The political rivalry between President Donald Trump and California Governor Gavin Newsom has dominated headlines this year, most recently over the issue of congressional redistricting, also known as gerrymandering.
But there is another issue where both leaders could soon leave their mark: cannabis tax relief. Each is in a position to give the struggling legal cannabis industry a financial lifeline while putting new pressure on the illicit market and cartels.
The question is whether either will act, and who might do it first.
In Sacramento, AB 564 has been moving quickly. The Assembly approved it 74 to 0 on June 2 to roll back the automatic increase in the state’s 15% cannabis excise tax, which jumped to 19% in July. The bill cleared the Senate Appropriations Committee last week and must pass the full Legislature by September 12.
Governor Newsom would then have until October 12 to sign it into law, and he has already stated his intention to do so.
Supporters argue that the tax relief is crucial for an industry that is struggling under high costs and intense competition from the illicit market. Assemblymember Matt Haney of San Francisco, the bill’s author, warned that piling more costs on legal businesses risks pushing them out of the market altogether.
Regulators have also acknowledged that high taxes keep the illicit market dominant.
The black market is very pervasive, and it is definitely larger than the legal market,” said Bill Jones, head of enforcement for the Department of Cannabis Control.
President Trump signaled two weeks ago that he may reclassify cannabis under federal law, something no president has been able to do in more than half a century.
Since 1971, cannabis has been treated as a Schedule I substance, grouped with heroin and considered more dangerous than fentanyl or cocaine. That status not only restricts research but also subjects licensed businesses to IRS code 280E, which denies legal cannabis businesses ordinary business deductions and inflates their tax burdens.
Most observers expect Trump to keep his campaign promise to move cannabis to Schedule III, which would eliminate the 280E penalty and provide immediate financial relief.
But there are also signs that Schedule II is still under consideration. Such a move would recognize medical value but keep 280E in place, leaving operators in largely the same bind.
In August, Trump said his administration would make a determination “over the next few weeks,” describing the issue as complicated. His nominee to lead the DEA, Terrance Cole, initially described rescheduling as a priority during his confirmation hearing, but later declined to commit to timing.
For the legal cannabis industry, the stakes are enormous. Governor Newsom has the opportunity to freeze a state tax hike that has already increased costs, while President Trump could reshape the federal tax and regulatory landscape overnight. Both are already locked in a broader political clash. Cannabis tax relief for legal operators offers each a chance to appeal to a large constituency of voters and business interests that cut across party lines.
As lawmakers, regulators, and industry leaders wait, one question hangs over the debate: Will relief come first from Sacramento or from Washington?
