California’s cannabis industry is facing a critical moment as a controversial tax increase takes effect, potentially delivering a knockout punch to an already struggling market. Starting July 1st, the state’s excise tax on legal marijuana jumped from 15% to 19%, sparking widespread concern among growers, dispensary owners, and advocates who argue the increase could push consumers back to the illicit market.

The tax hike comes at a precarious time for California’s legal cannabis sector, which has seen taxable sales plummet to $1.09 billion in the first quarter of 2025 – the lowest quarterly sales in five years. This decline represents a staggering 30% drop from the industry’s peak in early 2021, highlighting the ongoing challenges faced by legal cannabis operators.

Local cannabis farmers in the renowned Emerald Triangle are particularly distressed. Genine Coleman, founder of the Origins Council, describes a pervasive “collective malaise” among small farmers who are struggling to survive. The tax increase threatens to exacerbate an already dire situation, potentially forcing more businesses to shut down.

While some state officials, like Assemblymember Matt Haney, argue that the tax could “kill this industry,” others like Tom Wheeler from the Environmental Protection Information Center believe the increase is necessary to fund critical community programs. These programs, mandated by Proposition 64, include child care, environmental cleanup, and substance abuse education.

A glimmer of hope remains: Assembly Bill 564, which would roll back the tax to 15% through 2031, has passed the Assembly unanimously and is currently awaiting Senate consideration. Governor Gavin Newsom has pledged to sign a proposal halting the tax increase if it reaches his desk.

The stakes are high. Currently, legal cannabis sales comprise less than 40% of total consumption in California, with high taxes and strict regulations cited as primary barriers. As the industry teeters on the brink, the outcome of this tax debate could determine the future of legal cannabis in the Golden State.

Stay tuned as this critical issue unfolds, potentially reshaping California’s cannabis landscape in the coming months.