California Judge Tentatively Upholds Cannabis Tax Changes Challenged Over Childcare Funding
- A California judge tentatively upheld changes to the state’s cannabis tax system, rejecting most claims that the changes will decrease funding for childcare and youth programs.
- The lawsuit, filed by youth advocacy groups and parents, challenged Assembly Bill 564, which lowers the cannabis excise tax, and Senate Bill 141, which permits use of tax revenues for enforcement against illegal marijuana businesses.
- Judge Harold Kahn expressed concerns about lawmakers' power to alter voter-approved laws but mainly sided with the state, allowing plaintiffs to revise a specific claim regarding AB 564.
- The ruling is not final and may be altered before a conclusive decision is made.
A California judge has tentatively upheld recent changes to the state’s cannabis tax system, rejecting most of a lawsuit claiming the changes will reduce funding for childcare and other youth programs.
The case was filed by Youth Transforming Justice, the East Bay Asian Youth Center and two parents who challenged Assembly Bill 564 and Senate Bill 141.
San Francisco County Superior Court Judge Harold Kahn agreed with most of the state’s arguments, but allowed the plaintiffs to revise one part of their lawsuit involving AB 564.
California voters approved Proposition 64 in 2016, legalizing recreational marijuana and creating a system of taxes and licensing fees to regulate the market and fund state programs.
After regulatory costs and other required expenses are covered, 60% of certain remaining cannabis tax revenue goes toward youth programs, including childcare and substance-use prevention and treatment.
The plaintiffs argue that lawmakers improperly changed Proposition 64 in ways that will leave less money available for those programs.
AB 564 lowered California’s cannabis excise tax from 19% to 15% beginning in October 2025. The lower rate is set to remain in place through June 30, 2028.
SB 141, approved in June 2025, allows money from the Cannabis Tax Fund to be used for enforcement against illegal marijuana businesses.
The plaintiffs argue that those enforcement costs should have been covered through licensing fees rather than cannabis tax revenue.
During the hearing, Kahn questioned how much power lawmakers should have to change Proposition 64. He said a broad reading of that authority could allow the Legislature to weaken or remove major parts of the voter-approved law.
Despite those concerns, the judge sided with the state on most of the legal issues raised in the lawsuit.
The state also argued that the California Department of Tax and Fee Administration and State Controller Malia Cohen should not be defendants because they only collect and distribute the money and do not set tax rates.
Kahn allowed the plaintiffs to rewrite their claim that AB 564 unconstitutionally changed Proposition 64.
The ruling is tentative and could still be changed before a final decision is issued.