Legal cannabis sales in California, the nation’s largest market, plunged to a five-year low after the excess tax hike that went into effect on July 1, the latest state data shows.
The anticipated — and predicted — effect of the increased tax on a mature market is already fraught with trouble in other states where officials are raising taxes, such as Michigan, where lawmakers recently approved a new tax of 24%.
California’s CanCabis sellers reported a potential $940 million in cannabis sales in the third quarter of 2025, according to the California Department of Internal Revenue.
That’s down from $993 billion in the second quarter of 2025 and represents the lowest quarterly shipment since the beginning of 2020, before sales were wiped out during the 19 pandemic.
“The decline in sales is undeniable,” said Hirsh Jain, consultant and principal of Los Angeles strategy Ananda.
“California was still one of the highest tax states for legal cannabis, which is why it has long had the lowest per-capita sales of any state for mature adults.”
California Cannabis Tax Hike Hurts Legal Sales – As Predicted
Annual sales also in PACE dipped for the third year in a row – and fell before $ 4 billion for the first time since the launch of the market.
California Legal Marijuana sales in 2023 are set at $4.4 billion, compared to $4.2 billion in 2024.
by Mjbizdaily Reportedly, pressured retailers are predicting that a drop in sales could follow the tax hike.
However, it remains to be seen if the dip in sales is temporary and if sales will recover after the federal excise tax.
The country’s 15% excise tax was raised to 19% on July 1 as part of a tax structure imposed when the state abolished the standard agricultural tax in part in response to farmers’ strikes.
The outstanding tax is back to 15% as of Oct. 1 after GOV
When state sales taxes and local cannabis taxes are factored in, the total tax rate for California cannabis is still over 30% in most rural areas.
Will regulators cut marijuana taxes to help shape markets?
New markets seem to be seeing a problem with the tax burden in older markets such as California, where legal sales began in November 2016.
For example, the Cannabis Excise tax in Ohio, where sales began in August 2024, is only 10%.
Many operators want a more dramatic cut in California cannabis taxes to return to the trend of years of running cheaper market options.
Subscribe to MJBIZ TRCROCK
Exclusive industry data and analysis to help you make informed business decisions and prevent costly missteps. All facts, no hype.
What you will get:
- Monthly and quarterly updates, with new data and insights
- Financial Forecasts + Financial Investment Trends
- A state-by-state guide to the state of regulations, taxation and market opportunities
- Annual survey of cannabis businesses
- Consumer understanding
- And more!
The use of cannabit, unregistered cannabis in California is based on more than twice the consumption of the legal market, according to a study by the government published earlier this year.
Jain says: “Tax and regulatory reform, it seems that California will go down by selling another country a fraction of its population and will no longer be able to establish itself as the largest cannabis market in the world.”
