Leaders and Industry Call for Urgent Reforms as AB 564 Seeks to Stabilize Cannabis Tax Rates

420 FILE - Assembly Bill 564 (AB 564), authored by Assemblymember Matt Haney (D-San Francisco), is making its way through the California Legislature in an effort to halt a scheduled increase in the state’s cannabis excise tax. Without intervention, the rate will rise from 15% to 19% on July 1, 2025—further straining the state’s legal cannabis industry already buckling under the weight of layered taxation and weak enforcement against illegal operators.

“If we continue to pile on more taxes and fees onto our struggling small cannabis businesses, California’s cannabis culture is under serious threat of extinction,” said Assemblymember Haney.

AB 564 seeks to repeal the automatic tax hike provision built into AB 195 (2022), which had eliminated the cultivation tax but required an eventual increase in the excise tax to offset lost revenue.

Advocates say this tax increase would be devastating.

“Los Angeles dispensaries are currently charging as much as 37.5% in total taxes—including city, county, and state levies. Meanwhile, the illegal market continues to thrive with impunity paying no taxes and not testing any product for safety.,” said Jay Handal.

With California cities—including Los Angeles, Santa Monica, and Culver City—facing multi-million-dollar budget deficits, many in the industry argue that failing to act now will only worsen fiscal and public safety challenges.

Industry leaders are calling on state and local governments to take these immediate steps:

1. Lower local tax rates to 5% for recreational cannabis and 0% for medical.
2. Eliminate the proposed 4% excise tax increase
3. Reduce the excise tax from 15% to a reasonable rate.
4. Enforce illegal shop shutdowns to protect licensed operators and public safety.
5. Implement a tax amnesty program allowing legal shops to repay back taxes over 60 months without crushing penalties.
6. Reduce annual permit fees that create barriers for small businesses.

“Legal shops can’t survive with 30–50% tax penalties while competing against illegal shops that pay nothing and operate openly,” added Jay Handal

The message to lawmakers is clear: Fix this system now—or watch the legal market collapse under a burden it was never designed to carry.

Jay Handal is the co-chair of the Neighborhood Council Budget Advocates, treasurer of the West LA Sawtelle Neighbored Council and is a long-time community activist who writes for CityWatch.