State Assemblyman Matt Haney, D-San Francisco, plans next week to introduce AB 564, or the Cannabis Tax Relief bill, to stop a tax hike — from 15% to 19% — set to go into effect on July 1.

Haney also authored AB 1775, which this year allowed dispensaries to open Amsterdam-style cannabis cafes with food and non-alcoholic drinks. While that bill and the one Haney is introducing next week could help boost local dispensaries’ revenues, some shops are nevertheless worried a tax hike will drive more cannabis consumers to the black market.

“The illicit or unregulated market is the biggest competition,” said Zoe Schreiber, director of compliance and public affairs for The Highlands Dispensary, which opened in unincorporated Livermore in 2022. “As a full retail community, our biggest competitors are not each other, but rather a market that’s unregulated.”

Schreiber said customers often complain of the high taxes on cannabis products at her dispensary, which can make up about 30% to 40% of the overall price out the door, she said. She said that in addition to the expected 4% excise tax increase, licensing and regulatory fees continue to drive the prices of legal cannabis products up, while pushing consumers away from the regulated market.

“‘I know a guy,’ or ‘my guy can get it to me for less.’ Those comments are ones that we do hear,” Schreiber said. “By continuing to do things to make regulated cannabis more expensive, or even where it’s at now, we lose over half the market. We lose the ability to create that safe space, which is what consumers voted for in 2016 with Prop. 64.”

Haney said he is putting the Cannabis Tax Relief forward to protect legal cannabis businesses from closing as the illegal market continues to grow at a faster rate.

“California’s cannabis industry is struggling. And a huge tax increase right now could be the nail in the coffin,” Haney said in an interview Wednesday. “This is absolutely the wrong time for a 25% tax increase on a fledgling legal cannabis industry that is trying to follow all of the rules and pay their taxes and is losing out everyday to those who are not.”

He also compared the legal weed industry’s tax bracket to that of wine or beer, saying a glass of alcohol includes about one or two cents in taxes, whereas taxes on a joint can cost over a dollar.

Haney added that California’s legal cannabis industry appears to be falling behind the cannabis-industry growth of other states such as Michigan, Colorado and Washington, which have lower taxes and friendlier regulations.

“I think that when cannabis was legalized in California, they did not expect that the illegal market would continue to thrive and grow and compete at the scale that it has,” Haney said. “They are operating outside of our laws entirely.

“Until California takes action to put a stop to that, we have to make sure that our businesses that are following the law are not so overly taxed and burdened that they cannot operate at all. This is common sense.”

Since the state’s recreational marijuana market kicked in, on Jan. 1, the state has issued only temporary business permits to cannabis companies, pending the applicants providing key information and final approval from the communities where they operate.

But with many of those temporary permits set to expire — and with many communities still wrestling with cannabis approval — state regulators hope a second provisional licensing system will buy time to implement a full annual licensing system.

In Santa Barbara, Humboldt and Mendocino counties, all hubs for cannabis cultivation, local regulators simply haven’t been able to keep up with the backlog of complex applications.

“Rushing these (applications) through would be a mistake, as that could lead to real environmental damage,” Humboldt County officials wrote in a statement supporting the provisional licensing program.

“Letting permits expire as applicants run out of time would also be a mistake, as the entire goal includes bringing cultivators into taxing, permitting, and environmental compliance.”

The state’s first stop-gap licensing program was centered on permits that were good for four months. The goal was to give marijuana business owners time to compile the information needed to get annual licenses, including security plans, insurance bonds, business formation documents and fingerprinting for all owners. It also gave the state time to review and verify conditions needed for annual licenses, such as local approval.

But in April, when it became clear that annual licenses wouldn’t be ready before temporary licenses started to expire, the state extended interim permits for another 90 days.

But state law says regulators can’t issue new temporary licenses or extend existing licenses after Jan. 1, 2019.

The state also hasn’t yet issued any annual licenses. Richard Parrot, head of the Department of Food and Agriculture’s CalCannabis division, said that he expects the first annual licenses to be issued sometime this month.

Roughly 6,500 businesses statewide currently hold temporary licenses. Three quarters of those licenses are for cultivation.

Regulators say there aren’t enough resources to process annual license applications for everyone by the end of the year. And once temporary licenses start expiring in January — with all of them set to expire by March 31 — businesses would have to shut down until the state catches up.

That’s where Senate Bill 1459 comes into play.

The bill will let the state issue a new category of provisional licenses through Jan. 1, 2020. Provisional licenses will be good for 12 months, with no option for renewal.

To get a provisional license, applicants will need to hold a temporary license for the same address and business activity. They also will need to have submitted complete applications for full annual licenses. And they will have to comply with the state’s mandated track-and-trace system, which includes software that monitors all legal cannabis products from seed to sale — a move that wasn’t required for temporary license holders.

The state will likely keep issuing temporary permits through the end of the year and then begin issuing provisional licenses as needed on Jan. 1, according to Alex Traverso, spokesman for the Bureau of Cannabis Control.

Sen. Anthony Cannella, R-Ceres, introduced SB 1459 in February. The bill was coauthored by Sen. Cathleen Galgiani, D-Stockton, and Sen. Mike McGuire, D-Healdsburg. And it was backed in the state Assembly by Assemblywoman Anna Caballero, D-Salinas, and Assemblyman Jim Wood, D-Healdsburg.

Most major cannabis industry groups and unions also supported the bill, including the California Cannabis Industry Association and California Growers Association. So did several counties and the League of California Cities. No one was on record opposing the bill.

SB 1459 passed the Senate 33-4 and the Assembly 73-1. Gov. Jerry Brown signed the bill into law on Sept. 27.

It’s been a mixed bag for other cannabis regulations that made it to Brown’s desk before the state’s legislative deadline of Sept. 30.

Brown vetoed a bill that would have let dispensaries give free cannabis to qualified medical patients. The Governor said the bill conflicted with Prop. 64.

He also refused to approve a bill that would have let schools set their own rules about allowing minors to take medical marijuana on campuses. Brown said he felt the measure went “too far” and that he remains “dubious” about young people using cannabis for “all ailments.”

Brown also vetoed a bill that would have allowed owners of licensed marijuana businesses to deduct expenses on their personal income taxes, since federal tax laws currently prevent typical deductions for business costs. Given the blow that bill would make to the state’s general fund, Brown said in his veto message the issue is better handled through the budgeting process.

Brown did sign Assembly Bill 1793, which will force the state to automatically resentence or expunge criminal records for everyone in the state based on newly reduced penalties for marijuana crimes.

Brown also signed a bill that lets licensed labs test samples of cannabis meant for personal use for anyone 21 years and older. Previously, labs were only allowed to test samples for licensed businesses, medical marijuana patients and their caregivers.

Brown signed a bill that protects the personal information of anyone buying recreational marijuana in California. The bill says businesses can’t disclose customers’ personal information to third parties without the customer’s consent, and they can’t discriminate against customers who refuse to give that permission.

“Cannabis users will finally have their personal information protected in the same manner as other medical information,” said Assemblyman Evan Low, D-Silicon Valley, who authored the bill.

Brown also approved a bill that will expand options for where marijuana festivals and other temporary events can take place. And he signed a bill that will let veterinarians discuss medical cannabis for pets.

Other major marijuana bills that died before making it to Brown’s desk this legislative season included a bid to temporarily reduce the state’s marijuana tax, another to protect medical marijuana patients from being fired from their jobs, and a bill that would have established a state-run bank to handle cash from the cannabis industry.