Gov. Gavin Newsom Reverses Cannabis Excise Tax Increase in California, Rolling Back Cannabis Tax Hike to 15%

22 September 2025

California Governor Gavin Newsom signed Assembly Bill 564 (AB 564) into law, reversing a cannabis tax increase that took effect earlier this year and temporarily reducing the state’s cannabis excise tax rate. The new law, authored by Assemblymember Matt Haney of San Francisco, lowers the tax from 19 percent to 15 percent beginning October 1, 2025, and holds it there until June 30, 2028.

The legislation was passed with bipartisan support and described by state leaders as an essential step to sustain the legal cannabis industry. “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,” Governor Newsom said in announcing his signature. Haney echoed this sentiment, stating that AB 564 “protects California jobs, keeps small businesses open, and ensures that our legal cannabis market can grow and thrive the way voters intended.”

California’s regulated cannabis market, the largest in the world, supports compliance-tested products, fair labor standards, and generates revenue for education, health, and environmental programs. Industry advocates, including representatives from CaliforniaCannabis.org and nationwide State Cannabis Network, welcomed the tax relief, calling it a lifeline for businesses facing financial pressures and increased competition from illegal sellers.

Under the law, the Department of Tax and Fee Administration must submit annual reports beginning in December 2026 detailing revenue changes tied to the tax reduction. By October 2027, the Department of Cannabis Control is required to provide a comprehensive analysis of the tax law’s effects on the market and propose adjustments to meet the goals of California’s legalization framework. From 2028 onward, the tax rate may be reassessed, with authority to raise it up to 19 percent if needed to maintain revenues.

The new law is also part of California’s broader enforcement strategy. Since its creation in 2022, the Unified Cannabis Enforcement Taskforce has seized more than 317 tons of illegal cannabis, disrupting unlicensed operations valued at nearly $890 million. State and local enforcement activities continue to be funded by cannabis tax revenue.

• For consumers, the tax rollback is likely to lower costs at dispensaries beginning this October, improving access to regulated products.
• For businesses, particularly smaller operators, the reduced rate provides much-needed relief and stability until 2028.