Newsom Signs Bill Slashing California's Cannabis Tax Hike

SACRAMENTO — Governor Gavin Newsom signed Assembly Bill 564 on September 22, 2025, rolling back a 25% cannabis excise tax hike that took effect July 1, 2025, and freezing the rate at 15% through June 30, 2028.[3][4][7] Authored by Assemblymember Matt Haney, D-San Francisco, the bill passed the Assembly 74-0 in June and the Senate 39-1 before a final 57-0 concurrence vote in the Assembly.[1][2] It became effective October 1, 2025, providing immediate relief to an industry battered by high taxes reaching 45% in some areas.[5][6] The tax adjustment stems from Proposition 64, approved by voters in 2016, which legalized recreational cannabis with a 15% excise tax.[1] Chapter 56 of the 2022 Statutes (AB 195) ended the cultivation tax in 2022 but mandated excise tax increases starting in the 2025-26 fiscal year to offset lost revenue, pushing the rate to 19% on July 1, 2025.[7] AB 564 suspends further hikes, requiring the California Department of Tax and Fee Administration to report annual revenue impacts to the Legislature by December 1, 2026.[2][7] Haney called it 'immediate tax relief' for a 'struggling' sector overwhelmed by bipartisan support.[2][4] California's legal cannabis market, the world's largest, employs hundreds of thousands but has seen sales plummet as lower-tax states like Michigan and Colorado surpass it.[5] In Los Angeles, business owners say local taxes and illegal shops continue to hurt despite the rollback, though Newsom tied revenues to enforcement against illicit operators.[3][6] 'We’re rolling back this cannabis tax hike so the legal market can continue to grow,' Newsom said, emphasizing benefits for consumers, communities, education, and public health.[3][4]