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 retail excise tax and a cultivation tax. Chapter 56 of 2022 (AB 195, Committee on Budget) eliminated the cultivation tax on July 1, 2022. As that law required, the administration raised the retail excise tax rate from 15 percent to 19 percent on July 1, 2025. On September 22, the Governor signed Chapter 127 of 2025 (AB 564, Haney), which cut the retail excise tax rate from 19 percent to 15 percent on October 1.
Preliminary Total for Third Quarter of 2025: $177 Million. The administration currently estimates that retail excise tax revenue was $177 million in the third quarter of calendar year 2025 (July through September). This is the highest quarterly total since the state eliminated the cultivation tax.
Current LAO Estimate for 2025-26: $631 Million. We currently project cannabis tax revenues of $631 million in 2025-26. As shown in the figure below, this forecast is nearly $100 million below the budget package assumption for 2025-26. The main reason for this difference is the tax cut noted above. Our forecast assumes that the market-expanding effects of the tax cut will offset only a small share of the forgone tax revenue.
