Last week, the California Department of Tax and Fee Administration (CDTFA) reported cannabis tax revenue for the fourth quarter of 2024, showing $128 million in cannabis excise tax collected from cannabis businesses, and removing all doubt that the CDTFA will be required to raise the excise tax to as much as 19% as of July 1, 2025. This statutorily-required increase in the excise tax is intended to recoup tax revenue amounts the CDTFA would have collected over the past three years had the cultivation tax not been abolished. As I blogged about in December, this increase is happening because of AB 195 (2022), which eliminated the cultivation tax but did so at the price of an increased excise tax (capped at 19%) starting in the 2025-2026 fiscal year. The California Legislative Analyst’s Office assumes in its cannabis tax revenue projections that the excise tax increase will go into effect July 1, 2025 and “will reduce the size of the licensed cannabis market.” At the local level, city staff analysts at the City of San Diego, which just voted last night to increase retail cannabis tax rates in the city, similarly expect a negative impact on the licensed cannabis market from an increase in city taxes. Meanwhile, in an effort to offset the expected state excise tax increase, the City of San Rafael has gone in the other direction and actually reduced its city tax on cannabis retail delivery businesses. In February, Assemblymember Matt Haney (San Francisco) introduced AB 564, which would repeal the requirement in AB 195 (2022) for the CDTFA to increase the cannabis excise tax. Yesterday, AB 564 was re-referred to the Committee on Business & Professions and the Committee on Revenue & Tax pursuant to Assembly Rule 96, a long way from passage in both chambers and signature by the governor who negotiated the provision in AB 195 (2022) that AB 564 seeks to repeal.
