California’s legal cannabis market just got hit with a tax hike that many growers and dispensary owners say could finish off businesses already hanging by a thread.

Starting July 1, the state’s cannabis excise tax jumped from 15% to 19% — a move that was baked into a 2022 deal to help stabilize the industry by eliminating the cultivation tax but raising the excise tax later. Now, that “later” has arrived, and the industry’s worst fears are playing out: fewer customers, more people buying on the illegal market, and razor-thin margins getting thinner.

“I’ve never experienced collective malaise like this,” said Genine Coleman of the Origins Council, which represents small cannabis farmers in the Emerald Triangle. “People are so concerned with their survival and so deflated. It’s a dangerous space.”

Despite months of lobbying and the support of Gov. Gavin Newsom to freeze the increase, lawmakers couldn’t reach a budget deal in time. Meanwhile, a bill that would roll the tax rate back to 15% until 2031 is still alive in the Legislature but that relief is far from guaranteed.

For local communities, it’s not just about businesses going under. Cannabis tax dollars fund child care, environmental cleanup, and programs to reduce drug abuse and impaired driving. Industry leaders say they don’t oppose those investments — but argue that squeezing an industry this hard will backfire, driving people back to the unregulated market and shrinking tax revenue even more.

“This tax could kill this industry and there’s still not enough being done,” said Assemblymember Matt Haney (D-San Francisco). “California is going to forfeit what should have been a huge opportunity for our state.”