California Cannabis Sales Slide to Five Year Low After Excise Tax Increase Took Effect
Legal cannabis sales in California, the nation’s largest marijuana market, fell to a five-year low after a short-lived excise tax increase went into effect July 1, according to newly released state data. The downturn underscores long-standing concerns from operators that higher taxes in a mature and already strained market would further depress legal sales and push consumers toward the illicit market.
The data also raises warning flags for other states considering or implementing cannabis tax increases, including Michigan, where lawmakers recently approved a new 24% wholesale tax that industry stakeholders fear could replicate California’s experience.
Quarterly Sales Fell Below $940 Million as Tax Pressure Weighed on Retailers
California cannabis retailers reported just under $940 million in legal sales during the third quarter of 2025, according to figures from the California Department of Tax and Fee Administration. The drop marks a notable decline from the $993 million recorded in the second quarter of the year and represents the lowest quarterly sales total since early 2020, before pandemic-era buying dramatically boosted demand.
Industry observers say the decline was both predictable and avoidable.
“The sales decline is unsurprising,” said Hirsh Jain, a consultant and principal at Los Angeles-based Ananda Strategy. “California was already one of the highest-taxed states for legal cannabis, which is why it has long had the lowest per-capita sales of any mature adult-use state.”
Annual Sales on Track for Third Consecutive Decline
Beyond quarterly figures, California’s annual cannabis sales appear poised to fall for a third straight year, potentially dipping below the $4 billion mark for the first time since the legal adult-use market launched.
Legal marijuana sales totaled more than $4.4 billion in 2023 before declining to approximately $4.2 billion in 2024. Based on current trends, 2025 sales are projected to come in even lower.
Retailers had warned state lawmakers that increasing the excise tax would worsen conditions for licensed operators already facing shrinking margins, inflationary pressures and competition from unregulated sellers. Those concerns were echoed in earlier reporting that forecasted a downturn if taxes rose.
Excise Tax Increase Delivered a Short-Term Shock to the Market
California’s excise tax on cannabis jumped from 15% to 19% on July 1, part of a tax structure adjustment implemented when the state eliminated its per-ounce cultivation tax. The cultivation tax repeal was intended to provide relief to growers struggling with oversupply and weak wholesale prices.
Instead, the higher excise tax shifted more of the burden downstream to retailers and consumers.
The increase was ultimately short-lived. On Oct. 1, the excise tax reverted to 15% after Gov. Gavin Newsom signed legislation locking in that lower rate until at least 2028. Still, the temporary hike appears to have been enough to dampen legal sales during the third quarter.
When layered with state sales taxes and a patchwork of local cannabis taxes, the total tax burden on legal marijuana purchases exceeds 30% in many California jurisdictions.
High Taxes Continue to Undermine California’s Legal Market
Despite being the first state to launch a modern adult-use cannabis market, California has struggled to translate its population size into robust per-capita legal sales. Analysts have long blamed high taxes and regulatory costs for keeping legal prices uncompetitive.
A state-commissioned study published earlier this year found that illicit, unregulated cannabis consumption in California remains more than twice the size of the legal market—an imbalance many operators say will persist unless taxes are reduced further.
“Barring tax and regulatory reform, it seems likely that California will in the coming years be overtaken in sales by some other state with a fraction of its population,” Jain said. “California may no longer be able to claim that it is the largest cannabis market in the world.”
Other States Watch Closely as They Set Cannabis Tax Policy
California’s experience is being closely watched by lawmakers and regulators in newer adult-use markets. Some states appear determined to avoid repeating its mistakes.
In Ohio, for example, adult-use cannabis sales began in August 2024 with an excise tax set at just 10%. Supporters of the lower rate say it gives licensed operators a better chance to undercut illicit sellers while still generating tax revenue.
By contrast, states contemplating higher rates may face similar headwinds if consumers respond by seeking cheaper, unregulated alternatives.
For California operators, the data reinforces a familiar message: without deeper tax cuts and regulatory reform, the legal market may continue to lose ground even as demand for cannabis itself remains strong.
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