Staying Compliant While California Cannabis Excise Tax Holds at 19%

As of July 1, 2025, California’s cannabis excise tax rate increased from 15% to 19%, following a scheduled adjustment tied to the repeal of the cultivation tax. While the legal market watches AB 564 move through the legislature — a bill aiming to reverse that increase — licensed operators must tighten up their compliance strategy.

Importantly, this rate hike does not mark a change in who handles tax collection. Since January 1, 2023, cannabis retailers — not distributors — have been responsible for the collection, reporting, and remittance of the excise tax, a shift codified under AB 195. That change placed financial and compliance responsibility squarely on the shoulders of storefront operators.

Whether you’re managing the books or managing the sales floor, now is the time to double down on cannabis tax compliance.

CFO Responsibilities: Strategic Oversight & Tax Precision

1. Ensure System Accuracy Across All Platforms
With the 19% excise tax now in effect, confirm your POS and accounting systems are applying it correctly. Integration across Metrc, inventory (e.g., Fishbowl), and financial tools (QuickBooks, ERP) is critical.

2. Maintain Separated Tax Liability Accounts
Excise tax collected must be placed in a separate liability account — not lumped in with revenue. This helps with reconciliation and provides a clear audit trail.

3. Build and Maintain Supporting Documentation
Invoices, sales reports, tax calculations, and transfer manifests should be stored, labeled, and easy to produce in the event of a CDTFA audit.

4. File on Time — Every Time
Retailers must file the Cannabis Retailer Excise Tax Return quarterly with CDTFA. Returns are due the last day of the month following each quarter. Prepayments now an option through the CDTFA tax portal. Late filings risk penalties and interest.

5. Budget for Uncertainty
Until AB 564 is signed into law, assume the 19% excise tax remains. Adjust forecasts and cash flow strategies accordingly to protect your margins.

Operator Responsibilities: Frontline Execution & Communication

1. Collect the Full 19% Excise Tax at the Register
Since 2023, retailers have been solely responsible for collecting this tax. There is no distributor buffer anymore — accuracy at the point of sale is critical.

Remember: Excise tax is still compounded. That means it’s calculated on the retail price before sales tax is added. This increases the effective tax burden for consumers — and makes proper system configuration essential.

2. Post Clear Tax Signage for Customers
Transparency goes a long way. Use signage like:
“Prices include California’s 19% cannabis excise tax and applicable sales tax.”

3. Avoid Unintentional Noncompliance on Deals or Discounts
Special pricing, bundling, or promotional offers must still honor the correct tax obligations. Regularly audit your POS configurations and promotional settings.

4. Train Your Team to Handle Tax Conversations
Budtenders should be able to explain the difference between excise and sales tax — and why prices changed after July 1. Well-informed staff reduce confusion and increase consumer trust.

5. Be Prepared to Pivot if AB 564 Passes
If the rate drops back to 15%, you’ll need to reprogram systems, reprint signage, and retrain teams quickly — possibly within days of enactment.

What’s AB 564, Again?

AB 564 seeks to freeze California’s cannabis excise tax at 15% through June 30, 2031, reversing the July 1, 2025 increase to 19%. The bill advanced out of the Senate Revenue & Taxation Committee on July 9, 2025, and now moves to the Senate Appropriations Committee for fiscal review.

Watch the full committee hearing
Track AB 564 on LegiScan

Official Reference from CDTFA

Need a refresher? The CDTFA Cannabis Resource Guide includes forms, instructions, and detailed guidance for cannabis retailers under current tax law.

Need Expert Support?

Between compounded taxes, rate increases, and shifting legislation, the stakes are high for California cannabis operators. If you’re unsure about your compliance process, tax remittance workflow, or audit readiness —

Contact BTA Cannabis CPA Tax for: