A proposal to pause a planned tax hike on retail cannabis has set off alarm bells among child safety advocates whose substance use prevention and treatment work depends on funds generated by sales of cannabis products. Industry members say the move, which lawmakers in Sacramento are considering, is necessary to keep struggling retailers afloat.

This summer, two state congressional actions might affect the way cannabis taxes are collected and allocated. The state Assembly unanimously passed and sent to the state Senate AB 564, a bill to halt for five years an increase in the cannabis excise tax from 15% to 19%. According to the California Department of Tax and Fee Administration, the tax increase could raise a potential $179.5 million in annual cannabis excise tax revenue.

The state Senate is expected to hear the bill on July 9, but the tax hike is scheduled to take effect before that, on Tuesday, July 1. Lawmakers and cannabis industry lobbyists are also negotiating to preemptively freeze the tax rate at 15% via the budget approval process. It’s unclear whether either effort will succeed.

Substance use prevention advocates say the proposed tax structure was meant to compensate for funding losses after a cultivation tax that had generated important support for their programs was eliminated in 2022. The state tax administration says these losses were $538 million in 2024-2025.

Lawmakers are also considering shifting millions of dollars over the next couple of years from social services, youth and environmental programs to law enforcement as illegal cannabis markets prompt emergency regulations in California.

A coalition of 102 similarly affected nonprofit groups estimate a permanent loss of $240 million annually from the pool of cannabis tax funding available to them if the efforts to freeze the tax rate and reallocate more of the cannabis tax fund to law enforcement both pass. That could mean more than a billion-dollar blow over the next five years, they say.

Julia Arroyo-Guzman, statewide executive director of the Young Women’s Freedom Center, said the 32-year-old organization received $1.28 million in cannabis tax funds over three years from 2022 to 2025 to support its mission of healing and empowering girls, young women and trans people of all genders impacted by incarceration and underground street economies, including those related to cannabis.

“Since those dollars are not guaranteed in this next funding cycle, we have had to have staffing restructures. We’ve had to downsize everything from the high-level positions down to the frontline workers,” Arroyo-Guzman said.

Child safety advocates say the funding is crucial to addressing the growing mental health crisis among young people.

While the legal age to buy recreational cannabis in California is 21 and underage users have obtained marijuana for generations, child advocates and health experts say the retail cannabis industry has helped fuel an environment in which products, which are more potent than ever before, have become more accessible.

Kaliq Trotter, a 17-year-old Walnut Creek student, began participating in the Elevate Youth California Fellowship last year. Funded by cannabis taxes, the group aims to prevents substance use disorder by investing in youth of color and those who identify as LGBTQ+ who live in communities disproportionately impacted by drug enforcement operations, including before cannabis legalization.

Trotter said playing basketball has kept him substance-free but that some of his peers use cannabis regularly.

“A lot of people around our age who do it use it daily and you can see the change in their attitude. Being in programs like this helps keep them out of trouble,” Trotter said.

Novato resident Alexandra Peterson was a 13-year-old seventh grader when she first smoked cannabis with friends.

During her sophomore year, she lost a friend to fentanyl and went sober for a week. But, she said, “I was so used to being high every single day for two years straight that when I hit reality, it was too much for me to handle.”

She sank back into cannabis dependency, piling on other drugs like Xanax, a prescription depressant used to treat anxiety.

In 2019, a psychotic episode led to Peterson’s clinical diagnosis of bipolar disorder.

The state placed Peterson in the foster care system, where she remains in transitional housing after two and a half years of rehabilitation and two more of sobriety, with one relapse on her 21st birthday.

Determined to lead a substance-free life, Peterson, now 21, said, “It’s so much better than just being high every day and losing yourself to something that doesn’t really care about you.”

“The industry has done an incredible job of whitewashing the harms of cannabis and marketing it as the latest safe, natural wellness product,” said Lynn Silver, director of an organization called Getting it Right from the Start, which aims in part to reduce youth cannabis use.

But Jerred Kiloh, president and co-founder of the United Cannabis Business Association, said advocates are making false allegations about the impact of cannabis on the health and safety of children, and that pausing the tax hike is ultimately helpful for everyone.

“You can’t keep bleeding a turnip — they’re slowly going to run out of blood. If we don’t make money, they don’t make money,” he said, referring to groups that receive cannabis tax funds.

In a written statement to this news organization, Caren Woodson, board president of the California Cannabis Industry Association, said independent compliance checks for ID enforcement at cannabis retailers confirmed nearly total compliance, “significantly outperforming alcohol and tobacco retailers.”

She added that retail cannabis products are sold in child-resistant packaging with state-mandated health warnings and that officials remove products that fail to comply.

For youth advocates like Arroyo-Guzman, what’s at stake in how the debate in Sacramento plays out is her organization’s ability to continue serving vulnerable youth.

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