Key Takeaways
- California’s licensed cannabis retailers saw sales drop to $3.9 billion in 2025, a 6.5% decrease from 2024, despite a reduced excise tax.
- Excise tax rate briefly increased to 19% in mid-2025 but was lowered back to 15% in October 2025 after sales continued to decline.
- The number of active cannabis retail sites dropped by about 9% from 2023, with 1,760 stores reported in Q2 2026.
- The unlicensed cannabis market remains a major competitor, accounting for an estimated 62% of cannabis consumption in California.
- Future tax rate adjustments may occur every two years, potentially reinstating higher rates unless legislation changes.
California’s licensed cannabis retailers sold $3.9 billion in 2025, down 6.5% from 2024, even after the state cut its excise tax from 19% back to 15% after one quarter.
The rollback hasn’t brought sales back. The first half of 2026 came in flat with the first half of 2025, and the number of active cannabis stores is down about 9% from its 2023 high.
- $3.93 billion in licensed retail cannabis sales in 2025, down from $4.21 billion in 2024 and $4.45 billion in 2023
- 19% excise tax rate from July 1 to September 30, 2025, before it returned to 15% on October 1
- 1,760 active cannabis retail sites in the second quarter of 2026, down from 1,927 at the end of 2023
How the tax went up
California’s cannabis excise tax has been 15% since recreational sales began in 2018. In 2022, lawmakers passed AB 195, which ended the state’s separate weight-based tax on cultivation as of July 1, 2022. To make up for that lost money, the law told CDTFA to adjust the excise rate starting in fiscal year 2025-26, raising whatever the cultivation tax would have brought in, with a cap of 19%.
CDTFA ran that calculation and set the rate at the 19% maximum. The higher rate took effect July 1, 2025. The cultivation tax had raised $500.6 million from 2018 until it ended, according to CDTFA.
The increase lasted one quarter. Assemblymember Matt Haney’s AB 564 kept the 19% rate for July through September 2025, then cut it back to 15% from October 1, 2025, through June 30, 2028. Gov. Gavin Newsom signed it September 22, 2025, saying the rollback was meant “so the legal market can continue to grow.” The law took effect immediately because it was a tax levy.
What happened to sales
The legal market was already shrinking before the tax went up. Retail cannabis sales fell from $4.45 billion in 2023 to $4.21 billion in 2024, then to $3.93 billion in 2025.
The quarter at 19% was the weakest of the year. Retailers reported $960.4 million in cannabis sales from July through September 2025, down 6.9% from the same quarter of 2024. It’s the lowest quarterly total since CDTFA began reporting this figure in 2023.
The tax hike still brought in more money for that one quarter. Excise revenue rose to $180.7 million in the third quarter of 2025, from $149.9 million in the second quarter, even as sales fell. For the full year, excise collections came to $623.2 million, nearly the same as the $627.5 million collected in 2024. The higher rate roughly made up for the smaller market.
Cutting the rate back didn’t turn sales around. Fourth-quarter 2025 sales were $990.2 million, down 3.4% from a year earlier. In 2026, the first quarter came in at $963.9 million, down 1.3%, and the second quarter at $1.013 billion, up 0.7%. Combined, the first half of 2026 is about even with the first half of 2025. Counting sales tax, the state collected $261.7 million in cannabis taxes from second-quarter 2026 returns: $152.0 million in excise tax and $109.7 million in sales tax. Since 2018, California has collected nearly $8.4 billion in cannabis taxes.
| Quarter | Retail cannabis sales | Change vs. year earlier | Excise tax collected | Excise rate |
|---|---|---|---|---|
| Q1 2024 | $1.071B | $159.7M | 15% | |
| Q2 2024 | $1.079B | $161.0M | 15% | |
| Q3 2024 | $1.032B | $154.1M | 15% | |
| Q4 2024 | $1.025B | $152.8M | 15% | |
| Q1 2025 | $976.5M | -8.9% | $145.5M | 15% |
| Q2 2025 | $1.006B | -6.7% | $149.9M | 15% |
| Q3 2025 | $960.4M | -6.9% | $180.7M | 19% |
| Q4 2025 | $990.2M | -3.4% | $147.2M | 15% |
| Q1 2026 | $963.9M | -1.3% | $144.7M | 15% |
| Q2 2026 | $1.013B | +0.7% | $152.0M | 15% |
Source: CDTFA open data portal, Cannabis Tax Revenues, updated August 2026.
