Gavin Newsom Eases Tax Burden on California’s Legal Marijuana Industry
09/26/2025
California’s legal marijuana industry, struggling to compete with a robust black market, has received a temporary reprieve through a new law signed by the governor. The legislation rolls back the cannabis excise tax to 15%, suspending a recent increase to 19% until 2028. This move aims to bolster dispensaries operating on thin margins, burdened by years of heavy regulation, and to help the legal market remain competitive.
The excise tax, a state-imposed levy applied before sales taxes, was established under an agreement with marijuana businesses to replace a prior fee meant to fund social programs like child care. Industry advocates have long argued that high taxes drive consumers to the illicit market, where untested products pose safety risks. By lowering the tax, the state hopes to encourage growth in the legal sector, ensuring consumers have access to safer, regulated cannabis while supporting local communities.
Despite legalization, the legal marijuana market has struggled to overtake its illegal counterpart. Taxable cannabis sales have declined from their peak, with legal sales accounting for roughly 40% of total consumption, according to state data. Overproduction by farmers has driven prices down, further straining legal businesses. Supporters of the tax reduction, including industry leaders, argue it will help stabilize the market and prevent consumers from turning to unregulated sources.
However, the decision has sparked opposition from nonprofits that rely on the tax revenue to fund programs for low-income children, substance abuse treatment, and environmental protection. In California’s Emerald Triangle, a key cannabis-producing region, conservation groups expressed disappointment, noting that the tax cut reduces resources needed to address environmental damage caused by illegal growers. Some nonprofits had supported earlier compromises, expecting the excise tax to rise later, and view the rollback as a setback.
The new law reflects a delicate balance between supporting a struggling legal industry and maintaining funding for critical social and environmental programs, highlighting the ongoing challenges of regulating California’s cannabis market.
Reference
The excise tax, a state-imposed levy applied before sales taxes, was established under an agreement with marijuana businesses to replace a prior fee meant to fund social programs like child care. Industry advocates have long argued that high taxes drive consumers to the illicit market, where untested products pose safety risks. By lowering the tax, the state hopes to encourage growth in the legal sector, ensuring consumers have access to safer, regulated cannabis while supporting local communities.
Despite legalization, the legal marijuana market has struggled to overtake its illegal counterpart. Taxable cannabis sales have declined from their peak, with legal sales accounting for roughly 40% of total consumption, according to state data. Overproduction by farmers has driven prices down, further straining legal businesses. Supporters of the tax reduction, including industry leaders, argue it will help stabilize the market and prevent consumers from turning to unregulated sources.
However, the decision has sparked opposition from nonprofits that rely on the tax revenue to fund programs for low-income children, substance abuse treatment, and environmental protection. In California’s Emerald Triangle, a key cannabis-producing region, conservation groups expressed disappointment, noting that the tax cut reduces resources needed to address environmental damage caused by illegal growers. Some nonprofits had supported earlier compromises, expecting the excise tax to rise later, and view the rollback as a setback.
The new law reflects a delicate balance between supporting a struggling legal industry and maintaining funding for critical social and environmental programs, highlighting the ongoing challenges of regulating California’s cannabis market.
Reference
