California’s cannabis and hemp markets are navigating a perfect storm of declining retail sales, shifting local tax policies, and a federal hemp reckoning that could reshape the competitive landscape for years to come. Whether you operate a licensed dispensary in Los Angeles, cultivate in the North Coast, manufacture edibles in the South Bay, or distribute across the state, these developments demand your attention. Here is what California cannabis and hemp operators and investors need to know right now.
California Sales Dip Below $4 Billion as Tax Pressures Mount
Licensed California cannabis retailers reported $3.9 billion in cannabis sales in 2025, a significant drop from the $4.2 billion recorded in 2024 and the third consecutive year of decline for the nation’s largest legal market. The California Department of Tax and Fee Administration (CDTFA) reported $255.1 million in cannabis tax revenue for the fourth quarter of 2025, bringing total cannabis tax revenue since January 2018 to more than $7.87 billion. The CA Legislative Analyst’s Office has projected cannabis tax revenues of $648 million for 2025–26, which is $36 million above the Governor’s Budget forecast.
These numbers matter for every operator across the supply chain—from San Francisco storefront retailers to San Joaquin Valley cultivators to processors and distributors statewide. The decline reflects ongoing pressure from the illicit market, a temporarily elevated excise tax rate (which rose to 19% from July through September 2025 before AB 564 rolled it back to 15%), and broader economic headwinds. Notably, Q4 2025 sales were still significantly lower than Q4 2024 even after the excise tax was repealed on October 1—suggesting that structural forces, not just the temporary tax spike, are driving the contraction. The trend mirrors what is happening nationally: Illinois cannabis revenue fell 13% to $1.5 billion in 2025 despite record unit sales, driven by price compression. Operators and investors evaluating commercial contracts or venture capital opportunities in California cannabis should factor these declining top-line numbers into their financial models.
Cannabis Shipping Bill Scrapped After Industry Pushback
Assemblymember Patrick Ahrens (D-Silicon Valley) reintroduced AB 1564 this session—a bill to allow certain licensed microbusinesses to ship medical cannabis products directly to patients via common carriers—after Governor Newsom vetoed a nearly identical version (AB 1332) last year despite unanimous legislative support. However, on February 26, the cannabis language was stripped from the bill entirely following opposition from some within the industry who feared it could open the door to broader direct-to-consumer shipping.
New DCC Director Clint Kellum acknowledged during a Capitol Weekly interview that direct-mail cannabis delivery could be “quite beneficial” to consumers, noting confusing market conditions where intoxicating hemp products are shipped into California despite not being authorized under state law. For operators across all license types—cultivators, manufacturers, distributors, and retailers—and for investors concerned with patient access and regulatory compliance, the demise of this bill means the status quo remains—for now.
Los Angeles: Tax Amnesty, Equity Battles, and Unlicensed Operator Controversy
Three interconnected developments in Los Angeles underscore the ongoing tension between licensed and unlicensed cannabis operators in California’s largest local market.
$400 Million Tax Amnesty Program
The Los Angeles City Council voted 13-0 on March 3 to direct staff to develop a tax amnesty program for more than 500 licensed cannabis businesses collectively owing approximately $400 million in unpaid taxes. Under the proposed program, businesses that pay their back taxes within three years would have late fees and interest forgiven—approximately $35 million in accrued interest and $100 million in penalties would be excused. However, City Treasurer Diana Mangioglu has cautioned that only about $150 million of the $400 million remains actually collectible, because some liabilities are past their three-year statute of limitations while others belong to businesses that are no longer operating. Based on projected participation rates, the city expects to recover roughly $30 million—with 40% earmarked for illegal cannabis enforcement, 40% for social equity grants, and 20% going to the General Fund and Office of Finance. Businesses that default on amnesty payments could have their licenses stripped.
Equity Groups Oppose Tax on Unlicensed Operators
Meanwhile, Social Equity LA and other equity advocates are urging Mayor Karen Bass to reject a separate proposal that would place a cannabis tax measure on the June 2, 2026 ballot—one that would apply cannabis business taxes to unlicensed operators. In a letter circulated to the City Council, opponents argue the measure would violate Proposition 64, undermine social equity programs by legitimizing unlicensed operators, and create uneven enforcement that disadvantages licensed businesses who have invested heavily in regulatory compliance and licensing. All licensed operators and investors with interests in LA—including cultivators, manufacturers, distributors, and retailers—should closely monitor both proposals, as the outcomes will significantly affect the competitive landscape and real estate and land use calculations for cannabis properties in the city.
