California Cannabis Sales Fall Under $4 Billion as Tax Turmoil Hits Industry

(CALIFORNIA) — The California Department of Tax and Fee Administration reported $255.1 million in cannabis tax revenue for the fourth quarter of 2025, a statewide update that state officials said does not match widely shared claims of a steep collapse in California cannabis sales.

The department’s quarterly release, posted on February 26, 2026, put excise tax collections at $145.5 million and sales tax collections at $109.6 million for the quarter.

Those official figures land as California cannabis sales and tax turmoil continue to ripple through state and local budget planning, licensed operators’ compliance decisions, and enforcement efforts aimed at shifting consumers away from unlicensed products.

The state update also sharpened a central dispute in the legal market: while social media and other circulating accounts have claimed California cannabis sales plunged below $4 billion, the state’s own tracking and tax reporting show otherwise, including statewide 2025 sales exceeding $17 billion.

Quarterly comparisons in the state’s release showed the fourth quarter came in below the prior quarter after revisions, underscoring how headline numbers can shift as filings get updated and accounting gets refined.

Revised figures for the third quarter of 2025 showed total cannabis tax revenue of $285.5 million, including $177.7 million in excise tax, higher than the fourth-quarter totals reported in the February release.

State reporting linked part of that quarter-to-quarter change to how California’s excise tax policy moved during mid-2025 and then moved again as the fourth quarter began, a timing dynamic that can change what is collected in a given period even if underlying demand does not move in lockstep.

Governor Gavin Newsom signed AB 564 on September 22, 2025, a policy change that state reporting tied to the excise rate adjustment that took effect as the market moved out of the third quarter and into the fourth quarter.

The fourth-quarter release, along with statewide annual figures, also provided a broader context for the online narrative around California cannabis sales dipping below $4 billion, which the state’s numbers did not support.

Full-year legal cannabis sales in 2024 totaled $4.70 billion, according to the data cited in the state’s tracking.

Partial 2025 data, through November, reached $2.80 billion across counties, with earlier months’ totals varying from month to month while still showing hundreds of millions of dollars in reported sales.

One example cited in the statewide reporting was March 2025, when county totals reached $377.7 million, within a broader range described as averaging $375–$408 million in earlier months.

Statewide totals and county reporting do not move in a straight line from month to month, and the state data presented a picture of variability rather than a single, uniform trajectory.

The same reporting also framed tax collections as a crucial link between market performance and the public programs funded by cannabis revenue, especially as lawmakers continue to revise tax policy and definitions that determine what gets taxed and when.

In the fourth quarter of 2025, the split between excise tax and sales tax mattered because each part of the total reflects a different slice of taxable activity and can move for different reasons in state reporting, including policy-driven shifts and compliance changes that affect what is reported in a quarter.

Excise tax made up the larger portion of the fourth-quarter total at $145.5 million, while sales tax contributed $109.6 million, the department reported.

That breakdown also fits into a longer-run picture of legalization-era collections: California’s cannabis excise tax generated over $7.87 billion in total revenue since January 2018, according to the state figures referenced in the update.

The state reporting described typical destinations for those funds as supporting childcare, medical research, and youth prevention programs, areas that can face pressure when receipts turn volatile.

The February 26 release came amid a broader reality the state data also flagged: competition from the illicit market, which the reporting estimated captures ~60% of consumption.

That estimated share acts as a persistent constraint on the licensed market’s ability to fully translate consumption into taxable sales, and it remains an ongoing factor shaping legal market performance and tax collections.

The latest quarter’s decline from revised third-quarter levels also arrived after a period of what the state reporting described as excise tax rate whiplash, with a temporary higher rate during the third quarter that then shifted again as the fourth quarter began.

Because the third quarter and fourth quarter sit on opposite sides of that mid-2025 policy swing, the revenue totals and the mix between excise and sales taxes reflected not just market activity but also how the tax rules applied across the calendar.

That dynamic is one reason state officials and industry watchers often caution against reading a single quarter as a definitive measure of the market’s direction, even as quarterly totals remain the most closely watched snapshots of taxable activity.

Policy updates adopted in 2025 also expanded beyond rate-setting and moved into product definitions, a shift that could affect classification decisions by businesses and enforcement decisions by regulators.

