Newsom Signs AB 564, Halting Tax Hike to Give California Cannabis Industry a Lifeline
Governor Gavin Newsom signed AB 564, temporarily reducing California’s cannabis excise tax from 25% to 15% starting October 2025 through 2028, a move intended to shore up licensed businesses and curb illegal-market competition and protect consumer access to regulated products.
Key takeaways
- Tax rollback: AB 564 cuts the state excise tax to 15% from October 2025 through 2028 to help licensed sellers compete.
- Oversight limits: The law adds market reporting, biennial reviews and bars future rates from immediately exceeding 19%.
- Economic trade-off: Supporters say it protects jobs and public safety; critics warn it may reduce funding for social and environmental programs.
Main coverage
Law and timing
AB 564 temporarily reduces the state marijuana excise tax to 15% beginning in October 2025 and holds that rate through 2028. The measure was framed by the governor’s office as a way to bolster legal operators, preserve jobs and keep consumers buying tested, regulated products. Sources: (Governor’s office, Marijuana Moment).
Background: why lawmakers moved
Nearly a decade after recreational legalization, the regulated market has struggled to displace illicit sales. Legal taxable cannabis sales are estimated to account for about 40% of total consumption in California, leaving a large illicit market that undercuts licensed sellers. Lawmakers and industry groups argued the recently increased excise rate to 25% worsened that gap and prompted the rollback to help small licensed businesses survive (LAist).
What the change does, simply
Under AB 564 the excise tax on recreational cannabis is set at 15% from October 2025 through 2028. That tax is applied before local sales taxes. The law also requires regular reporting on market conditions and prevents immediate future rate increases above 19% without review (Marijuana Moment).
Voices for legal sellers and workers
Industry groups welcomed the change. The California Cannabis Operators Association said the rollback will help keep legal businesses viable and encourage consumers to buy regulated products (LAist).
“The tax rollback levels the playing field and helps small licensed businesses survive,” said Assemblymember Matt Haney, sponsor of AB 564, emphasizing jobs and fairness for licensed operators.
Supporters expect lower excise taxes to widen dispensary margins without large price increases to customers, and to persuade some buyers to return from the illicit market to licensed stores because of better pricing and product safety.
Concerns from nonprofits and conservation groups
Not all stakeholders support the rollback. Several nonprofits that receive cannabis tax revenue warned the cut could threaten programs for low-income children, substance-abuse treatment and environmental protection. Conservation advocates — particularly those worried about illegal grows — say reduced state revenue could limit enforcement against unregulated cultivation (LAist).
Opponents also note deeper structural challenges — such as federal prohibition that blocks interstate commerce and banking for legal operators — that will continue to limit the legal market even with a lower state tax (Marijuana Moment).
Political and legal background
AB 564 followed a failed budget attempt to freeze the tax rate in the state Senate; lawmakers returned with this standalone bill that delivers relief while adding oversight on future rate changes. Earlier in 2025 the state Supreme Court upheld California’s marijuana program, providing legal stability but not resolving market-share challenges tied to tax, local regulation and federal restrictions (Marijuana Moment).
Fiscal trade-offs
The excise tax was created in 2022 to fund social and environmental programs. Rolling it back reduces short-term revenue for those programs, creating concerns from groups that depend on those funds. Supporters counter that a stronger legal market could generate higher taxable sales over time, offsetting the lower rate — and AB 564 requires reporting to inform future rate decisions (LAist).
Implementation and oversight
The tax cut takes effect in October 2025 and remains through 2028. After 2028 the state will re-evaluate rates at regular intervals, with a statutory restriction preventing rates from immediately returning above 19% without review. The bill also requires more state reporting on market conditions to guide future policy (Marijuana Moment).
Implications for Coachella Valley, California
Economic impact: Local dispensaries, growers and related small businesses in Coachella Valley may see relief as shops can lower retail prices or widen margins, potentially attracting customers away from illicit sellers and stabilizing jobs in retail and supply chains.
Public safety and consumer access: Reduced taxes could make licensed products more affordable and encourage purchases from regulated shops that test for contaminants and potency, lowering risks for consumers.
Local government and services: Cities and counties that expected revenue from cannabis taxes may face shortfalls if state excise revenue drops, though proponents argue stronger local sales tax and permit revenue over time could offset losses.
Environmental considerations: Reduced state resources for enforcement could influence the fight against illegal grows that damage ecosystems. Local land managers and law enforcement will monitor state funding and enforcement shifts closely.
Political landscape & practical effects: For rural moderate-conservative audiences, the rollback mixes market-friendly policy with regulation and job protection. Residents may see lower dispensary prices and fewer closures, while expecting transparency about where tax dollars are allocated.
Sources and further reading
- Governor’s office: Governor Newsom signs legislation cutting taxes on cannabis, promoting the long-term success of the legal industry, Sept. 22, 2025.
- Marijuana Moment: California governor signs bill to roll back marijuana tax hike.
- LAist: California’s marijuana industry gets a break under new law suspending tax hike.
For more detailed projections on tax revenue and local budget impacts, or interviews with Coachella Valley business owners and local officials, Times Media Service can provide follow-up reporting.
