Newsom Signs Bill Freezing California Cannabis Tax, Offering Relief to Struggling Industry

California's legal cannabis industry won a crucial reprieve when Newsom signed AB 564 on October 1, 2025, reversing a tax hike that had pushed excise rates from 15% to 19% in July. The increase threatened to collapse what was already a struggling market: legal cannabis sales had plummeted from roughly $1.5 billion to $1.2 billion, with legal products accounting for only 40% of total cannabis consumption in the state.[1][2][3] Assemblymember Matt Haney, D-San Francisco, authored the bill after the July tax increase immediately destabilized the industry. Combined with existing taxes reaching as high as 45% in some California jurisdictions, the added burden gave consumers every reason to turn to the untaxed illegal market.[3] "California's cannabis economy can bring enormous benefits to our state, but only if our legal industry is given a fair chance to compete against the untaxed and unregulated illegal market," Haney said in a statement.[1] The Legislature embraced the measure with rare unanimity. AB 564 passed the Assembly in June with a 74-0 vote and sailed through the State Senate on September 11 with a 39-1 margin, giving Newsom clear political cover to act.[2] "We're rolling back this cannabis tax hike so the legal market can continue to grow, consumers can access safe products, and our local communities see the benefits," the governor said after signing.[1] The rollback comes at a fiscal cost. California will forfeit $200-250 million annually that was earmarked for cannabis regulatory programs, a shortfall the state's general fund will need to absorb.[2] But industry advocates and lawmakers argued the trade-off was necessary. California's cannabis sector employs hundreds of thousands and generates millions in revenue when functioning at capacity, and the temporary tax relief is designed to stabilize the market and prevent a wave of business closures.[3] The bill freezes the excise tax rate at 15% until July 2028, giving the industry a window to recover before tax policy is reassessed. For California's legal cannabis operators, it represents a rare legislative victory in a market that has watched higher-taxed competitors like Michigan and Colorado surpass them in annual sales.[3]