Local Tax and Licensing Developments Across California
Local jurisdictions throughout California are recalibrating their cannabis tax and licensing frameworks, creating a patchwork of opportunities and challenges for operators and investors at every stage of the supply chain.
Santa Barbara Considers Cannabis Tax Increase
The Santa Barbara City Finance Committee voted 2-1 to send a proposal to the full City Council that would raise the local cannabis retail tax from 6% to 8%. The increase is part of broader efforts to close an estimated $5.9 million budget deficit for fiscal year 2026. Notably, the committee recommended not increasing the tax for medicinal cannabis purchases. Councilmember Wendy Santamaria voted against the measure, expressing concern that a tax increase could send customers across city lines to purchase cannabis in Goleta, where rates are already lower. The proposal may ultimately head to voters later this year. Central Coast operators and investors should watch this closely—tax stacking from state, local, and excise levies continues to squeeze margins for retailers and their upstream suppliers alike.
San Benito County Puts Tax Revision on June Ballot
San Benito County supervisors voted 4-1 to place a cannabis cultivation tax revision measure on the June ballot. The measure would replace the current tax rate of $3 per square foot with $1,000 per acre—effectively cutting the tax rate by approximately 130%. The county currently collects zero cannabis tax revenue, and local operators have stated that the existing 2018 tax structure is “prohibitively expensive” for cultivation operations. This could open doors for cultivators, nurseries, and processors looking to expand in the San Joaquin Valley and surrounding agricultural regions.
Cathedral City Denies Dispensary License Renewal
In a 3-2 vote, the Cathedral City Council denied the license renewal for Cat City Cannabis Company (C4), citing persistent odor complaints from nearby residents and the business’s failure to maintain consistent public operating hours. The decision follows Cathedral City’s adoption of stricter odor-control ordinances in October 2025 after nearly a year-long moratorium on new cannabis business approvals. Cannabis operators throughout Southern California—including manufacturers and cultivators whose facilities also generate odor—should take note: local jurisdictions are increasingly willing to deny renewals, not just new applications, for compliance failures. Proactive odor mitigation and administrative law compliance are essential for all license types.
Costa Mesa Eases Dispensary Operating Conditions
In a more positive development for operators, the Costa Mesa Planning Commission unanimously voted to ease security and operating-hour restrictions on 420 Native Garden, a dispensary that had been required to maintain 24/7 on-site security and operate with shorter hours than every other dispensary in the city. Commissioners raised broader questions about the fairness of imposing different conditions on different cannabis businesses, and discussed whether the municipal code itself should be updated to avoid requiring each business to pay $3,800 and go through a public hearing to modify their permit conditions. This signals a potential shift toward more standardized, equitable permitting—an important consideration for cannabis operators and corporate law advisors structuring operations in Costa Mesa and other Orange County markets.
Pacific Grove Advances Retail Cannabis Licensing
On the Central Coast, Pacific Grove city staff released a memo on the cannabis application process for the city’s first storefront retail cannabis license. Ten applicants met the city’s Phase II requirements, following an application period that closed in October 2025. This represents another example of California coastal communities slowly opening their doors to regulated cannabis retail—creating new opportunities for operators and investors seeking to enter underserved markets.
The 2026 California Cannabis Awards: A New Chapter
The fifth annual California Cannabis Awards at the California State Fair have opened for submissions, running through May 22 with winners announced July 18 at Cal Expo in Sacramento. For the first time, the CCA is launching a Home Grow Competition to recognize flower cultivated by California residents for personal, non-commercial use—a significant cultural milestone that honors the state’s craft cultivation heritage.
Entries undergo science-based evaluation through SC Labs testing and the Budist Evaluation Method. For licensed cultivators, manufacturers, and brands throughout the North Bay, Shasta Cascade, and Sierra Foothills, winning or placing in a state-sanctioned competition offers valuable intellectual property and brand differentiation at a time when the market is contracting and every competitive edge counts.
Federal Hemp Reckoning: The November Ban and Industry Response
The federal hemp landscape is approaching a critical juncture that California cannabis and hemp operators and investors cannot afford to ignore. A spending bill signed into law last November included language redefining what constitutes federally legal hemp, replacing the 2018 Farm Bill’s delta-9-only THC threshold with a total THC standard that includes THCA, delta-8, and other intoxicating cannabinoids. The revised definition also implements a strict 0.4 milligram total THC cap per container for finished products—effectively banning most consumable hemp-derived THC products, including the rapidly growing THC beverage market now estimated at $1.1 billion. Industry groups estimate the new rules could eliminate approximately 95% of existing hemp-derived cannabinoid products, jeopardizing what NPR described as a $24 billion national market supporting over 300,000 jobs. The ban is set to take effect November 12, 2026.
