A California judge has indicated that state lawmakers may have the authority to revise parts of the voter-approved marijuana legalization measure without asking voters to approve every legislative update. The preliminary opinion was issued last Thursday by San Francisco Superior Court Judge Harold Kahn during an ongoing legal dispute over changes to cannabis tax policy.
The case was filed by youth advocacy organizations challenging legislation approved by the California Legislature and signed by Governor Gavin Newsom last year. The lawsuit seeks to overturn a reduction in the state’s cannabis retail excise tax, arguing that lawmakers exceeded their constitutional authority when they altered provisions tied to the 2016 legalization initiative.
According to state figures, licensed cannabis retailers recorded less than $4 billion in sales last year, a decline from the $4.2 billion reported in 2024. The total number of products sold also fell, reflecting weaker demand across the regulated market.
Industry representatives had warned that higher taxes could further reduce legal sales. On July 1, 2025, the cannabis excise tax automatically increased from 15 to 19 percent under a framework established in 2022 after lawmakers eliminated the cultivation tax. That increase was later reversed when Newsom signed legislation restoring the excise tax to 15% through at least 2028.
While cannabis businesses welcomed the lower rate, critics argued that the decision reduced funding for programs supported by marijuana tax revenue. Organizations including Youth Transforming Justice and the East Bay Asian Youth Center filed suit in February against the California Department of Cannabis Control and other state officials. They also challenged Senate Bill 141, which directs money from the Cannabis Tax Fund toward enforcement efforts targeting illegal marijuana operations.
The plaintiffs contend that both laws violate the California Constitution. They argue that the Legislature cannot modify a voter-approved initiative unless the measure specifically authorizes those changes or voters approve them through another statewide election. According to the lawsuit, reducing cannabis taxes weakens the financial support voters intended for social and environmental initiatives.
During the hearing, Judge Kahn signaled that the legislative changes appear likely to comply with constitutional requirements. However, attorney Margaret Prinzing, representing the advocacy groups, requested additional time to present arguments challenging the legality of the tax reduction. The judge granted that request, although no schedule for further legal briefs has been announced.
Meanwhile, recent revenue data highlights the financial pressures facing the legal cannabis market. Despite the temporary tax increase, California collected about $1.05 billion in marijuana tax revenue during 2025, slightly below the $1.07 billion generated in 2024. The figures suggest that higher tax rates did not produce greater overall revenue as legal sales continued to soften.
Marijuana companies like TerrAscend Corp. (TSX: TSND) (OTCQX: TSNDF) that have retail outlets in California will wait to see the final ruling in this case that could impact the cannabis policies of the state.
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