acknowledgment that without a course correction, the state risked strangling its own creation.
For now, licensed operators will get some relief. Whether that relief translates into a more stable, accessible, and equitable market remains to be seen. What’s clear is that the fight between legal and illegal cannabis in California isn’t close to finished—it’s only evolving.
