The cannabis industry is facing some major tax increases in California, Maryland, Maine, and Ohio, which represent a significant portion of the adult-use cannabis market. Such increases would further handicap the legal cannabis markets in those states and could push buyers to neighboring states or the illicit market.
All four of these potential tax increases are motivated by the need for these states’ governments to cover funding shortfalls. Because all of these tax measures have strong governmental support, with pushback coming from just the industry itself, they likely will be enacted.
With these increases looming in a little over three months, cannabis businesses and their advisers should get ready now. Retailers may also wish to warn their customers, who will likely be asked to bear some or all of the additional burden.
California’s Struggles
California, whose cannabis excise tax stands to increase by from 15% to 19% on July 1, has the largest market that would be affected by an increase. Though Assembly Bill 564, a last-ditch attempt to halt the increase, was introduced last month, it’s unclear whether the bill will pass.
California collected over $593 million in excise taxes in 2024, which would suggest an increase in excise tax revenue to $751 million once the new tax rate kicks in. However, California’s excise tax collections have been falling quarter by quarter since at least 2023, which mirrors a similar fall in taxable sales. The new excise tax hike bodes ill for a state industry that is already on the ropes competing with an illicit industry at least 1 1/2 times its size.
Ohio’s Restrictive Actions
With a proposed doubling of its excise tax, as well as a raft of other restrictive proposals, Ohio is perhaps acting the most aggressively toward its cannabis industry. This is of concern to many in the state’s cannabis community who view it as “re-criminalization” and a U-turn back toward a more anti-cannabis past. This in turn could dampen sales.
The state plans to increase its excise tax increase from 10% to 20%, effective July 1. Initially, Senate Bill 56 introduced a smaller 15% excise tax, along with other measures seen as harmful to the state’s cannabis industry, such as reducing THC potency, abolishing the state’s social equity program, and requiring Ohioans to smoke or vape cannabis only in a private residence.
Since then, Gov. Mike DeWine’s (R) proposed budget came out with an increase in the excise tax to 20%. DeWine is also proposing to increase the tax on vape products from 17% to 42%.
A recent report from Ohio State University noted that this new excise tax, coupled with the state’s sales tax of 5.75%, “would make Ohio the third highest tax rate state.” This would place Ohio 10% above the effective tax rate of neighboring Michigan, possibly pushing people to that state’s market or to the illicit trade.
Maryland Plugs Deficit
Maryland Gov. Wes Moore (D) has proposed an excise tax increase to 15% from the current rate of 9%, effective beginning July 1, 2026, as part of his biennial budget. Total cannabis sales are now running at almost $100 million per month, with 75% of that recreational.
The latest data available shows that yearly excise tax collection equates to $72 million per year. An increase from 9% to 15% would mean an additional $48 million to Maryland, a welcome windfall for a state expecting a budget cash shortfall of almost $3 billion. With a budget of $59 billion, this gap creates a significant pressure to increase revenue, with cannabis taxes an easy target.
Maine Gives, Takes
Maine has the most complicated proposed tax increase, because it’s combined with a tax reduction. In her 2026-2027 budget, Gov. Janet Mills (D) has proposed a one-third reduction in the cultivation tax, coupled with an increase in the cannabis retail sales tax from 10% to 14%. This effectively would shift the tax burden onto the state’s dispensaries and their customers and increase it overall.
Last year’s excise taxes collected were $16 million, while cannabis sales taxes received were $22.5 million. Under the new proposal, set to begin July 1, excise taxes would decrease by $5.3 million, while cannabis sales taxes would increase by $9 million if sales remained steady.
According to a recent report by Maine’s Office of Cannabis Policy the adjustment would make comparable Maine and other states that have cannabis sales taxes states, such as Massachusetts and Vermont. Maine’s new tax of 14% would still leave it competitive with its neighbors. While the net tax increase would still hamper the industry, at least customers would be unlikely to consider purchasing in a nearby state.
Key Takeaways
Each of these taxes appears to turn a blind eye to the struggling condition of many of today’s cannabis businesses. A recent survey by cannabis industry expert Whitney Economics determined that roughly 27% of US cannabis businesses reported being profitable in 2024—far less than the countrywide average of approximately 65% of all small businesses that were profitable last year.
Additionally, many of these states’ cannabis operators believe these tax increases would drastically reduce their profit margins and may put some out of business. Therefore, the increase in tax revenue may not materialize and could even be reduced.
Maine’s cultivators will receive a welcome reduction in tax burden, but retailers in all four states discussed above will see significant increases. Retailers’ budget simulations should consider the expected increases while looking for ways to offset these with internal cost reductions and possible savings in purchases of wholesale cannabis.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Rachel Wright is a certified public accountant and the founder and CEO of Los Angeles-based Verdant Strategies, an accounting, financial management, and strategic consulting firm.
Simon Menkes supports accounting firms, their clients, and advisers through accounting and advisory services.
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Cannabis accounting experts Rachel Wright and Simon Menkes examine how potential cannabis tax increases in California, Ohio, Maryland, and Maine should prompt retailers to examine their business strategies. Read More
