'Market collapse': California towns are trying to undo Newsom's latest tax plan

OG Article

Lester Black

April 21, 2025

California’s Coachella Valley was one of the early winners of cannabis legalization, with dozens of stores popping up in Palm Springs and the surrounding towns. But as cannabis stores struggle and governments move to slash tax rates to try to keep them in business, the tides are now turning. 

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The Desert Hot Springs City Council voted last week to slash its retail pot taxes in half, following the lead of neighboring Palm Springs, Palm Desert and Cathedral City. The tax cuts come as the entire legal industry in California faces widespread business failures.

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The desert region’s pot shops are struggling particularly hard because an “unsustainable” amount of pot stores opened in the area, according to Daniel D’Ancona, the founder of Grow Rite, a company that helps distressed marijuana companies. He said cannabis brands were eager to open in the Coachella Valley area as a status symbol because it’s a popular tourist destination near Los Angeles.

“It’s obvious now looking back at it, but when people had tunnel vision trying to get their licenses, they didn’t make clear assessments of what the competition would do in those tight quarters,” D’Ancona said. 

The biggest drop in stores has been in Palm Springs, where active licensed stores dropped from 31 in April of 2023 to 20 this month, according to state licensing data reviewed by SFGATE.

Amy O’Gorman Jenkins, the executive director of the California Cannabis Operators Association, praised the tax cuts in a news release, saying that the “legal cannabis industry is in crisis and immediate tax relief is essential.” 

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In Northern California, Sonoma County’s Board of Supervisors also voted last week to cut cannabis taxes for cannabis growers by 45%, with board Chair Lynda Hopkins saying that the county’s existing tax rates are unsustainably high. “The reality is we tried something and honestly what I’m seeing is that it’s not really working,” Hopkins said, according to the Press Democrat. 

Jenkins said in the news release that the tax cuts come as Sonoma County’s growing industry is experiencing a precipitous drop in active farms. 

“When Sonoma County sees licensed cultivators plummet from 155 to just 66 in less than two years, that’s not market consolidation, it’s market collapse. These tax reductions represent a critical lifeline for the remaining businesses fighting to survive,” she said. 

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But some local governments are taking the opposite track. San Diego’s City Council voted in March to increase cannabis taxes by 25% in an attempt to fill a budget hole, despite city staff saying that it could actually result in a drop in tax revenue by making legal pot more expensive and driving customers to illicit cannabis stores, which pay no taxes, the Cannabis Business Times reported. 

The state government is pursuing a similar strategy. California’s cannabis excise taxes are set to increase by 25% in July thanks to a law signed by Gov. Gavin Newsom in 2022, which requires the state to increase taxes if cannabis tax revenue falls. The industry has said this tax increase will likely force even more legal businesses to shut down, sending more customers to the illicit market.