California Gives Legal Cannabis a Break — Newsom Signs AB 564 to Roll Back Excise Tax
Governor Newsom signed AB 564 on September 22, 2025, rolling California’s cannabis excise tax from 19% back to 15% through at least 2028 to help the legal market compete with the illicit trade; the law takes effect October 1, 2025.
Key takeaways
- Tax rollback: AB 564 restores the cannabis excise tax to 15% (down from 19%) through at least 2028 — signed by Newsom on September 22, 2025; see the Governor’s press release.
- Effective date: The restored 15% rate takes effect October 1, 2025; implementation details reported by Cannabis Business Times.
- Legislative support: AB 564 passed with bipartisan margins (76–0 Assembly; 39–1 Senate), signaling broad support for a temporary fix to help licensed businesses compete.
- Policy goal: Lawmakers say the cut aims to help legal sellers regain market share from the entrenched illicit market (coverage by LAist).
Excise tax change and legal background
California’s excise tax on cannabis automatically rose to 19% on July 1, 2025 under a statutory trigger tied to earlier policy changes. AB 564 suspends that scheduled rise and restores the excise tax to 15% until at least 2028, a temporary move intended to give licensed sellers room to recover and grow the legal market. For the administration’s statement, see the Governor’s press release, and for tax guidance see the CDTFA guidance.
Why lawmakers acted: the struggle of the legal industry
Supporters argued that sustained high taxes and heavy regulation have pushed many consumers toward the illicit market. Since recreational legalization in 2016, licensed operators have faced rising costs, a crowded marketplace, and stiff competition from unlicensed sellers. Lawmakers framed the rollback as a targeted tool to lower retail prices and keep licensed shops viable — a point emphasized in reporting from LAist and Cannabis Business Times.
“The measure is temporary and meant to give licensed sellers room to recover and grow the legal market.”
Market data: falling sales and oversupply
Taxable cannabis sales have declined since their mid‑2021 peak. Quarterly taxable sales dropped from more than $1.5 billion in mid‑2021 to roughly $1.2 billion several years later, driven by oversupply, regulatory costs, and price declines. Industry observers say illegal grows outproduce licensed cultivators and unlicensed dealers still sell a large share of statewide consumption — data points lawmakers cited when pushing for the tax reduction (LAist; Cannabis Business Times).
How the tax works and where the money goes
The excise tax is charged on cannabis products before sales taxes are applied. It replaced the cultivation tax as part of a 2022 policy shift meant to simplify the system. Revenue from the excise tax supports social programs — including child care, substance‑abuse treatment, and environmental projects tied to legalization — which is why some stakeholders worry about reduced receipts if the tax is lowered (LAist).
Support and pushback
Supporters: Industry groups and many small business owners backed AB 564. The California Cannabis Operators Association and other advocates said the cut will help legal retailers reduce prices and win back customers, increasing safety and compliance in the market (Governor’s press release).
Opponents: Some nonprofits and environmental advocates warned that suspending the tax hike could create shortfalls for programs funded by cannabis revenue, potentially forcing lawmakers to find alternative revenue or reduce services that benefit vulnerable communities (LAist).
Enforcement and local support measures
The Newsom administration tied the tax rollback to continued and expanded efforts to combat illegal cannabis operations. The state plans to use tax revenue and grants to support local enforcement against illegal grows and unlicensed shops — a central selling point for legislators who sought both market relief and stronger enforcement tools (Governor’s press release).
Legislative path and timing
AB 564 moved quickly through the Capitol with strong bipartisan support — passing the Assembly 76–0 and the Senate 39–1 — and was signed on September 22, 2025. Lawmakers framed it as a temporary fix to restore the 15% rate in time for an October 1, 2025 effective date (Cannabis Business Times).
Implications for Hesperia, California
Local leaders in Hesperia will face choices on zoning, enforcement, and budgeting as the 15% rate takes effect. The sections below outline likely impacts and practical steps for city officials, businesses, law enforcement, and community groups.
Economic impact
Hesperia’s mix of retail corridors and light industrial zones could benefit if the 4‑point excise reduction narrows the price gap with illicit sellers. Local dispensaries may see higher foot traffic and improved margins, while suppliers of packaging, security, testing, and transport could see steadier demand. Lower tax pressure may also attract investors to local licensed operations (LAist).
Public safety and law enforcement
Hesperia law enforcement has addressed illegal grows and unlicensed sellers. If the rollback reduces demand for black‑market products, police and code enforcement may see fewer complaints. The state’s enforcement grants could provide funding for targeted operations against illegal grows, helping local agencies balance public safety with tight budgets (Governor’s press release).
Budget and services
City officials should monitor state revenue forecasts. Programs in Hesperia that indirectly relied on cannabis-related state funding could face pressure if receipts fall. Local councils and county supervisors will need to track changes to state distributions and competitive grant opportunities tied to cannabis revenue (LAist).
Social effects and community concerns
Conservative communities in the High Desert, including Hesperia, emphasize family safety and youth exposure. A stronger legal market could reduce dangerous products in neighborhoods and increase operational transparency. Yet some residents may worry that improved margins encourage more dispensaries or relaxed zoning; local leaders can respond through zoning enforcement, storefront concentration limits, and mandatory security and child‑safety measures at licensed outlets (LAist).
Practical steps for local stakeholders
- City officials: Review zoning and permitting rules to ensure licensed shops meet community standards; apply for state enforcement grants where eligible (Governor’s press release).
- Local businesses: Incorporate the 15% excise rate into pricing and marketing, and explore partnerships with legal suppliers to lower costs.
- Law enforcement: Coordinate with county and state agencies on grant applications and targeted operations against illegal grows (Governor’s press release).
- Community groups: Engage in public hearings about dispensaries and demand transparency on revenue uses and local impacts (LAist).
Reporting and sources
This report draws on legislative announcements and reporting from state and industry sources:
- Governor’s press release
- LAist coverage
- Cannabis Business Times
- California Department of Tax and Fee Administration guidance
Summary: The 15% excise rate restored by AB 564 is a temporary, targeted policy to shore up the legal cannabis industry, preserve enforcement funding, and give localities like Hesperia time to adjust zoning, enforcement, and budgeting as the change takes effect October 1, 2025.
