California’s cannabis market is about to experience a major shift. Starting July 1, 2025, the state’s cannabis excise tax will increase from 15 percent to 19 percent. This adjustment is part of a tax structure that was approved when the cultivation tax was eliminated back in 2022. With cannabis revenue dropping over the past few years, the higher excise rate was triggered automatically.
Below is a clear breakdown of what this change means for consumers, businesses and the legal market as a whole.
Why the Tax is Going Up
1. Prices at the Shelf Will Increase
Since the excise tax is calculated on top of the retail price, shoppers will feel the impact immediately. On a typical purchase of around 120 to 140 dollars, the average customer will pay roughly five dollars more per transaction. It may not seem dramatic at first, but for frequent buyers, these small increases add up quickly.
2. Illicit Market Will Become More Attractive
California already struggles with a huge illegal cannabis market. Estimates show that unlicensed sales still make up more than half of all cannabis consumed in the state. With higher taxes pushing legal prices even higher, many consumers may shift back to cheaper, untaxed sources. This creates pressure on licensed dispensaries and brands that are already fighting to stay competitive.
3. Small Farms and Boutique Brands Are at Risk
Local growers and niche brands often operate with very thin margins. Many industry voices have warned that the upcoming tax increase could push more small businesses out of the legal system. If that happens, consumers will have fewer options and less variety, and the market could become dominated by a handful of large companies.
Industry Reactions
People within the cannabis space have shared strong concerns.
• Activists worry about the survival of small farms.
• Operators argue that the legal market is already stretched thin.
• Retail leaders warn that the tax jump will send more customers to unlicensed sellers.
Together, their message is clear: the market is under pressure and policy adjustments are urgently needed.
The Future: Will the Tax Be Frozen Again?
A new bill, known as AB 564, aims to freeze the excise tax back at 15 percent until June 2031. The proposal has already passed in the Assembly and will move next to the Senate. If approved, it will then require the governor’s signature. Early signals show that the governor may be open to supporting it, but the decision depends on how quickly lawmakers act.
What Consumers Can Do Right Now
Shop Strategically
Look for dispensaries offering bundle deals, loyalty points or discount hours. These offers can help reduce the impact of the tax increase.
Stay Within the Legal Market
Legal products undergo laboratory testing and strict quality controls, ensuring safety and transparency that unlicensed sellers cannot provide.
Support Reform Efforts
If you want the excise tax reduced or frozen, now is the time to follow and support legislative efforts. Public pressure often influences how quickly these bills move.
Keep an Eye on Prices
As the new tax takes effect in July, delivery menus and in-store pricing will likely shift. Staying updated will help you make smarter purchases.
Why This Matters
Cannabis tax revenue has dropped sharply in California, falling nearly 30 percent since early 2021. Revenue reached about 1.09 billion dollars in the first quarter of 2025, the lowest level in five years. These funds support important programs including childcare, environmental cleanup, impaired driving prevention and substance abuse education.
So while the tax increase affects consumers and businesses, it also plays a direct role in state-funded social programs.
Conclusion
The new 19 percent cannabis excise tax marks a major turning point for California. Consumers should expect slightly higher prices at checkout and shifts in market behavior as competition with the unlicensed market intensifies. Meanwhile, lawmakers are considering a proposal that could roll back or freeze the tax, which means the situation may evolve further.