Background. In November 2016, California voters approved Proposition 64, which legalized the nonmedical use of cannabis. Proposition 64 created two excise taxes on cannabis: a 15 percent retail excise tax and a cultivation tax. Chapter 56, Statutes of 2022 (AB 195, Committee on Budget) eliminated the cultivation tax on July 1, 2022. This law also requires the administration to increase the retail excise tax rate to 19 percent effective July 1, 2025.
Preliminary Total for First Quarter of 2025: $141 Million. For cannabis excise tax returns filed for the first quarter of 2025, the total amount of tax due is $141 million. Preliminary revenues tend to differ modestly from actual revenues for various reasons, such as delays in filing or payment.
Current LAO Forecast for 2024-25: $594 Million. We currently project cannabis tax revenues of $594 million in 2024-25. This forecast is just $4 million above the administration’s May Revision forecast. As shown in the figure below, the resulting 2025-26 revenue allocations are nearly identical to the administration’s May projections.
Upcoming Tax Hike Under Current Law. Looking further ahead, our preliminary revenue projection for 2025-26 is $732 million, which is just $5 million above the administration’s May forecast. Both our forecast and the administration’s reflect the statutorily required tax increase noted above. Both forecasts assume that this tax hike will reduce the size of the licensed cannabis market. This negative effect, however, likely will offset only a small share of the revenue raised by the tax hike.