Governor Gavin Newsom has signed into law Assembly Bill 564, a measure that temporarily halts a newly implemented tax increase on cannabis products. The law, authored by Assemblymember Matt Haney (D), will pause for five years the excise tax hike enacted earlier this year.
Key Provisions of AB 564
- The excise tax rate on recreational and medicinal cannabis purchases had risen from 15% to 19% effective July 1.
- Under AB 564, the 25% increase—relative to the previous rate—will be suspended for five years.
- The law’s effective date has been pushed to October, rather than taking effect immediately.
Rationale and Responses
Governor Newsom stated that the rollback is necessary “so the legal market can continue to grow, consumers can access safe products, and our local communities see the benefits.”
Assemblymember Haney emphasized that AB 564 aims to level the playing field between legal and illegal cannabis markets. In his view, many legal operators have been disadvantaged by the higher tax, which has inadvertently benefited unregulated competitors. The bill, he said, also protects small businesses, safeguards jobs, and supports the growth of the legal market as intended by voters.
Industry voices echoed support. For example, Brian Camire, legal counsel at Weedmaps, described the rollback as a “much-needed lifeline,” suggesting it promotes stability in a market that has struggled with high operating costs.
Fiscal and Regulatory Provisions
- California’s Department of Tax and Fee Administration (CDTFA), working with the Department of Finance, will adjust the excise tax rate and report annually on the revenue impacts of the rollback.
- Starting December 1, 2026, and each year thereafter, the state must submit to the legislature data on gains or losses in tax revenue resulting from the reduced rate.
Implications
The moratorium on the tax hike is intended to support the legal cannabis industry, which state policymakers say has been facing pressure from both higher tax burdens and competition from the unregulated market. By temporarily freezing the rate, California hopes to sustain jobs, preserve small businesses, and ensure that legal operators can remain viable.
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This legislative action reflects ongoing tensions between generating tax revenue and maintaining a healthy regulated market in states where cannabis is legal. California’s move could serve as a case study for other jurisdictions considering similar tax policies.
Dabbin-Dad Newsroom
