California Gov. Newsom Signs AB 564, Rolling Back Marijuana Excise Tax to 15% to Help Legal Market
California Governor Gavin Newsom signed AB 564, lowering the state marijuana excise tax from 19% back to 15% through 2028 to support the regulated cannabis industry, narrow the price gap with illicit sellers, protect jobs, and bolster consumer safety.
- Tax rollback: Excise tax reduced from 19% to 15% on retail cannabis sales effective October 2025 through 2028.
- Temporary cap and review: After 2028, rates can be adjusted biennially but not exceed 19%.
- Paired strategy: The state pairs the tax cut with increased enforcement funding and grants to combat the illicit market.
- Local impacts: The change aims to help small operators, preserve jobs, and encourage consumers to choose tested, regulated products.
Key information
AB 564 reverses a recent excise tax increase and restores the pre-July 2025 excise tax rate of 15% on retail cannabis sales. See the governor’s office release for details.
The 15% rate is locked in through 2028; thereafter the rate can be adjusted every two years to match revenue needs but may not exceed 19%. (Context and reporting: LAist report; Marijuana Moment coverage.)
Timing was amended in the Senate Appropriations Committee so the rollback takes effect in October 2025 rather than immediately. The state will also increase funding for enforcement against illegal cannabis operations and offer new grants to local governments to fight the illicit market (governor’s office release).
What AB 564 does — the mechanics
AB 564 rolls back an excise tax that had been temporarily raised to 19% on July 1, 2025. The excise tax is applied before sales tax, so it affects the total consumer cost at licensed retail shops. State officials argued the higher tax widened the price gap with untaxed illicit sellers (LAist report).
Under the law, the 15% excise tax is enforced from October 2025 through the end of 2028. Lawmakers included a mechanism to revisit rates after 2028: future adjustments can occur every two years but cannot exceed the prior 19% ceiling (Marijuana Moment coverage).
Why lawmakers acted — industry pressure and market reality
Licensed cannabis operators contend that heavy taxes and regulatory costs make it difficult to compete with illicit sellers, who avoid testing, licensing, and taxes. Supporters of AB 564 argue the rollback will give legal businesses room to lower prices, retain customers, and survive in a crowded market (governor’s office release; Marijuana Moment coverage).
Political note: The bill earned bipartisan support. Backers stressed that preserving jobs and keeping businesses in the regulated system protects consumers and the state’s long-term tax base. An earlier budget attempt to freeze the tax was blocked in the Senate, prompting this standalone measure (Marijuana Moment coverage).
Industry impact and enforcement measures
Industry reaction: Many business owners called the rollback a lifeline for small operators facing thin margins. Lawmakers and advocates said the change should ease pressure on retailers, cultivators, and manufacturers that struggle with high rents and operating costs (Marijuana Moment coverage).
At the same time, the state announced plans to channel additional resources to enforcement. New grants will help local governments and law enforcement target unlicensed grows, unregulated storefronts, and illicit distribution networks. Officials say the combined approach—tax relief plus stronger enforcement—is meant to drive consumers toward safe, tested products and restore tax revenue for state programs (governor’s office release).
Voices from Sacramento
“We’re rolling back this cannabis tax hike so the legal market can continue to grow, consumers can access safe products, and our local communities see the benefits,” Governor Gavin Newsom said in announcing the bill (governor’s office release).
Assemblymember Matt Haney, a bill sponsor, said AB 564 “helps level the playing field. It protects California jobs, keeps small businesses open, and ensures that our legal cannabis market can grow and thrive the way voters intended” (Marijuana Moment coverage).
Legal and national context
The move comes amid judicial and regulatory developments. The California Supreme Court recently upheld key elements of the state’s cannabis framework, which supporters say strengthens the legal market’s long-term prospects. However, federal prohibition persists, blocking interstate commerce and creating regulatory inconsistency that can advantage illicit operators (Marijuana Moment coverage).
Implementation timeline and future adjustments
The rollback begins in October 2025. From October 2025 through 2028 the excise tax will remain at 15%. After 2028, the Legislature and regulators may adjust the rate every two years to reflect revenue needs, provided it does not immediately return above 19% (Marijuana Moment coverage; LAist report).
Implications for San Diego, California
Economic impact: San Diego’s legal cannabis market—retail shops, cultivators, manufacturers and related small businesses—could benefit from improved margins or the ability to lower retail prices, which may preserve jobs and help stores remain open.
Price and competition: Narrowing the price gap between licensed goods and cheaper illicit products may shift consumers toward regulated, tested items, improving public safety for tourists and residents who rely on legal dispensaries.
Local government revenues: Although the state excise rollback reduces that stream of revenue, officials contend it could increase overall legal sales and stabilize local tax bases over time if commerce shifts back into the regulated market.
Public safety and enforcement: The state’s new enforcement grants could boost San Diego County’s ability to shut down illicit operations, seize unsafe products, and reduce neighborhood nuisance complaints tied to illegal activity.
Political and social effects: The move has cross‑spectrum appeal: it reduces costs for small businesses while funding enforcement. Community perspectives will vary, and local officials must weigh immediate tax reductions against long‑term revenue goals.
Practical changes: Consumers in San Diego can expect lower excise‑related costs at licensed retailers starting October 2025. Licensed dispensaries may run promotions or adjust pricing. Businesses should use the breathing room to invest in compliance, safer packaging, staffing, and community relations.
Reporting and transparency: Local officials and business owners should monitor allocation of tax revenue and enforcement grants, and track sales trends to determine if the rollback meets goals of stabilizing the legal industry, protecting jobs, and improving public safety (governor’s office release; LAist report).