The 2026 Farm Bill Confirms: No Delay
The 2026 Farm Bill will not be the vehicle to delay the November hemp ban. The House Agriculture Committee approved the bill on March 4 by a vote of 34-17 without including any delay of the intoxicating hemp product ban. Committee Chairman Glenn “GT” Thompson (R-PA) ruled that Representative Jim Baird’s (R-IN) two proposed delay amendments were not germane to the bill, stating that the Farm Bill should deal with “agriculture”—meaning hemp plants—”not finished goods”—meaning hemp products.
The Farm Bill itself goes even further: it would redefine hemp as cannabis testing below 0.3% total THC (including THCA), closing the delta-9-only “loophole” from the 2018 Farm Bill that allowed intoxicating hemp products to proliferate. The bill also bans products containing cannabinoids synthesized outside of the plant (such as delta-8 THC derived through CBD isomerization) and intermediate products marketed directly to consumers.
Baird has separately introduced standalone legislation that would delay implementation until 2028. In a parallel effort, Representatives Morgan Griffith (R-VA) and Marc Veasey (D-TX) introduced the HEMP Act, which proposes a comprehensive federal regulatory framework that would install the FDA as the federal regulator of consumable hemp products, with statutory fallback limits of 5 mg per serving and 30 mg per package if the FDA fails to finalize rules within three years. Meanwhile, police and anti-drug groups have called on congressional leaders to let the ban take effect without delay.
Chicago’s Veto: A Counterpoint on Local Hemp Policy
While some jurisdictions are restricting hemp, Chicago Mayor Brandon Johnson vetoed an ordinance that would have banned the sale of most intoxicating hemp-derived products in Chicago. In his formal veto message, Johnson called the ban “premature” and argued that “the most responsible path forward for the City’s hemp regulation is to align with the forthcoming federal guidance.” He also noted that many hemp businesses are “Black- and brown-owned” and “operated by entrepreneurs who were shut out of the expensive cannabis licensing process and turned to federally legal hemp as a pathway into the marketplace.” The city’s hemp retailers generate approximately $475 million in annual sales and contribute roughly $30 million in sales tax revenue. The Chicago City Council subsequently failed to override the veto in a 26-20 vote, falling short of the 34 votes required.
CMS and CBD Medicare Coverage
In a potentially transformative development, the Centers for Medicare & Medicaid Services (CMS) has reportedly finalized a rule to provide federal health insurance coverage for CBD through a pilot program under the agency’s Long-term Enhanced ACO Design (LEAD) Model. Charlotte’s Web co-founder Jared Stanley stated that the regulations “were finalized two weeks ago” and an announcement is expected if the program launches in April. CMS Administrator Mehmet Oz had previously said the program would “allow millions of Americans on Medicare to become eligible to receive CBD as early as April—and at no charge if their doctors recommend them.”
However, a White House official pushed back on Stanley’s assertion, telling GreenState that “unless officially announced by the Administration, any discussion about proposed policymaking is baseless speculation.” And Oz himself has warned of potential “consequences” as more Americans choose marijuana over alcohol, stating that “some of the high-dose hemp and CBD is a problem”—comments that some policy observers have noted stand in tension with CMS’s simultaneous push to expand CBD access. This development could open new market opportunities for hemp operators, but the conflicting federal signals underscore the need for expert regulatory compliance counsel.
The “Cannabis Civil War”: Missouri Lawsuits Over THCA Hemp
The tension between licensed cannabis and unregulated hemp operators is also playing out in courtrooms. A coalition of approximately 20 licensed Missouri cannabis companies filed lawsuits against nearly 60 hemp retailers in the St. Louis and Kansas City areas, including major chains such as American Shaman and CBD Kratom, accusing them of illegally selling marijuana disguised as “THCA hemp flower.” The plaintiffs argue that when heated, THCA converts to delta-9 THC—making the products functionally identical to marijuana—and that the hemp shops’ lack of licensing fees, testing requirements, and regulatory costs creates an unsustainable competitive imbalance. Licensed Missouri cultivators pay nearly $30,000 per year in fees, and dispensaries more than $11,000, in addition to extensive compliance costs.
