California Rolled the Excise Tax Back to 15%: The Math for Brands
CRC Manufacturing · January 15, 2026 · 3 min read
The excise rate that took effect on January 1, 2026 is 15%, not 19%. For a brand selling through California retail, that four-point swing shows up as shelf price, and shelf price shows up as reorder rate.
What changed
AB 564, signed in October 2025, reversed the increase that had raised the cannabis excise tax from 15% to 19% in July 2025. The 15% rate took effect January 1, 2026 and holds through 2028, at which point it reverts unless the legislature extends it.
It follows SB 1059, which eliminated tax-on-tax — the practice of computing excise on a base that already included local cannabis taxes. Together the two changes take a meaningful amount of compounding out of the final retail number.
The math on a $30 eighth
Take an eighth with a $30 pre-tax retail price. At 19% excise, the excise line is $5.70. At 15%, it is $4.50 — a $1.20 difference before local tax and sales tax are layered on. Once those multiply through, the customer-facing difference on that single unit typically lands closer to $1.30 to $1.50.
On a case of 100 units that is roughly $120 of excise removed from the retail stack. The retailer decides whether that becomes a lower shelf price, a restored margin, or a promotional budget. In practice most of it goes to shelf price, because price is the lever that competes with the illicit market.
Why lower shelf price shows up in your reorders
Excise is collected at retail, not at manufacturing, so a brand never sees the four points directly. What a brand sees is velocity. When a $35 eighth becomes a $33 eighth, it clears a price threshold that a share of customers actually shop by, and the retailer's sell-through improves. Faster sell-through means shorter time between purchase orders.
That is the practical benefit for a co-packing client: the same production run turns over more often. It also means your unit economics need to hold at slightly lower wholesale prices, because retailers will ask you to share the benefit — and the ones with the shelf space have the leverage to ask.
The 2028 cliff
The 15% rate is not permanent. Absent an extension, it reverts after 2028. Any multi-year plan built on today's rate should treat the reversion as the base case rather than the exception, because that is what the statute currently says.
Practically, that argues for keeping fixed costs low through the window. A brand that spends the 15% years buying equipment and leasing production space has locked in overhead that a four-point tax increase then squeezes. A brand that spends them buying units at a known per-unit rate can resize in a quarter.