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Senate committee advances bill to pause July excise tax increase on cannabis amid industry collapse warnings
Summary
The Senate Committee on Revenue and Taxation moved AB 564, which would freeze the cannabis excise tax at 15% and delay a planned increase, after hours of testimony from cannabis business owners who said the higher tax is driving customers to the illicit market and opponents who warned it would cut funding for youth, environment and enforcement.
Assemblymember Matt Haney presented AB 564 to the Senate Committee on Revenue and Taxation, asking lawmakers to delay a scheduled increase in the state cannabis excise tax so the licensed market can stabilize.
The bill, Haney said, would “provide tax relief to California's struggling cannabis industry by reversing an unprecedented 25 percent excise tax increase,” and delay implementation to October 1 in the committee amendment the author accepted. He said California’s licensed industry now captures roughly 40 percent of the market while illegal sales account for about 60 percent, and that active licenses and sales have fallen in recent years.
Proponents included growers, retailers and workers who described stores closing, customers being priced out of the legal market and employees losing hours. Camille Ferguson, who identified herself as a Sacramento-area cannabis business owner, said: “Allowing the excise tax increase by 25% will accelerate the decline of an already contracting market.” Joshua Thube, a budtender at a unionized dispensary, told senators he has seen customers cut purchases from $50 to $30 and cited a veteran who left the store empty-handed because he could not afford his typical order. “This tax increase is pushing my customers out the door and into the illegal market,” Thube said.
Industry and equity operators argued a temporary pause would allow legal businesses to regain customers and preserve jobs and the small equity operators who entered the regulated market more recently.
Opponents — including tribal, youth and environmental groups and some policy experts — said the cut would reduce money dedicated by voters and lawmakers to childcare, youth programs, environmental cleanup and law enforcement grants tied to cannabis tax revenue. A representative from Youth Forward said the Department of Tax and Fee Administration analysis shows AB 564 would not be revenue neutral and would remove “$180,000,000 annually” from programs for children and youth. Corey Brown of the Resources Legacy Fund told the committee the net result of the bill would be “a net loss to kids, to the environment and law enforcement of $900,000,000” over the impacted years.
The committee heard competing economic claims: supporters argued the tax hike will push consumers to illicit sellers and shrink the taxed base; opponents cited state agency analyses showing legal production and retail units have recently increased and warned that cutting the tax will reduce funds for grants and environmental remediation.
After extended discussion the committee voted to pass AB 564, as amended, to the Committee on Appropriations. The measure was reported out of the Revenue and Taxation committee with the committee's recorded disposition (count 4–0, on call).
