By Ruth Hill R.N.
Effective July 1, 2025, California excise tax on cannabis will go from 15% to as much as 19%. Gov. Gavin Newsom, who campaigned as a supporter of Prop. 64 told voters marijuana tax revenue would specifically support ‘after school programs,’ which polled consistently higher with voters of all demographics than “subsidized childcare.” After-school programs backed by data show students who participate are less likely to use drugs or become victims of crime and more likely to do better in school. A budget compromise in 2022 removed the excise tax. Cannabis is already heavily over-taxed relative to comparable products like beer, wine, and tobacco in California.
What Does Cannabis Taxes Subsidize
The recipients of the cannabis tax subsidies vociferously oppose any tax reduction and have called for the reinstatement of the cultivation tax. As of March 2024, programs had a surplus of $867 million. Past budgets legislatively mandated full accounting and program evaluations, but the agencies receiving the funds have not provided them. These funding streams were not part of the Prop 64 law but were added incrementally to each year’s budget and have now lead to a plethora of funding programs.
Governor Newson’s budget for 2024 allocated sixty percent ($341,306,000) of cannabis taxes to support the Youth Education and Prevention, Early Intervention, and Treatment Account, which includes DPH for surveillance and education activities, DSS for access to subsidized childcare, DHCS for competitive grants, and the Natural Resources Agency for Community Access.
Twenty percent ($113,768,000) supports the Natural Resources Agency for Community Access and Environmental Restoration Account, which includes fish and Wildlife and Parks and Recreation. Another twenty percent ($113,768,000) supports State and Local Government Law Enforcement Accounts, which includes CHP for impaired driving activities and IT/admin staff; and BSCC’s public safety services grant program.
The industry is struggling to compete against over-taxation, the illicit market, resistance to local licensing, and the proliferation of hemp-derived products. Medical marijuana patients, in particular, are unable to meet their needs for cannabis products under current pricing.
Inactive Licenses
California companies struggle to stay in business while navigating the cannabis tax burdens. There are 7,100 inactive cultivation licenses, 1,100 inactive distribution licenses, 500 inactive delivery licenses, and over 300 inactive retail licenses. A previous Cannabis Corner article revealed the industry owes the state almost $1.3 billion in late taxes and penalties. As of February 2025, 57% of California cities and counties do not allow any retail cannabis businesses, resulting in California having one of the lowest rates of retail stores per capita in the Nation among states that support adult-use sales. CA has the most premium cannabis in the Nation. Why do we also have the most burdensome regulations?
Cannabis Taxes Under the Microscope
The figure illustrates taxes on cannabis flower roughly comparable to spirits. Some similarities and differences between cannabis taxes and other excise taxes are apparent. The excise tax on one average noninfused cannabis pre-roll is $1.24. In contrast, the excise tax on one glass of wine is $.01; a glass of beer $.02; a shot of liquor $.05-.08, and a tobacco cigarette $.14. Add in state and local taxes, and cannabis products tax rate comes to 38%.
Two levels of government tax alcohol and tobacco: federal and state governments. In contrast, state and local governments tax cannabis. The figure shows that the typical total excise tax on a quarter-gram joint appears to be roughly similar to the excise tax levied on three shots of liquor. Excise taxes on beer and wine appear much lower. We know of no similarly suitable way to compare cannabis taxes to tobacco taxes.
Cal NORML is gathering support for heading off a tax increase at our Lobby Day on Monday, March 24, 2025, in Sacramento. A bill sponsored by Cal NORML, AB 564 (Matt Haney), has been introduced to block a pending excise tax increase on cannabis. Join them and make your voice heard against a cannabis tax increase!
Send comments to hilruth@gmail.com.
