Gov. Gavin Newsom (D-CA) on Monday signed a bill that paused a 25% tax increase on the legal cannabis market, throwing the industry a much-needed lifeline. 

Assembly Bill 564 will reverse a scheduled 25% tax increase on the industry and set the state’s cannabis excise tax rate at 15% until 2028. 

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“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 after signing the measure. 

The bill passed the state Senate on Sept. 11 with a 39-1 vote and the California Assembly in June with a 74-0 vote. 

“This is a positive step forward, but it’s just one piece of the puzzle,” Vince Ning, CEO and cofounder of Nabis, a cannabis wholesale platform, told the Washington Examiner. “In some markets, consumers face cumulative tax rates approaching 50% on legal cannabis — conditions that fuel illicit sales and undermine licensed businesses.”

California voters made recreational cannabis consumption legal via a 2016 ballot measure known as Proposition 64. Backers included marijuana companies and tech entrepreneurs, such as Sean Parker, the founder of file-sharing service Napster. 

Supporters of legalization raised around $23 million for the cause while opponents spent less than $2 million on their anti-cannabis crusade. The measure passed with 57% of the vote, and California became the fifth state in the nation to legalize the substance.

“Since legalization, this industry has generated more than $7 billion in tax revenue and created thousands of jobs, yet it continues to operate under policies that stifle growth,” Ning said. “If California wants to build a thriving, regulated market that creates access, the state must adopt a tax structure that supports long-term success rather than penalizing the very businesses working to build it.”

Democratic Assemblyman Matt Haney, who sponsored the bill, has repeatedly argued that lawmakers must find ways to bolster an industry he said “has barely been given a chance to survive after legalization.”

“If we continue to pile on more taxes and fees onto our struggling small cannabis businesses, California’s cannabis culture is under serious threat of extinction,” Haney said. “If we want to support our cannabis industry that drives millions of visitors to California every year, adding more costs makes absolutely no sense.”

California’s taxes on cannabis have gone up and down in recent years. In July, the state increased the excise rate from 15% to 19%. The tax increase stemmed from a law signed by Newsom in 2022 that eliminated the state’s controversial cannabis cultivation tax. The measure included a trigger requiring the state to raise marijuana taxes if overall collections fell short of replacing the lost cultivation revenue. With legal sales in decline and tax receipts dropping, the state was obligated to raise taxes on all legal cannabis purchases to close the shortfall.

Jonatan Cvetko, executive director of the United Cannabis Business Association, pointed to dwindling figures that show that California’s entire regulatory cannabis framework has been a “complete failure.”

For the first time since recreational marijuana was legalized nearly a decade ago, more people are leaving the state’s cannabis industry than entering it. There are now 10,828 inactive and surrendered cannabis licenses in the state and only 7,966 active ones, according to the Department of Cannabis Control’s data dashboard.

CALIFORNIA’S MARIJUANA MARKET: FROM HIGH HOPES TO ‘COMPLETE FAILURE’

Taxable cannabis sales in California have also dropped to $1.09 billion for the first quarter of 2025, down 30% from its peak in early 2021 and the lowest quarterly sales in five years. It is a huge fall for an industry pitched to voters as a can’t-miss opportunity.

“California’s legal cannabis market launched with enormous promise, but it’s been undermined by structural flaws that make it very challenging for legal operators to compete,” Justin Brandt, founding partner at the leading cannabis law firm Bianchi and Brand, told the Washington Examiner. “High taxes and regulatory burdens have driven up costs for businesses, while enforcement failures have allowed the illicit market to thrive. California is known globally for its cannabis, but without a level playing field, that legacy will likely remain underground.”