Newsom signed AB 8 on October 2, 2025, and the law took effect January 1, 2026, expanding the excise tax definition to include certain hemp-derived products previously excluded.

That change matters because it can affect which products fall inside the excise tax base, and it can alter compliance obligations for retailers and others across the supply chain without necessarily reflecting an immediate change in consumer demand.

AB 564 and AB 8 together illustrate how tax rule changes can move reported revenue between quarters through timing and definitional effects, complicating simple comparisons that assume a stable framework from one reporting period to the next.

State reporting tied AB 564 to the excise tax rate changes, describing lawmakers’ and policymakers’ competing pressures around revenue stability and market conditions.

At the same time, AB 8’s definitional expansion signaled a regulatory interest in clarifying how certain products are treated for tax purposes, a step that can have downstream effects for enforcement and product labeling as officials determine what falls within the taxable category.

While the state’s quarterly and annual numbers did not support the most extreme claims of a collapse below $4 billion, the official data still reflected volatility, and the policy churn reinforced how quickly compliance burdens and tax outcomes can shift for licensed businesses.

That mix of volatility and compliance pressure also appeared at the local level, where Los Angeles reported large outstanding obligations linked to cannabis-related taxes and fees.

In Los Angeles, ~700 licensed businesses owe $417 million in back taxes, fees, penalties, and interest as of December 2025, according to the city figures cited in the update.

The city’s accounting included $100 million in penalties and $35 million in interest within that total, a breakdown that highlights how outstanding balances can grow over time as add-ons accumulate.

City leaders have floated an amnesty program as a potential path to bring in near-term collections while reducing some of the add-on costs that businesses face.

The proposed approach could yield $30 million for the city while forgiving $25 million in penalties, the figures cited in the reporting showed.

Key details of how such an amnesty would work, including who would qualify and what compliance conditions would apply, remained unresolved in the information cited alongside the Los Angeles totals.

Even so, the local arrears and the state’s quarterly tax report pointed to the same underlying tension: governments rely on cannabis revenue for public purposes, while licensed operators face costs and competitive pressure in a market where the illicit share remains large.

The Los Angeles numbers also underscored how enforcement and compliance issues can show up not only in statewide excise and sales tax totals but also in local ledgers, where uncollected taxes and fees translate into gaps between expected revenue and actual receipts.

At the state level, the February 26 release highlighted how quickly quarter-to-quarter totals can change after revisions, and how much of the movement can hinge on the timing of policy changes.

Revisions to the third-quarter total, now listed as $285.5 million, left the fourth-quarter figure of $255.1 million looking weaker by comparison, with the excise portion dropping from $177.7 million to $145.5 million across the two quarters.

Those numbers matter for California because cannabis taxes sit alongside other revenue streams that state and local officials track for budget planning, even as the legal cannabis market competes with unlicensed supply.

The reporting’s estimate that ~60% of consumption occurs in the illicit market suggests the licensed sector continues to operate in a divided marketplace, where not all consumer activity becomes taxable sales.

In that setting, changes in tax rules and definitions can influence not just the amount collected but also which products and transactions are captured in official totals, potentially reshaping the relationship between market behavior and tax receipts.

The state’s sales tracking also provided a benchmark for claims about a dramatic slump, with 2024 sales at $4.70 billion and 2025 statewide sales exceeding $17 billion in the official accounting cited.

Partial 2025 county data through November, totaling $2.80 billion, showed ongoing reported activity across counties, with monthly totals that varied but remained in the hundreds of millions of dollars in the examples cited.

Those official figures do not erase the financial pressures many licensed operators describe in a competitive market, but they do set an official baseline that diverges from the most extreme downturn narratives circulating online.

For policymakers, the numbers reinforce a practical governance challenge that sits at the heart of the state’s ongoing tax turmoil: sustaining funding for childcare, medical research, and youth prevention programs while keeping the legal market viable against unlicensed competition that the state data estimated at ~60% of consumption.

The next signals for the market will come from future quarterly releases, which will show whether revenue stabilizes as the latest tax rule changes settle in and as AB 8’s definitional expansion begins to show up in reported activity.

Los Angeles also stands out as a near-term focal point, with city leaders weighing what an amnesty program could collect and what penalties it would forgive, in a city where ~700 licensed businesses were cited as owing $417 million as of December 2025.