California’s cannabis industry received a much-needed lifeline last Friday when Assembly Bill 564 passed through its latest committee milestone, bringing critical tax relief one step closer to reality. The bill’s advancement, combined with complementary hemp regulation reforms in AB 8, signals a potential turning point for an industry that has been struggling under mounting financial pressures.
AB 564 represents more than just another piece of legislation—it’s a recognition that California’s cannabis businesses need immediate support to compete against illicit markets and maintain their foothold in the legal ecosystem. The bill’s passage through committee comes at a time when operators are grappling with increased operational costs, regulatory burdens, and tax obligations that threaten their viability.
AB 564 Could Bring Five Years of Tax Relief To California Cannabis Industry
The core of AB 564 addresses a fundamental challenge facing California cannabis businesses: the escalating tax burden that has made legal cannabis increasingly expensive compared to illicit alternatives. Under current law, the cannabis excise tax jumped from 15% to 19% on July 1, 2025, creating an immediate 4% increase in costs that businesses and consumers must absorb.
AB 564 would provide structured relief by implementing a phased approach to taxation. From July 1, 2025, through September 30, 2025, the existing 19% rate would remain in place. However, starting October 1, 2025, and continuing through June 30, 2030, the excise tax rate would decrease to 15%. This five-year period of reduced taxation is designed to give businesses breathing room to stabilize operations and compete more effectively with unregulated markets.
The new amended legislation also includes important accountability measures. The Department of Tax and Fee Administration must submit detailed reports to the Legislature documenting any gains or losses in cannabis excise tax revenues resulting from the rate reduction.
The significance of AB 564 extends beyond simple tax reduction. California’s legal cannabis market has been under siege from multiple directions, with operators facing competition from illicit markets that operate without the overhead of compliance, testing, and taxation. The additional 4% tax increase implemented in July created another barrier to competitiveness, making legal products even more expensive relative to unregulated alternatives.
LA County Hiking Fees Up on Cannabis Industry
Local jurisdictions have compounded these challenges with their own fee structures. Los Angeles County last month approved substantial fee increases for cannabis businesses, with license renewal fees jumping nearly 50 . These local increases, combined with state excise taxes, create a cumulative burden that many operators struggle to manage while maintaining competitive pricing.
The tax relief provided by AB 564 would generate immediate benefits for retailers, who currently face difficult decisions about whether to absorb increased costs or pass them along to consumers. Many operators report that passing increases to customers drives business to illicit competitors, while absorbing costs threatens their financial sustainability.
AB-8 Attempts to Bring Order to California’s Hemp Market
Simultaneously, the committee advanced AB-8, legislation designed to integrate hemp-derived cannabinoid products into California’s existing medical and adult-use marijuana regulatory framework while eliminating synthetic cannabinoids from the market.
If enacted, on January 1st, 2028, the bill would subject hemp-derived products entering the licensed cannabis market to the same regulatory requirements as traditional cannabis products. This includes mandatory tracking through the state’s seed-to-sale system, security and transportation requirements, quality assurance standards, and testing by licensed laboratories.
The legislation takes a particularly strong stance against synthetic cannabinoids, defining them as cannabinoids produced through biosynthesis, bioconversion, or chemical synthesis. This definition specifically includes delta-8-tetrahydrocannabinol, delta-10-tetrahydrocannabinol, and any THC produced by converting CBD.
AB-8 also establishes strict purity requirements for hemp extracts used in food products, requiring greater than 99% purity and zero tetrahydrocannabinols or synthetic cannabinoids. The bill prohibits the sale of hemp flower and hemp prerolls for consumption within the state.
Timing and Political Dynamics
The advancement of both bills comes after months of political maneuvering around cannabis tax policy. Advocates had hoped that tax relief would be included in the state budget supported by Governor Gavin Newsom. However, Senate President Pro Tempore Mike McGuire reportedly blocked the measure from budget legislation, according to Cal Matters, which will now require supporters to pursue standalone bills.
This highlights the ongoing tension between fiscal concerns and industry support within state government. While the cannabis industry generates significant tax revenue for California, operators argue that excessive taxation undermines the fundamental goal of establishing a regulated market that can compete with illicit alternatives.
The committee’s 7-0 vote on AB 564 suggests bipartisan recognition that tax relief is necessary to preserve the legal cannabis market. This unanimous support provides momentum for the bill’s continued advancement through the legislative process.
What Are The Implications of These Bill Advancing for California Cannabis Policy?
The advancement of AB 564 and AB-8 reflects a maturing understanding of cannabis policy challenges in California. Early legalization efforts focused primarily on establishing regulatory frameworks and generating tax revenue, but experience has shown that overly burdensome taxation can undermine market development.
The five-year tax relief period in AB 564 provides an opportunity to assess the effectiveness of reduced taxation in strengthening the legal market. The bill includes provisions for measuring the impact of tax reduction on industry revenues, creating data that can inform future policy decisions.
Similarly, AB-8’s integration of hemp-derived products acknowledges that cannabis regulation must evolve with changing market conditions and consumer preferences. The bill’s approach to hemp integration, combined with clear prohibitions on synthetic cannabinoids, reflects lessons learned from other jurisdictions where regulatory gaps have created consumer safety concerns.
Only time will tell if these bills will pass, as they are far from a sure thing and will undoubtedly face hurdles along the way. However, both are crucial steps toward easing the burden on California cannabis operators in an overtaxed, overregulated market while also providing much-needed clarity for hemp products.
