When Gov. Gavin Newsom announced he would not pursue a planned increase to the state’s cannabis excise tax, owners of dozens of Bay Area dispensaries said the decision likely averted an immediate cash crunch that threatened layoffs, higher prices and shrinking legal sales.

“We were staring at a potential 15 to 20 percent jump in retail prices,” said Maya Ortiz, co-owner of a small Oakland dispensary. “That kind of shock would have forced us to cut hours and staff or pass costs straight to customers — and many would have walked back to the unregulated market.” Ortiz said her store employs 18 people and expects to avoid reductions because the governor “listened to the realities on the ground.”

Newsom’s reversal, disclosed in a statement circulated Monday and first chronicled by broadcast reports, followed weeks of lobbying by industry groups, local officials and small-business owners in the Bay Area. The legislature had been considering an increase that advocates argued would boost state revenue for enforcement and social equity programs; opponents warned it would deepen the price gap with illicit sellers who evade taxes and regulatory costs.

Economic data underpin those concerns. Legal cannabis sales in California were estimated at roughly $6 billion last year, while state-compiled tax revenue from the industry remains volatile, affected by product mix and uneven compliance across jurisdictions. A recent Legislative Analyst Office simulation, cited by both supporters and critics of the hike, projected that a significant excise increase could raise $250 million to $350 million annually but potentially shrink legal market share by up to 10–15 percent as price-sensitive buyers shift to black-market suppliers.

Local officials in San Francisco and Oakland warned that higher taxes would disproportionately hurt smaller operators still grappling with high rents and licensing backlogs. “Tax policy can’t be considered in isolation,” said Oakland City Councilmember Jamal Reed. “We need to pair enforcement against illicit operators with a tax framework that lets legal businesses survive.”

Investors and public-market observers reacted quickly. Shares of several multistate cannabis firms ticked higher in after-hours trading on news of the reversal, reflecting investor concern that steeper taxes would compress margins and slow revenue growth. Analysts said the decision removes an immediate downside risk but does not resolve long-term profitability questions for regulated operators who face steep compliance costs, local levies — many cities impose their own taxes of 5 to 15 percent — and competition from untaxed sellers.

For workers in the Bay Area, the reversal offers temporary stability. Industry groups estimate California’s regulated cannabis sector supports roughly 40,000 to 60,000 jobs statewide; Bay Area retail and cultivation operations account for a meaningful slice of that employment. Still, labor advocates said the industry needs broader reforms — including streamlined permitting and targeted relief for legacy operators — to secure sustainable growth.

Newsom’s office framed the decision as a balancing act between fiscal needs and market stability. A spokesperson said the governor remains “committed to funding public safety and equity programs” but wants policymakers to prioritize reducing illicit market incentives and protecting small businesses before raising taxes.

The episode underscores a persistent tension in cannabis policy: the state’s fiscal appetite for new revenue versus the fragility of a legal market that is still competing with entrenched illicit suppliers. For now, Bay Area dispensaries are breathing easier — but the long-term contours of California’s cannabis economy remain unsettled.