California Assembly Bill 5 64 aims to reverse cannabis tax increase for struggling industry

The California Senate Revenue and Taxation Committee recently discussed a significant piece of legislation, Assembly Bill 564, aimed at providing crucial tax relief to the state's struggling cannabis industry. This bill proposes to reverse a 25% excise tax increase that has placed immense pressure on legal cannabis businesses, many of which are fighting to survive in a market increasingly dominated by illegal operations.

California has long been a leader in the cannabis economy, yet since the passage of Proposition 64, the legal industry has faced numerous challenges that have hindered its growth. Currently, only 40% of the cannabis market is captured by licensed businesses, while the illegal market accounts for a staggering 60%. This disparity not only undermines the legal industry but also results in significant lost revenue for the state, estimated to be in the hundreds of millions of dollars.

The situation has worsened in recent years, with active cannabis licenses dropping by 18% in 2024, indicating that many small businesses are unable to cope with the high tax burden. Legal cannabis sales have plummeted from $1.56 billion in mid-2021 to just $1 billion by late 2021, leading to a 37% decrease in tax revenue. This downward trend highlights the urgent need for legislative support to stabilize the industry.

Comparatively, states like Michigan have surpassed California in cannabis sales per capita, suggesting that California could potentially generate $13 billion annually if the industry were thriving. Advocates for AB 564 argue that the bill is essential for keeping small businesses afloat, preserving jobs, and fulfilling the promise of accessible legal cannabis to voters.

Supporters of the bill, including representatives from the United Core Alliance and the California Cannabis Operators Association, emphasize that reducing the tax burden is critical not only for the survival of legal businesses but also for combating the illicit market that continues to thrive under the current tax structure. The committee's discussions reflect a growing recognition of the need to support the legal cannabis industry as a vital component of California's economy and community well-being.