By Alexei Koseff

WHAT THE BILL WOULD DO

California increased its excise tax on cannabis substantially in July, to 19% from 15%. AB 564 by Assemblymember Matt Haney, a San Francisco Democrat, would undo that increase and freeze the cannabis excise tax — a levy imposed by the state before sales taxes are applied — at 15% through the end of June 2028.

WHO SUPPORTS IT

The weed industry has sounded the alarm for years about a failing legal system in California, beset by overproduction, resistant local governments, plummeting prices and high taxes. Growers, dispensary owners and consumer advocates rallied unsuccessfully this spring for a budget deal to avert the excise tax increase, which they argue could push price-sensitive customers back into the illicit market and deal a fatal blow to many businesses already operating with slim margins. Now they hope that Newsom, who previously pledged to sign a proposal halting the tax increase, will reverse it.

WHO IS OPPOSED

Cannabis tax revenues pay for child care slots, environmental cleanup, substance abuse education and impaired driving prevention efforts. Increasing the excise tax is projected to yield about $180 million annually. Loath to lose that financial boost, especially as California faces a growing budget deficit, nonprofits that receive grants from the money have led the charge against AB 564. They accuse supporters of putting industry profits above children’s health and the environment.

WHY IT MATTERS
Since voters legalized recreational weed in 2016, California has struggled to bring its market out of the shadows. The state Department of Cannabis Control estimates that legal sales still comprise less than 40% of consumption in California, and tax revenue has declined recently. The industry blames state and local excise and sales taxes that can raise prices by a third. Cannabis companies contend that tax relief would help stabilize their business and grow legal sales — and, by extension, tax revenue — in the long run. But opponents point out that the industry made the exact same case three years ago, when Newsom and lawmakers cut a similar deal.

GOVERNOR’S CALL ✅