California Governor Gavin Newsom has signed a measure that halts a recent cannabis tax increase, giving the state’s cannabis industry a temporary break.
The legislation, introduced by Assemblymember Matt Haney, received bipartisan support in both chambers before landing on the governor’s desk. Newsom approved it on Monday, just weeks before his October 12 deadline to act on pending bills.
Haney explained that the pause is intended to strengthen the legal market, which has struggled to compete with unlicensed sellers. According to him, the legislation will keep small businesses running, protect jobs, and give voters the functioning system they intended when cannabis was legalized.
An amendment added during the Senate’s review delayed implementation until October. The actual tax hike went into effect in July after state officials announced that the rate would rise from 15% to 19%. Advocates had hoped the budget package passed earlier this summer would include a freeze, but that did not happen.
Newsom, along with Assembly Speaker Robert Rivas, supported halting the tax hike earlier this year. However, Senate President Pro Tem Mike McGuire reportedly kept it out of the final budget package, making Haney’s standalone bill the only path forward.
The new law puts a hold on the tax hike for a period of five years. Originally, the proposal would have kept the lower 15% rate until mid-2030, after which regulators would review and adjust the rate every two years to ensure consistent revenue. However, the Senate Appropriations Committee amended the bill, shortening the timeframe and adding reporting requirements. As a result, the lower rate will only last until October, and state officials must provide annual reports starting in December 2026.
Under the new law, the state’s Department of Tax and Fee Administration, in collaboration with the Department of Finance, will calculate and adjust the tax rate to make sure revenue matches what would have been collected under the previous system. The department is also tasked with estimating what cultivation taxes would have brought in and using that information to set future rates.
The central aim of the law, as stated in the measure, is to deliver immediate tax relief to marijuana businesses. Lawmakers plan to measure the success of the policy by tracking how excise tax revenue changes over time. Reports submitted to the legislature will outline whether the pause led to gains or losses in revenue, giving policymakers data to decide on the next steps for the industry.
Many cannabis firms are struggling under the weight of heavy tax burdens in different states. As the step taken by California is copied elsewhere, the industry could have a higher chance of thriving and creating opportunities for related verticals like the one in which entities such as Innovative Industrial Properties Inc. (NYSE: IIPR) operate.
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