California Cannabis Sales Plummet: Tax Hike's Impact on Industry

California Cannabis Market Faces a Sharp Decline

The California cannabis market, once a shining example of legalized marijuana success, has encountered a significant downturn following a tax hike that has led to sales dropping to a five-year low. More specifically, cannabis sales hit below $940 million in the third quarter of 2025, according to the California Department of Tax and Fee Administration. This figure represents a decline from the $993 million reported in the previous quarter and marks the lowest point since early 2020, prior to a surge in sales driven by the COVID-19 pandemic.

The Impact of Increased Tax Burdens

As California lawmakers increased the excise tax from 15% to 19% starting July 1, many in the cannabis industry anticipated that the move would stifle a market already struggling under heavy tax burdens. Hirsh Jain, a consultant from Ananda Strategy, stated, “California was already one of the highest taxed states for legal cannabis. It had the lowest per-capita sales of any mature adult-use state.” Such statements reinforce concerns that consumers could be tempted to revert to the unregulated market rather than pay steep prices born from high taxes.

Sales Trends and Future Predictions

Legal marijuana sales are on track for a third consecutive decline, with projections indicating that they may drop below the $4 billion mark for the first time since the market’s launch. Annual sales were approximately $4.4 billion in 2023; by 2024, they fell to around $4.2 billion. Now, a continuous trend suggests that 2025 could bring even lower totals. This declining trajectory raises serious questions: Will consumers return to legal purchases after the tax structure is adjusted, or will they continue to favor cheaper illicit alternatives?

Concrete Examples and Lessons for Other States

The California experience serves as a cautionary tale for other states considering tax increases on cannabis sales, such as Michigan, which approved a hefty 24% wholesale tax. The lessons learned here should encourage lawmakers to take a more measured approach. For instance, Ohio has set its cannabis excise tax at a mere 10%, a move designed to help licensed operators effectively compete while still generating government revenue. The stark difference highlights the challenges California faces in drawing consumers towards the legal market.

The Need for Reform

With illegal cannabis consumption still outpacing legal sales in California—more than twice the size according to a state-commissioned study—calls for tax reform are resounding. To reverse a trend that has seen consumers drift towards cheaper, unregulated products, operators argue for a substantial reduction in cannabis taxes. As Jain succinctly puts it, “Barring tax and regulatory reform, it seems likely that California will in the coming years be overtaken in sales by some other state with a fraction of its population and will no longer be able to claim that it is the largest cannabis market in the world.”

Conclusion: What Lies Ahead for the Cannabis Industry?

The cannabis industry in California stands at a crossroads. As lawmakers contemplate further reforms and adjust tax rates, industry stakeholders and consumers alike are left wondering how these necessary changes will shape the future of the market. The statistics illustrate not only the immediate consequences of tax increases but also a larger battle that continues for the legal cannabis market in a state that once led the charge for legalization. Will California recapture its status, or are we witnessing the slow fade of the largest cannabis market in the world?