Newsom joins last-minute 'Hail Mary' to avert California cannabis industry crisis

OG Article  By Lester Black, Cannabis editor in News, Studies Watch Today's LIVE Episode on YouTube, X, and Rumble

June 30, 2025

California's cannabis industry is in a frantic race to prevent an impending excise tax rate increase. With just days remaining before the July 1 deadline, Governor Gavin Newsom has publicly announced his support for suspending the tax hike.

"If the Governor receives a proposal to halt the cannabis excise tax increase, he will sign it. His record speaks for itself — from supporting the legal cannabis industry to taking down illicit operations, he remains committed to further strengthening California’s growing legal cannabis market," stated Diana Crofts-Pelayo, a spokesperson for Governor Newsom, in an exclusive emailed statement to SFGATE.

The Governor's statement effectively shifts the onus onto state legislators to act swiftly. Two potential last-minute avenues could avert the tax increase, which is poised to jump from 15% to 19%:

• Lawmakers could expedite the passage of a bill sponsored by Assemblymember Matt Haney, designed to suspend the tax hike.

• Alternatively, they could introduce and pass a new companion bill to the original budget that incorporates a suspension of the tax increase, as suggested by Amy O’Gorman Jenkins, a lobbyist and the executive director of the California Cannabis Operators Association.

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The industry had previously hoped that this year’s budget bill would include a provision to suspend the upcoming tax increase. However, the details of this year’s budget agreement, released last Wednesday, did not contain any such measure. O’Gorman Jenkins noted that there is still a window of opportunity for the tax hike suspension to be included in a companion budget bill, often referred to as a "budget trailer bill." This bill would also need to be passed before July 1, marking the start of the state's new fiscal year.

"I don’t know if that’s achievable, but there are certainly some last-minute Hail Mary attempts to make it happen," O’Gorman Jenkins commented. She further added, "We are leaving no stone unturned and in ongoing communications with the Senate."

This tax increase arrives at a critical time for the legal cannabis industry, which is already struggling to survive. Thousands of licensed operators have ceased operations, and retail stores are finding it difficult to manage the current tax rate, even before the planned increase. In stark contrast, illicit cannabis farms and unlicensed stores are flourishing across California, with state estimates suggesting that over 60% of all sales still occur within the black market.

Industry advocates, alongside the state’s own budget analysts, caution that raising the tax rate on legal cannabis would likely diminish the size of the overall legal market. Businesses would probably try to offset the increased tax burden by passing it on to consumers. This could potentially drive more consumers towards illicit cannabis sources, which are exempt from all taxes and can therefore offer products at lower prices.

This year’s tax hike stems from a law Governor Newsom signed in 2022, which repealed a contentious cannabis cultivation tax. That law stipulated that the state must increase cannabis taxes if tax collections did not remain consistent – essentially, if sales tax revenue from legal cannabis did not compensate for the revenue lost from the abolished cultivation tax. With sales plummeting and corresponding tax collections shrinking, the state is now legally obligated to increase the amount it levies on all legal cannabis purchases to bridge the revenue gap.

Assemblymember Haney’s bill, aimed at blocking the tax increase, has already received unanimous approval from the Assembly. However, it still requires passage by the state Senate and the Governor’s signature to become law. Jim Araby, the strategic campaigns director of United Food and Commercial Workers Local 5, explained that Haney’s proposed legislation, being tax-related, would take effect immediately upon passage. This means it could realistically halt the tax increase before July 1 if it clears the Senate in the next five days.

O’Gorman Jenkins expressed doubt regarding the bill's ability to clear the necessary Senate committee votes before the tax increase takes effect on Tuesday. Consequently, her focus is now on persuading the Legislature to pass a new budget trailer bill that includes the suspension.

Even if either attempt succeeds in stopping the tax increase, the industry would likely still face significant challenges, according to Araby.

"If the Haney bill gets passed and the governor signs it, all it does is slow down the implosion of the industry, but it doesn’t stop it," Araby stated. "We have a lot more things to do."