California Cannabis Excise Tax Reversal: Round 2 Against Texas Hemp

Governor Gavin Newsom celebrates California’s cannabis excise tax reversal with AB 564, while Governor Greg Abbott enforces GA-56, tightening hemp regulations and leaving Texas retailers and veterans frustrated.

Newsom reverses California’s cannabis tax hike while Abbott battles his own legislature over intoxicating hemp.

Two State Heavyweights: Round 2

California and Texas continue to clash on cannabis and hemp policy. In one corner, California has just passed a law reversing the controversial 25 percent retail excise tax increase on cannabis, giving licensed operators a breath of relief. In the other, Texas legislators once again pushed through a complete ban on intoxicating hemp products, only to see Governor Greg Abbott pivot with an executive order designed to regulate rather than eliminate hemp. This is the second round of a cannabis versus intoxicating hemp policy prize fight, and the contrast could not be clearer. One state is loosening the tax grip on legal cannabis, while the other tightens restrictions on hemp with little hope for broader reform.

California Cannabis Excise Tax Reversal: Newsom Steps In

California Governor Gavin Newsom signed A.B. 564, sponsored by Assemblymember Matt Haney, to undo the 25 percent excise tax hike imposed earlier this year. Cannabis operators, who had already endured years of over taxation and regulatory red tape, can now breathe slightly easier. By reversing the increase, the state is signaling a modest but important acknowledgment of the industry’s fragility. We wrote about why the increase was dead wrong in this August 2025 blog post.

This reversal stands in stark contrat to what's happening with Texas hemp. Our June 2025 analysis compared California’s cannabis landscape with Texas hemp policy and it appeared Texas was showing more executive leadership on the issue. Today, the signing of AB 564 is expected to help stabilize retail prices, keep businesses afloat, and encourage consumers to stick with licensed dispensaries instead of turning back to the illicit market.

Texas Hemp Crackdown Continues

Meanwhile, Texas doubled down on intoxicating hemp regulation. Despite Governor Abbott’s veto of Senate Bill 3 earlier this summer, which would have banned hemp-derived THC products entirely, the legislature pushed a new ban yet again. In response, Abbott issued Executive Order GA 56, a sweeping directive that bans hemp sales to anyone under 21, restricts sales within 1,000 feet of schools and churches, prohibits synthetic cannabinoids, and requires new product testing for total THC.

While Abbott’s executive order softened the blow of a full prohibition, it underscores the deep hostility Texas lawmakers still hold toward cannabis in any form. Texas consumers can still access intoxicating hemp products, but under increasingly narrow conditions and without a legal cannabis program in sight.

Winners and Losers in the Cannabis vs Hemp Battle

The California cannabis excise tax reversal positions the Golden State as more supportive of its licensed operators, even if the broader challenges of high operating costs and illicit market competition remain. By contrast, Texas continues to approach cannabis with skepticism, tightening regulations rather than embracing a robust industry. The result is a regulatory imbalance that leaves California’s cannabis sector cautiously optimistic while Texas entrepreneurs are left navigating an uncertain hemp environment, as the new Farm Bill that effectively legalized intoxicating hemp awaits hemp renewal or wholesale revision in 2025.

Implications for Business and Real Estate

The policy divide is not just political, it has direct consequences for cannabis business opportunities. In California, licensed operators may now see improved margins, making cannabis real estate more attractive to investors and operators alike. Pac Garden Assets has properties positioned to support this demand, including our Monterey County processing and distribution campus and our King City entitled processing property

In Texas, however, uncertainty reigns. With hemp businesses facing stricter guardrails and no cannabis program to speak of, the state offers limited pathways for serious investors.

Industry Solutions and the Path Forward

What happens next depends on whether federal reform ever materializes. Until then, California will continue to tweak its cannabis framework while Texas lawmakers oscillate between bans and regulatory patchwork. For operators and investors seeking to navigate these landscapes, Pac Garden Consulting offers tailored strategies for success in both states.

Conclusion: Round 2 Goes to California

The fight between California cannabis and Texas hemp has entered another round, and the scorecard favors California. With the California cannabis excise tax reversal, operators are spared from further tax burdens, giving them at least a modest victory. In Texas, however, bans, vetoes, and executive orders leave businesses and consumers in limbo. For now, California emerges as the clear winner in this policy rematch, showing that even incremental relief can be a decisive blow in the ongoing cannabis versus hemp saga.

FAQ: California Cannabis Excise Tax Reversal vs Texas Hemp Policy

Q1: Why is cannabis legal in California?

Cannabis is legal in California because voters approved Proposition 64, the Adult Use of Marijuana Act, in November 2016. Prop 64 legalized the cultivation, possession, and sale of recreational cannabis for adults 21 and older, establishing one of the largest regulated cannabis markets in the world. Since then, California has continued to refine its regulatory framework, including adjustments like the recent California cannabis excise tax reversal to reduce the burden on licensed businesses.

Q2.  Why is a cannabis program virtually absent in Texas?

Texas has no significant recreational cannabis program due to longstanding political resistance and the state’s limited medical cannabis framework. The Texas Compassionate Use Program (CUP) allows low-THC medical cannabis but restricts eligibility to a narrow list of conditions and caps THC content. Efforts to expand access have repeatedly stalled in the legislature, leaving hemp-derived products as the only legal intoxicants in the state. This starkly contrasts with California, where cannabis is fully legalized and regulated, with reforms like the California cannabis excise tax reversal offering relief to licensed operators. Texas Tribune

Q3. How did the 2018 Farm Bill legalize intoxicating hemp?

The 2018 Farm Bill removed hemp from the Controlled Substances Act, defining it as cannabis containing no more than 0.3 percent delta-9 THC on a dry weight basis. While the law was intended to legalize industrial hemp, this definition opened the door to a loophole: hemp-derived cannabinoids like delta-8 and THCa, which can become intoxicating when processed or heated. This provision effectively created a multibillion-dollar hemp industry across the United States, even in states like Texas with no cannabis program. The resulting market has fueled ongoing legal and political debates, while California’s cannabis industry adapts with reforms such as the California cannabis excise tax reversal.

Q4. Who authored California’s AB 564?

AB 564, the legislation that reversed California’s 25 percent retail excise tax increase, was authored by Assemblymember Matt Haney, a Democrat from San Francisco. The bill was signed into law by Governor Gavin Newsom in September 2025, marking an important step in stabilizing California’s cannabis market. By rolling back the tax hike, lawmakers recognized the challenges faced by licensed businesses in competing with the illicit market. The California cannabis excise tax reversal is now a pivotal moment in the state’s evolving cannabis policy.

Q5. What was Governor Greg Abbott’s Executive Order GA-56?

Governor Greg Abbott issued Executive Order GA-56 in September 2025 after the Texas Legislature once again attempted to pass a full ban on intoxicating hemp products. Instead of prohibition, Abbott pursued regulation. The order includes:

• Prohibition of sales to minors: Requires ID verification for all hemp purchases; violators risk losing licenses.

• Stricter testing and labeling: Mandates labs to measure total THC, including delta-9 THC and THCa.

• Increased enforcement: Directs state agencies to coordinate on compliance and enforcement.

• Regulation over prohibition: Takes a regulatory approach rather than the outright ban sought by Lieutenant Governor Dan Patrick and Senate Bill 3 supporters.

• Addressing synthetic cannabinoids: Prepares for tighter controls on hemp-derived synthetics like delta-8.

The executive order underscores Texas’ hesitation to adopt a cannabis program, choosing instead to narrowly regulate hemp, while California takes steps like the California cannabis excise tax reversal to strengthen its regulated market.