Californians Consider Cutting Cannabis Excise Tax—but Child-Care Services May Take the Hit

On July 1, California rolled back its cannabis excise tax increase—from 19% down to 15%—via an industry-backed bill in the Assembly. While this move aimed to support a struggling legal market, it stands to eliminate $180 million in annual revenue that currently funds critical services, including law enforcement, environmental cleanup, and—most notably—$81 million helping subsidize child-care slots for approximately 8,000 low-income children.

This tax policy “sweet spot” raises fundamental questions about whether it’s sustainable—or wise—to fund essential community programs through so-called “sin taxes.” Funding that ebbs and flows with market trends is precarious at best—and the instability underscores old concerns about relying on volatile revenue sources for vital services.

The tax increase was part of a 2022 budget compromise: cannabis businesses gained temporary relief from cultivation taxes, but the excise tax was set to climb later to compensate. But as legal cannabis revenue has tanked (down 30% in Q1 2025 from its 2021 high), retailers argue the added tax burden drives consumers back into illicit markets—and threatens licensed operators’ survival.

This dynamic is worrisome for regulators: if legal sales decline, not only do businesses lose ground, but the state loses a growing income stream designed to offset cannabis-related harms like impaired driving and environmental damage.

Child-care advocates sound urgent alarms. The projected loss in funding represents a small fraction of California’s annual child-care budget—but with federal funding down and waiting lists notoriously long (“no hope lists”), every dollar matters.

“Every single dollar needs to remain in the programs that are serving our children and families,” says Mary Ignatius, executive director of Parent Voices California. Meanwhile, environmental groups and tribal advocacy organizations urge preservation of the state’s commitment to cleanup and youth services promised under Proposition 64.

The impending Senate debate and looming September deadline put real pressure on legislators—and Governor Newsom, who has pledged to protect child-care funding no matter what. But the challenge remains: how to support the legal cannabis market without gutting other vital societal supports?

This dilemma underscores the need for smarter revenue strategies—whether diversifying funding away from cannabis excise taxes, stabilizing pricing frameworks, or providing tax relief to small operators and equity businesses.