Industry witnesses warn higher excise taxes and fees will further squeeze legal cannabis businesses
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Summary
Industry trade groups, manufacturers and small-farm representatives told legislators a potential excise tax increase, high licensing fees, grant delays and retail bans are worsening the financial strain on licensed cannabis businesses and hindering equity goals.
Industry groups, manufacturers and local trade associations told a legislative joint hearing that high taxes, licensing costs, limited retail access and delays in equity grant administration threaten the financial viability of licensed cannabis businesses across California.
Pam Jenkins of the California Cannabis Operators Association told the committee the department—9s report painted an "overly optimistic" picture and highlighted falling excise-tax revenue, declining taxable sales and the loss of manufacturers. "Excise tax revenue has dropped by nearly $88,000,000 (13%) since 2021," she said on behalf of member storefronts and vertically integrated operators, and she urged lawmakers to avoid a proposed excise-tax increase.
Several witnesses including Kiva Brands, the Nevada County Cannabis Alliance and industry trade groups echoed those concerns. Kiva—9s representative said the manufacturer had cut employees in recent years because demand in the legal market has not translated into sufficient revenue. Nevada County stakeholders warned of small farmers placing cultivation licenses on hold or selling farms and raised an additional concern: many small growers are ineligible for certain wildfire insurance plans because cannabis activity is excluded from the standard Fair Access to Insurance Requirements (FAIR) plans.
Lawmakers pressed the DCC on equity programs and grant administration. Dempsey told the committee the department has about 2,100 licensed businesses that qualify as equity under state or local criteria, representing roughly a quarter of state licenses. She acknowledged early delays in the department—9s local-jurisdiction grant program that supports transition from provisional to annual licensing and said the program is statutorily set to expire at the end of the fiscal year but that the department expects to complete transitions for jurisdictions with provisional licenses.
Public witnesses warned that delays in responding to local grant amendment requests have been long in some cases, and Assemblymember Smalliquevas and others cited state-auditor findings showing response-time bottlenecks. Dempsey said early administrative setup caused delays but the department has since improved processes and responsiveness.
Why this matters: industry witnesses say tax increases, high local bans (42% of jurisdictions reported to have no retail access), and rising compliance costs are pushing retail and manufacturing businesses out of the licensed market. Legislators asked the department for more detailed employment, business-closure and collection-rate data to inform tax and compliance policy.
The hearing record shows cross-cutting policy options under consideration: hold or reduce excise tax rates to improve price parity with illicit sellers; address licensing and fee structures; accelerate equity grant administration; and address insurance access and other local challenges for small farmers and legacy operators.