By Judge Sustains Demurrer on Cannabis Tax Challenge
San Francisco County Superior Court Judge Harold Kahn tentatively ruled that recent legislation reducing cannabis tax funding is constitutional. The ruling came after a group of petitioners sought to void two bills they claim violate the California Constitution.
The petition was brought by the nonprofits Youth Transforming Justice and the East Bay Asian Youth Center, along with two parents. They argued that Assembly Bill 564 and Senate Bill 141 act as impermissible amendments to Proposition 64. These groups rely on childcare programs funded by the legal cannabis market.
They claim their funding will evaporate under the newly enacted statutes.
Proposition 64 is a 2016 voter-approved initiative that created a legalized cannabis market. It mandated that the market fund its own regulation through license fees and taxes. Revenue is distributed to three tiers, with tier three programs receiving the remaining funds.
These programs are designed to mitigate environmental and social risks, including supporting childcare.
Legislative Changes Reduce Tier Three Revenue
In June 2025, the California Legislature adopted Senate Bill 141. This bill shifted funds to cover illicit cannabis enforcement activities to the Cannabis Tax Fund. Petitioners argued this move violated Proposition 64 by altering the designated use of tax revenue.
They noted the state could have raised license fees instead of diverting existing funds.
Assembly Bill 564 further impacted revenue by lowering the cannabis excise tax from 19% to 15%. This reduction took effect in October 2025 and continues until June 30, 2028. The change ultimately reduces the amount of money funneled to tier three programs.
This directly affects the financial stability of social mitigation efforts.
The petitioners stated that voters allowed the Legislature to direct higher revenue to new programs. However, they argued this cannot be done in a way that erodes funding for tier three. They emphasized that amendments to the initiative through additional legislation are prohibited.
This distinction is central to their constitutional complaint.
State Defense and Future Legal Steps
California Deputy Attorney General Justin Buller represented the Department of Cannabis Control at the hearing. He argued that the Department of Tax and Fee Administration and State Controller Malia Cohen lack specific duties to the petitioners. Buller stated that the controller’s office only disburses money and does not set the tax rate.
He told the court that these entities play no role with the issues at play.
Petitioners’ attorney Margaret Prinzing highlighted language in Proposition 64 regarding prohibited amendments. She suggested that statutory interpretation might determine how tax revenue funds are allocated. She asked for further briefing to fully make her arguments before the court.
Judge Kahn agreed with most of the state’s arguments during the demurrer hearing. However, he allowed leave to amend regarding the claim that AB 564 unconstitutionally amends Prop 64. This partial allowance means the petitioners can revise their complaint to address specific constitutional concerns.
The case will now proceed with this narrowed focus on legislative authority.
