Industry and advocates warn excise tax hike, limited retail access and regulatory costs threaten licensed cannabis businesses
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Summary
Industry groups, consumer advocates and local business representatives told the Assembly that an impending excise tax increase, regulatory costs and the lack of retail access in many jurisdictions are exacerbating business failures and pushing consumers to the illicit market.
Industry trade groups, consumer advocates and several business operators told the Assembly’s informational hearing that a combination of rising regulatory costs, an impending excise tax increase and limited retail access are pushing licensed businesses to exit the regulated market and driving consumers to unlicensed sellers.
Pam Lopez, representing California Normal (a consumer safety and advocacy organization), warned of a near‑term fiscal cliff related to excise taxes: "We're gonna go over a cliff here on July 1 if the legislature does not act," she said, referencing a scheduled increase in the state excise tax from the current 15% to 19% without legislative intervention.
Industry representatives made similar points. A speaker from the California Cannabis Operators Association said, "If the market were truly growing, tax revenue wouldn't be falling," and presented figures the group uses to argue that taxable sales and excise revenue have declined since 2021. Trade groups and manufacturers urged the Legislature to pause or reduce the excise rate, expand retail access (the DCC and witnesses noted roughly 42% of jurisdictions lack legal retail), and lower regulatory burdens to retain manufacturers and small businesses.
Manufacturers and growers described local impacts: Kiva Brands and other manufacturers said they had made staff reductions as wholesale conditions weakened, and small‑farm trade groups said producers in legacy cultivation areas face high licensing fees, insurance gaps (notably wildfire insurance exclusion for premises with cannabis activity), and a rising number of licenses being placed on hold or sold.
The DCC and witnesses also discussed equity programs and a state-local grant program meant to transition provisional equity retailers to annual licences. The department acknowledged early administrative delays in that grant program but said it has taken steps to implement faster procedures and expects the program to achieve its intended goal of transitioning eligible provisional licenses to annual licensure before the program’s statutory sunset.
The hearing generated no formal vote; several lawmakers asked the department and stakeholders to provide fiscal analyses and potential statutory language to address excise rates, tax collection shortfalls and retail-access barriers ahead of budget and policy committee work this session.