California’s Cannabis Boom Fizzles as Operators Set Sights on the East Coast

California’s cannabis industry, once the crown jewel of the legal weed market, is facing a reckoning. High taxes, stiff competition, and an unrelenting illicit market have squeezed businesses to the point where many are eyeing greener pastures—on the other side of the country. With an automatic tax increase looming, some dispensary operators are left wondering: Is California still worth the hassle?

The Tax Burden Driving Businesses Away

Ask any cannabis entrepreneur in California about their biggest challenge, and taxes are bound to come up. In cities like Los Angeles, legal weed buyers face an eye-watering tax stack:

• 15% cannabis excise tax
• 9.5% state sales tax
• 10% city sales tax

In West Hollywood, where The Artist Tree first opened its hybrid dispensary-art gallery concept in 2019, the numbers are even higher, with a 10.25% state sales tax and 7.5% city tax. That means a customer could be paying more than 30% in taxes on every purchase.

“It’s crazy. You don’t pay that with any other type of good,” says Lauren Fontein, co-founder and Chief Compliance Officer of The Artist Tree.

If that weren’t enough, the cannabis excise tax is set to jump from 15% to 19% on July 1—unless lawmakers intervene. In an industry already struggling with razor-thin margins, many businesses simply can’t absorb another hit.

A Perfect Storm of Challenges

Taxes aren’t the only reason operators are looking east. The challenges in California’s market have piled up, making expansion elsewhere an appealing option.

• Black market competition: The state’s illicit cannabis market remains enormous, offering cheaper, tax-free products that lure customers away from legal dispensaries.
• License saturation: With nearly 1,000 dispensaries in California, competition is fierce, and profits are shrinking.
• Rising costs: Rent, labor, and compliance expenses keep climbing, making profitability harder to achieve.

Fontein believes the high tax rate is fueling the illicit market rather than curbing it. “Prices are really high in licensed dispensaries when you add on all the taxes,” she explains. “It’s contributing to the continued proliferation of the illicit market.”

Why the East Coast Looks More Attractive

As California businesses struggle to stay afloat, the East Coast is rolling out the red carpet for cannabis entrepreneurs. States like New York, New Jersey, and Connecticut have legalized cannabis in recent years, offering fresh opportunities.

What makes the East so appealing?

• Less competition: Unlike California’s saturated market, many East Coast states have limited licenses, giving early entrants a chance to dominate.
• Lower taxes (for now): While tax rates vary, most states haven’t reached California’s levels—yet.
• New consumers: The East Coast’s cannabis market is still developing, meaning businesses can attract brand-new customers.

For operators like The Artist Tree, expanding eastward isn’t just a possibility—it’s a smart business move.

Can California’s Market Be Saved?

The Golden State’s cannabis industry isn’t dead, but it’s in trouble. The looming excise tax hike is just one of many policy issues that lawmakers must address if they want to keep businesses from fleeing.

One potential fix? Lowering or restructuring taxes to ease the burden on legal operators. Advocates argue that a more reasonable tax rate could actually increase state revenue by encouraging more consumers to shop legally.

But for now, as the tax pressure mounts and profits shrink, one thing is clear: Many of California’s cannabis pioneers are already looking for their next big move—out of state.