This “cannabis civil war,” as longtime advocate Steve DeAngelo described it, is directly relevant to California operators. The same competitive dynamics exist in the Golden State, where unregulated hemp-derived THC products undercut licensed retailers who bear the full weight of state and local taxes, testing mandates, and regulatory compliance. If the November federal ban takes effect, much of this competition could disappear—but until then, it remains a significant challenge.
What the Federal Hemp Ban Means for California Operators
For California’s licensed cannabis and hemp operators—cultivators, manufacturers, distributors, retailers, and testing labs alike—the federal hemp ban could paradoxically benefit the regulated cannabis market by eliminating much of the unregulated competition from hemp-derived THC products that currently undercut licensed operators. Investors should note the potential for significant consumer migration to state-regulated markets in adult-use jurisdictions like California.
However, operators who have diversified into hemp-derived product lines—particularly beverages, an area where brands like Willie’s Remedy+ recently raised $15 million for national expansion—will need to plan for potential supply chain disruptions and product reformulations. Notably, Tilray Brands’ £33 million acquisition of BrewDog this week—creating a $500 million global craft beverage platform expected to generate approximately $200 million in annual net revenue—underscores how major cannabis companies are hedging into the alcohol-beverage space as the hemp THC beverage market faces existential uncertainty. The ban also carries IRC § 280E implications: products that no longer qualify as hemp could fall under marijuana tax treatment, and the IRS has made clear that § 280E still applies until rescheduling is finalized. Expert regulatory compliance and corporate law counsel is critical during this period of uncertainty.
A Warning on Testing Integrity: New York’s Lab Recall
While not California-specific, New York’s recent cannabis recall offers a cautionary tale that resonates across state lines. The New York Office of Cannabis Management recalled 54 product lots after determining that Keystone State Testing New York issued unreliable test results for Aspergillus—a disease-causing mold—that “did not meet required safety standards for consumption.” An additional product lot had incorrectly reported results for the heavy metal cadmium. The recall followed inspections and a records audit conducted between December 2025 and January 2026.
California’s Department of Cannabis Control has been increasingly focused on testing lab accountability, and this episode reinforces why operators across the supply chain—from cultivators to manufacturers to retailers—must verify the reliability of their testing partners. For California operators, robust testing compliance and proper documentation are not only regulatory compliance obligations but also critical risk management tools that protect against recalls, license jeopardy, and consumer safety lawsuits.
Supreme Court Weighs Gun Rights for Cannabis Users—With Real Implications for Operators
The U.S. Supreme Court heard oral arguments on March 2 in United States v. Hemani, a case challenging the federal law (18 U.S.C. § 922(g)(3)) that bans “unlawful users” of controlled substances—including cannabis—from possessing firearms. A majority of justices appeared skeptical of the government’s position, with Justice Amy Coney Barrett questioning whether there is evidence that using marijuana “a couple of times a week makes someone dangerous” and Justice Ketanji Brown Jackson stating the prohibition lacked sufficient historical basis. CNN reported that the Court “appeared poised” to side with Hemani, with a decision expected by the end of June.
The case has generated unusual political coalitions, with the ACLU, the National Rifle Association, and NORML all supporting Hemani’s challenge. But beyond the constitutional question, Hemani has direct operational consequences for cannabis businesses.
Why this matters for cannabis operators and investors:
- Dispensary and facility security. Because § 922(g)(3) prohibits firearm possession by anyone who uses a federally controlled substance, dispensary employees and private security personnel who are cannabis consumers are currently barred from carrying firearms. This forces cash-heavy cannabis businesses to operate without armed security despite being frequent targets for theft—a reality well known to operators across Oakland, Los Angeles, and San Diego.
- Employment and labor law policies. A ruling in Hemani’s favor could require operators to reassess their employee firearms and security policies, open new possibilities for armed security staffing, and reduce liability exposure for businesses that currently rely on unarmed personnel.
- Investor due diligence. The security profile of cannabis operations directly affects insurance premiums, shrinkage rates, and overall risk assessments. A favorable Hemani ruling could improve the risk calculus for investors evaluating cannabis retail, cultivation, and manufacturing operations statewide.
