California’s cannabis industry, already struggling with high operational costs and market instability, may face another major hurdle—higher taxes. State lawmakers are considering a significant tax hike on cannabis businesses, a move that industry leaders warn could push many legal operators out of business.
The Proposed Tax Increase
A proposed bill aims to increase the excise tax on cannabis products from 15% to 19%, a sharp jump that industry advocates argue would further squeeze an already overburdened sector. Supporters of the tax hike claim that the additional revenue would help fund public programs, including law enforcement efforts against the illicit market. However, legal cannabis operators warn that this increase could drive even more consumers toward unregulated sellers, exacerbating an already problematic black market.
Industry Reactions
Business owners and cannabis trade associations are pushing back against the proposal, arguing that California’s existing tax structure is already among the highest in the country. They point out that between local taxes, state excise taxes, cultivation fees, and licensing costs, many small businesses are barely staying afloat. Increasing taxes further, they argue, will only benefit unlicensed sellers who can offer lower prices without regulatory compliance costs.
The Black Market Problem
Despite California’s legalization of adult-use cannabis in 2016, the illicit market continues to dominate sales, with estimates suggesting that more than 50% of cannabis transactions still occur outside of legal channels. Operators within the regulated market argue that excessive taxation and regulatory burdens are partially to blame, creating a pricing disparity that keeps consumers away from legal dispensaries.
What’s Next?
If the tax increase passes, it could reshape the industry by forcing smaller businesses to close, leaving only well-funded corporations able to survive. With the proposal facing opposition from business owners and industry advocates, lawmakers may need to reconsider how to balance revenue generation with the sustainability of California’s legal cannabis market.
