Newsom Signs AB 564, Pausing Planned Marijuana Excise Tax Hike to Aid Legal Market
Governor Gavin Newsom signed AB 564 in Sacramento, pausing a planned marijuana excise tax increase and setting the statewide excise rate at 15% through 2028 to support California’s struggling legal cannabis industry and curb illicit-market pressure.
- AB 564 fixes the marijuana excise tax at 15% until 2028 and pauses further increases.
- The bill reverses recent jumps and caps future rates at 19% with biennial reviews tied to revenue needs.
- Lawmakers say the cut aims to make licensed products more competitive with a large illicit market and protect jobs and small businesses.
What AB 564 does
Assembly Bill 564 suspends a scheduled marijuana excise tax increase and sets the excise rate at 15% through 2028. The measure is framed as temporary relief intended to help licensed operators close the price gap with untaxed illicit sellers and stabilize the legal market. The administration described its goals in the Governor’s office release.
Details of the tax change
Key tax mechanics:
- The law undoes a planned increase and the earlier 19% level, setting a 15% excise rate through 2028.
- After 2028, officials must review the rate every two years and may adjust it for revenue needs, but it cannot exceed 19%.
- New reporting and oversight requirements aim to balance short-term relief with long-term revenue stability.
More context and legislative detail were summarized by reporting from Marijuana Moment reporting.
Why lawmakers acted
Lawmakers and industry leaders say licensed cannabis businesses have been undercut by a large illicit market—estimated to account for roughly 60% of sales in the state—keeping prices low and squeezing margins. Supporters argue lowering the excise tax, which is applied before sales tax, can narrow the price gap and encourage purchases of regulated products.
Industry health and market data
Quarterly legal sales have declined since a mid-2021 peak. Industry reporting shows legal sales fell from more than $1.5 billion in Q2 2021 to about $1.2 billion in Q2 2025. Licensed operators report narrow margins and fewer customers as many turn to cheaper untaxed sources.
“The tax rollback is intended to give legal businesses breathing room to compete and stabilize the market,” supporters say.
Reactions from supporters
Supporters include Governor Newsom and Assemblymember Matt Haney, alongside industry groups. Amy O’Gorman, executive director of the California Cannabis Operators Association, said the rollback can reduce consumer migration back to the illicit market and support public health by encouraging purchases of tested, regulated products.
Concerns and criticism
Critics caution the rollback may reduce funding for programs historically supported by cannabis revenue, such as child care grants, substance-abuse treatment, and environmental projects aimed at addressing harm from illegal grows. Conservation and nonprofit groups warn those services could face shortfalls if revenue declines.
Illicit market and enforcement limits
Analysts note structural limits that affect legal retailers, including a federal ban on interstate cannabis commerce that prevents California businesses from exporting and scaling. Enforcement alone has not eliminated the illicit market; many observers say tax policy must be paired with stronger enforcement and regulatory reform.
Oversight, reporting and the path forward
AB 564 requires expanded reporting so state agencies can assess effects on sales, jobs and revenue. The California Department of Tax and Fee Administration will monitor industry performance and coordinate with the Department of Finance to maintain revenue consistency with prior fiscal years while tracking outcomes.
Legal context
The bill follows court decisions that reinforced California’s cannabis regulatory framework. Recent rulings—upheld by the state’s highest court—have strengthened the legal market’s standing, and the tax rollback is part of broader efforts to stabilize the regulated industry.
Implications for Colusa, California
Economic impact: Colusa County, with agriculture and some cannabis activity, could see relief for licensed growers and retailers. Lower excise costs may improve margins or stabilize sales if consumers shift back to regulated outlets.
Political consequences: Local officials must balance business relief against potential revenue shortfalls for programs funded by cannabis taxes; county supervisors and city councils may face competing pressures.
Social effects: If the tax cut shifts buyers to licensed outlets, public health benefits may follow because regulated products are tested and labeled. Yet reduced revenue could affect substance-abuse treatment and child-care supports, prompting local nonprofits to seek alternatives.
Cultural relevance: Supporters say helping small cannabis businesses aligns with protecting rural livelihoods, while conservation advocates worry about funding for environmental efforts in areas affected by illicit cultivation.
Sources and further reading
This article draws on the state announcement and regional reporting. For full texts and additional coverage see:
