Like a loaded gun, our country’s cannabis industry is staring down the barrel of some major tax increases. The affected states are California, Maryland, Maine, Michigan, New Jersey, and Ohio. Motivated mainly by economic pressures within each state, these increases, should they come to pass, will further handicap the legal cannabis markets, possibly pushing buyers to neighboring states or the illicit market.
Cash-Strapped Governors Eye Cannabis Coffers
All six of these states are hurting for money, so their governors are looking to find additional funding to cover shortfalls, and cannabis is an easy target. Maryland and New Jersey both have multi-billion-dollar projected budget shortfalls, while Maine expects a budget gap of $450 million. Michigan has a new multi-billion-dollar road repair plan that is aching for funds, while Ohio also experienced its first drop in four years in tax revenue.
California’s Woes
The largest market threatened by a tax increase is California, whose cannabis excise tax stands to increase from 15% to 19% on July 1, 2025.
When California removed its cultivation tax on July 1, 2022, that legislation included a proviso that excise taxes would increase in order to maintain funding for “Tier 3” entities such as childcare programs and youth groups; environmental, wildlife and conservation programs; law enforcement and justice organizations; and drug treatment prevention centers, all of which had been guaranteed $670 million from annual cultivation tax revenues. California’s current budget predicts a “small” budget deficit of $2 billion in fiscal year 2025-2026, with double-digit operating deficits expected in the years to come.
In a last-ditch attempt to halt the increase, State Assembly member Matt Haney from San Francisco introduced Assembly Bill 564 on February 12, 2025.
Whether this bill gains enough traction to pass remains to be seen. California collected over $593 million in excise taxes in 2024, which would suggest an increase in excise tax revenue to $751 million once the new tax rate kicks in. According to cannabis operators, however, this will drastically reduce their margins and may put some out of business. Therefore, the marketed increase in tax revenue may not materialize and could even be reduced.
However, California’s excise tax revenue has been falling quarter by quarter since at least 2023, from $160 million collected in 2023Q4 to $128 million in 2024 Q4. This mirrors a similar fall in taxable sales. The new excise tax hike bodes ill for a state industry that is already on the ropes competing with an illicit industry 1.5 times its size.
Ohio Takes Double Action Against Cannabis
With a proposed doubling of its excise tax, as well as a raft of other restrictive proposals, Ohio is perhaps acting the most aggressively towards its cannabis industry.
The state plans to increase its excise tax increase from 10% to 20%, effective July 1, 2025. Initially, Senate Bill 56 introduced a smaller 15% excise tax, along with other measures seen as pejorative to the state’s cannabis industry, including reducing THC potency, abolishing the state’s social equity program, requiring Ohioans to smoke or vape cannabis only in a private residence, prohibiting adult to-adult transfer of cannabis or cannabis purchased legally in other states, etc.
Since then, Governor Mike DeWine’s Proposed Budget came out with an increase in the excise tax to 20%, prompting lawmakers to remove the 15% tax rate from SB 56, leaving 20% as the only rate being proposed. DeWine is also proposing to increase the tax on vape products from 17%-42%.
A recent report by Ohio State noted that this new excise tax, coupled with the state’s sales tax of 5.75%, “would raise the total point-of-sale tax rate to 25.75%, [and] would make Ohio the third highest tax rate state.” This would place Ohio 10% above the effective tax rate of their neighboring state, Michigan.
Maryland Grapples with Budget Deficit
Maryland’s Governor Wes Moore has proposed an excise tax increase to 12% from the current rate of 9%, effective beginning July 1, 2026, as part of his biennial budget. Total cannabis sales are now running at almost $100 million per month, with 75% of that recreational.
2024Q3’s excise taxes, which is the latest data available, shows over $18 million collected, equating to $72 million per year. An increase from 9% to 15% would mean an additional $48M to Maryland, a welcome windfall for a state expecting a budget cash shortfall of $2.95 billion.
Maine: Treats and Tricks
Maine has the most complicated proposed tax increase, because it’s combined with a tax reduction. Maine has a weight-based cultivation excise tax of $335 per pound of flower. However, the state’s wholesale price of flower has declined 56% in four years, causing the tax burden on cultivators to double.
Governor Janet Mills, in her 2026-2027 budget, has proposed a 1/3 reduction in the cultivation tax, coupled with an increase in the cannabis retail sales tax from 10% to 14%, effectively shifting the tax burden onto the state’s dispensaries and their customers, and increasing it overall.
2024 excise taxes collected were $16 million, while cannabis sales taxes received were $22.5 million. Under the new proposal, set to begin July 1, 2025, if sales remained steady, excise taxes would decrease by $5.3 million while cannabis sales taxes would increase by $8.8 million.
A recent report by Maine’s Office of Cannabis Policy states, “The sales tax adjustment puts Maine in similar range with other states that have cannabis sales tax.” The closest recreational states to Maine are Massachusetts and Vermont. Massachusetts’ total tax rate on cannabis, including its 3% optional local tax, is 20%, while Vermont’s total tax rate on cannabis, including a 1% local option tax, is 21%. Maine’s new tax of 14% would still leave it competitive with its neighbors.
Michigan: Road Warriors
Governor Whitmer is looking to enact a new wholesale cannabis tax that would be paid by licensed operators, not consumers. While her office has said the intent is too close a “loophole” that’s exempted the industry from such a tax, the expected $470 million in new revenue will go a long way toward paying for the governor’s new $3 billion dollar road repair plan. The proposal puts a 32% tax hike on Michigan’s cannabis.
New Jersey: from Bad to Worse
Not only did New Jersey recently increase its Social Equity Excise Fee on cannabis sales 100%, from $1.24 per ounce to $2.50 per ounce, but now Governor Murphy wants to increase the cultivator’s weight-based tax by 500%. This massive hike would take cultivators from paying $40 per pound to $240 per pound! The expected increase in state revenue of $70 million dollars will thrown into the breach to help stop an expected budget hemorrhage of more than $3.8 billion dollars in the upcoming fiscal year.
Take Action Now
With these increases looming in a little over three months, it’s important that cannabis businesses and their advisors be prepared. With the exception of Maine’s cultivators, who will receive a welcome reduction in their tax burden, all six of the states’ retailers could see very significant increases. Cannabis businesses should run budget simulations taking into account the expected increases while looking for ways to offset these with internal cost reductions and possible savings in purchases of wholesale cannabis.
Additionally, retailers may wish to warn their customers, who will likely be asked to bear some or all of the additional burden.
Destructive Taxation
Each of these taxes appears to turn a blind eye to the struggling condition of many of today’s cannabis businesses. A recent survey by cannabis industry expert Whitney Economics determined that roughly 27% of U.S. cannabis businesses reported being profitable in 2024. This compares unfavorably with a country-wide average of approximately 65% of all small businesses which were profitable last
year. With so many cannabis companies “barely making it”, or worse, now would not seem the time to add more straws to the proverbial camel’s back.
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