Quarterly licensed retail cannabis sales, Q1 2024–Q2 2026. Source: CDTFA.
Cannabis excise tax collected by quarter. Source: CDTFA.
The longer slide
CDTFA’s taxable sales figure, which also includes non-cannabis goods cannabis retailers sell, goes back further. It peaked at $5.78 billion in 2021 and has fallen every year since, to $4.82 billion in 2025. That’s a drop of about 17%.
Stores are closing too. CDTFA counted 1,927 active cannabis retail sites at the end of 2023. That fell to 1,732 by the first quarter of 2026. CDTFA recorded 214 retail sites that stopped operating during 2025. The count ticked back up to 1,760 in the second quarter of 2026, and closures that quarter fell to 17, the fewest since CDTFA’s current count began in 2023.
Why the tax isn’t the whole story
The excise tax is only one layer. Retailers also collect state and local sales tax, and many cities and counties add their own cannabis business taxes. San Luis Obispo County, for one, cut its cannabis business tax in unincorporated areas from 8% to 6% starting October 1, 2026.
The bigger competitor is the unlicensed market. The state Department of Cannabis Control (DCC) estimates Californians consumed about 3.8 million pounds of cannabis in 2024, and about 2.4 million pounds of it came from illicit sources. That’s 62% of all cannabis consumed in the state, according to DCC.
Prices are falling too. Shanken News Daily reported that California sold just under 209 million cannabis units in 2025, close to the 210.4 million sold in 2024, even as dollar sales dropped. Sales also kept falling in the fourth quarter of 2025 and the first quarter of 2026, after the 15% rate was back.
For comparison, New York charges a 13% retail tax on adult-use cannabis, plus a 9% tax on distributors’ sales to retailers, according to the state Department of Taxation and Finance. New York cannabis isn’t subject to regular sales tax.
California is also folding intoxicating hemp into its cannabis system. AB 8, signed October 2, 2025, bans synthetic cannabinoids and inhalable hemp products and, starting January 1, 2028, requires hemp products with intoxicating cannabinoids to be sold through licensed dispensaries.
What’s coming
CDTFA’s third-quarter 2026 tax numbers are the next data point. Last year, third-quarter figures came out December 2. They’ll show whether the second quarter’s small gain held.
The 15% rate runs through June 30, 2028. Starting in fiscal year 2028-29, and every two years after that, CDTFA is required to recalculate the rate to replace the old cultivation tax, again capped at 19%. Unless lawmakers change the formula, the state could face the same increase again in 2028.
Before then, AB 564 requires DCC, working with CDTFA and the Legislative Analyst’s Office, to report to the Legislature by October 1, 2027, on how cannabis taxes are affecting the legal market, with recommended changes. We found no bill or ballot measure to cut the state rate further as of mid-October 2026.
Sources
- California Department of Tax and Fee Administration, Open Data Portal, “Cannabis Tax Revenues,” updated Aug 2026
- California Department of Tax and Fee Administration, Open Data Portal, “Cannabis Retailer Sites by Quarter,” updated Aug 19, 2026
- California Department of Tax and Fee Administration, News Release 26-07, second-quarter 2026 cannabis tax revenue, Aug 27, 2026
- California Department of Tax and Fee Administration, News Release 25-09, third-quarter 2025 cannabis tax revenue, Dec 2, 2025
- California Department of Tax and Fee Administration, Cannabis Tax Law, Section 34011.2
- Office of Governor Gavin Newsom, “Governor Newsom signs legislation cutting taxes on cannabis,” Sep 22, 2025
- CalMatters Digital Democracy, “AB 564: Cannabis: excise tax: rate increase suspension: report”
- California Department of Cannabis Control, “When legal cannabis is unavailable, what fills the gap?”
- San Luis Obispo County, “Board of Supervisors adopts ordinance reducing cannabis business tax rate to 6%,” Aug 4, 2026
- Office of Governor Gavin Newsom, AB 8 signing, Oct 2, 2025
- New York State Department of Taxation and Finance, “Adult-use cannabis products tax”
- Shanken News Daily, “California Cannabis Sales Dip Below $4 Billion In 2025,” Mar 3, 2026
