Several new laws went into effect in California this week, including a 4% bump in the state’s cannabis tax rate.
As of Tuesday, the excise tax rate on marijuana is now 19%, up from 15%. An excise tax is a levy imposed on a product by the state before sales taxes are applied.
Each California county also has its own tax rate for cannabis sales. In SoCal, the rates range from 7.25% in Ventura County to 9.75% in L.A. County, although each city can also decide on a tax rate; for example, the sales and use tax rate in Azusa is 10.75%.
According to the California Department of Tax and Fee Administration, officials are required by law to adjust the cannabis excise tax rate for the 2025-26 fiscal year and every two years thereafter. The decision is made in consultation with the state’s Department of Finance.
“The rate change reflects an additional percentage equivalent to the amount of cultivation tax that would have been collected if the cultivation tax had not ended,” the tax and fee administration says.
The cultivation tax ended in 2022 with the passing of Assembly Bill 195, also known as the Control, Regulate and Tax Adult Use of Marijuana Act, which also officially set the date of the tax hike for July 1, 2025. The legislation was signed into law with the intent to “drive out the illicit cannabis market” and generate money for services such as youth substance abuse treatment disorders and community investment.
The new tax that went into effect on Tuesday is based on the gross receipts from the retail sale of cannabis, officials say, which generally include:
- The selling price of the product
- Any expense imposed on retailers that get passed on to customers, such as a local cannabis tax
- Certain transportation fees during cannabis deliveries where personal vehicles are used
- Any other charges for services during a sale, such as a fee for using a debit card
- The amount charged for any item that is required for purchase with a cannabis product, including packaging, cartridges and vaping devices
State officials included an example on how the excise tax is calculated with a $35 delivery product:
Selling price of cannabis product: $35
Local 10% cannabis business tax: $3.50
Delivery fee: $5.00
Service fee: $3.00
Total subject to excise tax: $46.50
New 19% cannabis excise tax: $8.84
Total subject to sales tax: $55.34
The 15% excise tax would have added $6.98 as opposed to the $8.84 under the new tax rate.
Dispensary owners in SoCal and across the state say the tax hike could “kill the industry,” according to CalMatters.
“The excise tax … [is] the result of a political deal three years ago that was intended to buy more time for the legal market to stabilize but which cannabis operators now warn could chase away customers and put them over the edge,” CalMatters reported.
Locally, a tax rebate offered to licensed dispensaries in West Hollywood that helped offset tax costs also expired Tuesday, meaning that they will either have to take on the tax burden themselves or pass it along to customers in the community.
“I think that people are a lot more conscious about what they’re spending and how they are using their money,” said Jenna Murphy of the Artist Tree dispensary’s West Hollywood location. “I don’t know how much more we can pinch out of the people who are already working so hard.”
Murphy also told KTLA that dispensaries are closing their doors for good due to the increase in taxes.
“We keep seeing [closures] every single day,” she said. “We’re very lucky to be here.”
There is a bill that was introduced earlier this year by Assemblymember Matt Haney (D-San Francisco) that would have delayed the tax hike to the 2030-31 fiscal year. The legislation, Assembly Bill 564, is still pending review from the California Revenue and Taxation Committee.