The California Department of Tax and Fee Administration has announced an increase in the Cannabis Excise Tax from 15 percent to 19 percent, effective July 1. This adjustment is part of the “AB 195 Compromise,” which eliminated the voter-enacted Cannabis Cultivation Tax. The change aims to recover hundreds of millions of dollars in lost revenue resulting from the repeal of the Cultivation Tax in 2022.
Advocates argue that this tax adjustment is necessary to restore funding for childcare and youth substance use prevention programs, which suffered when the Cultivation Tax was removed. Jim Keddy, Executive Director of Youth Forward, emphasized the importance of protecting children and the environment over increasing profits for the cannabis industry. Similarly, Dr. Lynn Silver highlighted the promise made to voters regarding funding for youth programs and environmental protection through cannabis taxes.
Environmental concerns were also raised, with Tom Wheeler pointing out that poor cultivation practices can harm ecosystems. The Excise Tax adjustment is seen as a way to restore funding for environmental remediation projects.
Voters originally approved Proposition 64 in 1996, which established both an Excise Tax and a Cultivation Tax to fund initiatives for youth protection, environmental cleanup, and law enforcement. The repeal of the Cultivation Tax led to significant revenue losses, estimated at over $600 million, affecting various programs.
Currently, the legislature is considering two bills that would repeal the Excise Tax adjustment, potentially undermining funding for essential programs. Studies from the California Department of Cannabis Control indicate that the cannabis industry is continuing to grow, with production increasing significantly since 2020, suggesting that the industry could sustain higher taxation without detrimental effects.