MSO Earnings and Labor Trends Signal Industry Maturation
The latest earnings reports from the nation’s largest multi-state operators (MSOs) provide important context for California operators and investors evaluating the broader market.
|
Company |
FY2025 Revenue |
Adj. EBITDA Margin |
Cash |
Debt |
|---|---|---|---|---|
|
Curaleaf |
$1.268B |
21.7% |
$101.6M |
$548.7M |
|
Green Thumb Industries |
$1.2B |
32.2% |
$274.3M |
$244.9M |
|
Trulieve |
$1.2B |
36% |
$255.5M |
$367.8M |
|
Cresco Labs |
$656M |
24.0% |
$91M |
$330M |
|
Cronos Group |
$146.6M (+25% YoY) |
~7% |
$832M |
$0 |
Curaleaf closed a $500 million offering of 11.5% senior secured notes due 2029—described by Chairman Boris Jordan as “the largest bond offering completed in the cannabis sector”—while GTI expanded its syndicated credit facility by $50 million to $189 million at SOFR + 500 basis points. Cresco Labs saw FY2025 revenue decline 9.5% year-over-year to $656 million, but improved sequential margins—Q4 adjusted gross margin reached 52.2%—while taking a $105 million non-cash impairment charge tied to write-downs of its New York and California reporting units, including the sale of Sonoma’s Finest.
Cannabis Labor Movement Gains Momentum
Beyond the financial results, a growing labor movement in the cannabis industry has direct implications for California operators’ employment and labor law planning. Teamsters at Cresco Labs’ Sunnyside dispensary in Wyomissing, Pennsylvania voted unanimously to authorize a strike after the company failed to present a contract that fairly compensates its workers. The action follows the longest successful cannabis strike in U.S. history—a 45-day work stoppage at GTI’s RISE dispensary in York, Pennsylvania that ended in November 2025 with a ratified Teamsters contract including annual wage increases, paid holidays, and just-cause protections.
As Bill Shappell, President of Teamsters Local 429, stated: “Sunnyside is part of a rapidly growing industry, and these workers are essential to the company’s success. They will not accept wages and working conditions that fall short of the standards they deserve.” California—with its strong labor protections, existing cannabis union activity, and high cost of living—should expect similar organizing efforts. Operators across all license types need proactive labor strategies, and investors should factor labor costs and unionization risk into their due diligence.
What This Means for California Cannabis and Hemp Operators and Investors
The developments outlined above converge around several actionable themes:
- Tax compliance is non-negotiable. Whether it is Los Angeles’s amnesty program (and the revelation that only $150 million of the $400 million owed is actually collectible), Santa Barbara’s proposed tax increase, or San Benito’s ballot measure, the tax landscape is shifting rapidly. And with IRC § 280E still applying until rescheduling is finalized, operators across Oakland, the South Bay, and San Diego need proactive tax and regulatory compliance strategies.
- Local licensing vigilance matters. Cathedral City’s license denial and Costa Mesa’s security review show that local jurisdictions are actively enforcing—and sometimes rethinking—permit conditions. Administrative law preparedness is no longer optional for any license type.
- The hemp-cannabis convergence is accelerating. The Farm Bill’s confirmed THCA redefinition, the November ban’s 0.4 mg cap, the Missouri THCA lawsuits, and the THC beverage market’s uncertain future are all blurring the line between these markets. Both cannabis and hemp operators need coordinated legal strategies.
- Testing integrity is a business-critical risk. New York’s lab recall demonstrates that unreliable testing partners can trigger product recalls and jeopardize licenses. California operators must ensure their testing compliance is airtight.
- Security and gun rights are evolving. The Supreme Court’s likely ruling in Hemani could transform how cannabis businesses approach facility security, employment and labor law compliance, and risk management—issues that directly affect insurance costs and investor confidence.
- Labor organizing is here. The Teamsters’ successful strikes at GTI and Cresco signal an accelerating cannabis labor movement. California operators should proactively assess their labor relations, compensation structures, and collective bargaining preparedness.
- The investment climate is maturing. With MSOs securing landmark debt financing, Tilray acquiring BrewDog to build a $500 million beverage platform, and California’s market contracting, savvy investors need clear-eyed assessments of deal structures, real estate and land use considerations, and intellectual property protections.
For personalized guidance on how any of these developments affect your cannabis or hemp business or investment, contact The Law Office of Shay Aaron Gilmore to schedule a consultation.
Shay Aaron Gilmore is a California cannabis and hemp business attorney based in San Francisco, serving operators and investors across California—from the San Joaquin Valley to the North Coast to the Central Coast and beyond. Named one of the Top 20 Cannabis Lawyers in California by the Los Angeles/San Francisco Daily Journal.