California Cannabis Sales Hit Five-Year Low Following Tax Increase
California's cannabis market faces a downturn as sales hit a five-year low following a temporary tax hike. Industry experts call for reforms to combat the thriving illicit market
Key Points
- 1California cannabis sales dropped to a five-year low after a tax hike
- 2Third-quarter 2025 sales were just under $940 million, down from $993 million
- 3The excise tax was temporarily increased from 15% to 19% in July 2025
- 4Illicit cannabis market in California is more than double the legal market
- 5Experts warn California may lose its status as the largest cannabis market
California, the largest cannabis market in the United States, has witnessed a significant decline in legal cannabis sales, hitting a five-year low. This downturn follows the implementation of a now-repealed excise tax hike on July 1, 2025. According to data from the California Department of Tax and Fee Administration, cannabis sales in the third quarter of 2025 totaled just under $940 million, a decrease from $993 million in the previous quarter
The decline in sales was anticipated by industry experts who had warned about the potential repercussions of increased taxation in an already challenging market. Hirsh Jain, a consultant with Ananda Strategy, noted that California's high tax rates have historically resulted in lower per-capita sales compared to other mature markets. This trend has been exacerbated by the recent tax hike, which saw the excise tax temporarily rise from 15% to 19%
Annual cannabis sales in California have been on a downward trajectory for the past three years, with figures expected to drop below $4 billion for the first time since the market's inception. In 2023, sales reached $4.4 billion, but fell to $4.2 billion in 2024, and are projected to continue declining. The state's decision to revert the excise tax back to 15% in October 2025, following the passing of a new law, aims to stabilize the market, but its effectiveness remains to be seen
The high tax burden, which exceeds 30% in various jurisdictions when combined with local taxes, continues to drive consumers towards the illicit market. A state-commissioned study earlier this year revealed that illegal cannabis consumption in California is more than double that of the legal market. This persistent issue underscores the need for significant tax and regulatory reforms to revitalize the state's cannabis industry
Looking ahead, the future of California's cannabis market hinges on whether lawmakers will enact further tax reductions and regulatory changes. Without such reforms, experts like Jain predict that California may lose its status as the world's largest cannabis market, potentially being surpassed by other states with more favorable tax environments. As other states like Ohio implement lower excise taxes, California's approach to taxation will be crucial in determining its competitive position in the national cannabis landscape