A critical inflection point threatening the world’s largest legal cannabis market currently looms over California’s industry: A scheduled excise tax raise from the current rate of 15 percent to an unprecedented rate of 19 percent is set to take effect on July 1.
When California voters approved adult-use cannabis in 2016, they envisioned a thriving—and equitable—regulated industry. Unfortunately, the reality is that licensed operators are being strangled by regulations that push consumers straight to the illicit market. And despite the legal market generating approximately $7 billion in tax revenue since 2018, this hike would be a devastating blow.
The Reality of California’s Cannabis Market
On the ground in California, the illicit market continues to dominate cannabis sales. According to recent data from the Department of Cannabis Control (DCC), approximately 63 percent of the 3.8 million pounds of cannabis consumed by Californians in 2024 came from unlicensed production—unsurprising when considering the price differential consumers face.
When a consumer purchases cannabis from a licensed retailer, they’re not just paying for the product. They’re paying layers of taxes that can increase the final price by nearly 44 percent in some jurisdictions.
The California Department of Tax and Fee Administration’s (CDTFA) own example shows how a $35 purchase quickly balloons to over $50 due to combined taxes—and that’s before this tax increase. With the planned hike, that same purchase would approach $60.
Not only will consumers feel this increase in each purchase, many small businesses—particularly social equity operators and independent retailers already operating on razor-thin margins—simply won’t survive another tax increase of this magnitude.
Meanwhile, states like Michigan and Missouri are demonstrating steady sales growth thanks to lower taxes and fewer barriers to entry, and they are already exceeding the average per capita cannabis sales of California.
Hellbound and Down 