California Senate Passes Bill to Delay Cannabis Tax Hike, Sending It Back to Assembly

On September 10, 2025, the California Senate approved a bill designed to pause a recent tax hike on marijuana products, marking a significant step in ongoing efforts to stabilize the state’s struggling cannabis industry. The measure, introduced by Assemblymember Matt Haney (D), previously cleared the Assembly but was amended in the Senate, meaning it must return for concurrence before it can head to Governor Gavin Newsom’s desk.

A Temporary Pause on the Cannabis Excise Tax Increase

The bill seeks to delay the recently enacted increase in the cannabis excise tax, which rose from 15 percent to 19 percent on July 1. If signed into law, the measure would hold the tax rate at 15 percent for five years, though an amendment adopted in committee set the effective date for October instead of immediately. Advocates had hoped for quicker relief through budget legislation earlier this year, but that effort was blocked.

Haney’s proposal is framed as an urgent response to the financial pressures squeezing California’s legal cannabis operators, many of whom have argued that rising taxes make it nearly impossible to compete with the illicit market.

Lawmakers Warn Against Strengthening the Illicit Market

During floor debate, Sen. Christopher Cabaldon (D) stressed that legalization was supposed to weaken illegal sales while funding environmental, social, and educational initiatives. Instead, he noted, the illicit market now dominates, with legal businesses capturing only about 40 percent of sales.

“That deal is fraying because the market is collapsing,” Cabaldon said. “California is losing ground to other states. Michigan, Oregon and others are raking in much more tax revenue and doing a much better job at stopping illicit sales. This isn’t the time to be raising the tax by 25 percent.”

Sen. Jerry McNerney (D) echoed those concerns, warning that higher taxes would drive more consumers back to unregulated sellers. “Raising taxes right now is going to have an opposite effect,” he said. “It’s going to drive people into the illegal black market on cannabis, which is a bad outcome.”

The Legislative Journey and Amendments

Haney’s bill initially passed the Assembly in June with provisions to keep the lower tax rate until 2030, after which regulators would reassess every two years. But changes made in the Senate Appropriations Committee shortened the timeline and added a reporting requirement, leaving the precise end date unclear.

Under the revised measure, the California Department of Tax and Fee Administration (CDTFA), working with the Department of Finance, must annually adjust the tax rate based on projections of revenue that would have been generated under the former cultivation tax system. CDTFA will also be required to submit annual reports to lawmakers starting in December 2026 on the impact of the reduced tax rate.

The bill explicitly states that the goal is to provide immediate relief to the legal cannabis industry and to measure its effectiveness by examining whether tax revenues increase or decrease as a result.

The Governor and Leadership Divide

Governor Newsom has previously voiced support for pausing cannabis tax increases, aligning with Assembly Speaker Robert Rivas (D). However, Senate President Pro Tempore Mike McGuire (D) was instrumental in blocking the tax freeze from being included in the budget earlier this summer. With the Senate now approving Haney’s amended bill, pressure will build for the Assembly to concur quickly before the September 12 deadline.

Newsom would then have until October 12 to act, giving him a month to weigh the industry’s concerns against the state’s fiscal needs.

A Broader Landscape of Cannabis Policy in California

The debate over cannabis taxation is just one of many ongoing policy battles in California. Alongside Haney’s bill, lawmakers are also advancing legislation to regulate hemp-derived cannabinoids, clarify rules for cannabis microbusinesses, and expand research and public education efforts funded by marijuana tax revenue.

Earlier this year, California distributed over $52 million in community reinvestment grants to nonprofits and health departments through the California Community Reinvestment Grants program, funded entirely by cannabis revenue. Meanwhile, the state Supreme Court delivered a victory for the cannabis industry by rejecting a lower court ruling that could have allowed local governments to weaponize federal prohibition against licensed businesses.

Despite these developments, analysts have warned that federal prohibition continues to exacerbate California’s illicit market by blocking interstate commerce and limiting the legal industry’s ability to compete on price and supply.

Looking Ahead

The fate of Haney’s bill will be decided in the next few days as lawmakers race against session deadlines. If the Assembly concurs with the Senate’s amendments, the measure will land on Governor Newsom’s desk just as the cannabis industry braces for the impact of the July tax increase.

With legal businesses losing ground to unregulated sellers, supporters argue that delaying the tax hike is a necessary intervention to keep the regulated market afloat. Whether this pause will be enough to stabilize the industry or simply a temporary reprieve in a larger structural challenge remains to be seen.