Administration proposes shifting illicit cannabis enforcement costs to cannabis tax fund; LAO, lawmakers and industry urge coordinated tax and enforcement plan

The Department of Cannabis Control (DCC) presented three main May‑revision proposals to the Assembly Budget Subcommittee 5: (1) shift illicit‑market enforcement funding from the Cannabis Control Fund to the Cannabis Tax Fund, (2) grant DCC authority to seal premises where illicit cannabis activity is occurring, and (3) refine eligibility and prioritization for Board of State and Community Corrections (BSCC) award grants that reimburse local enforcement.

DCC officials argued the proposed funding shift would stabilize enforcement funding and reduce fee pressure on licensees, while local and state law‑enforcement partners and unions voiced support for stronger, better‑funded illicit‑market enforcement. John Parsons of the Department of Finance said the cannabis tax fund is headed toward a negative balance in 2026‑27 and cautioned that decisions on the excise tax rate could shift the fund's outlook.

LAO analysts outlined options and tradeoffs. Seth Kirstein said the budget problem can be addressed by (a) reducing enforcement activities, (b) raising fees on licensees, or (c) finding another revenue source (such as the cannabis tax fund). The analysts said the administration proposal effectively prioritizes legal market health by drawing on the cannabis excise tax; but if the Legislature also adopts AB 564 (keeps the excise rate at 15% instead of rising to 19%), the combined effect could constrain funding for allocation‑3 programs (which include public‑safety, youth prevention and other earmarks) and materially favor licensed businesses over the programmatic recipients of some cannabis tax dollars.

DCC chief deputies and industry groups said they support pairing the funding shift with either a freeze of the excise tax or other measures that provide relief to legal operators, arguing excessive tax increases would push consumers back to the illicit market. The LAO suggested the Legislature could defer a decision until it sees the final revenue impact of the excise‑tax bill or consider alternatives—like fee adjustments or targeted reductions in DCC enforcement—to limit impacts on allocation‑3 programs.

The hearing also drew civil‑liberties objections from public defenders and legal groups to the trailer‑bill proposal that would give DCC the ability to seal premises; critics argued the proposal raises Fourth Amendment and property‑rights concerns and that any expansion of enforcement authority should be considered in policy committee hearings rather than via the budget.

Committee members emphasized urgency but did not resolve the underlying tradeoffs. Some assembly members urged a tax‑freeze trailer bill (Assemblymember Matt Haney is the sponsor of companion legislation) to pair with any enforcement funding changes; others sought more analysis of allocation‑3 program impacts before committing to the administration's proposal.