Starting January 1, 2028, California's cannabis excise tax reaches a group of hemp-derived products under Assembly Bill 8. The cannabis excise tax will apply to retail sales of products containing industrial hemp concentrates, excluding CBD-isolate-only products, and retailers will have to collect it from purchasers. Liability goes further than the register: anyone who holds these products for sale can be held responsible too. That affects hemp product makers, distributors, warehouses and retailers, not only the business that rings up the sale.
What changes on January 1, 2028
The Tax Guide for Cannabis Businesses from the California Department of Tax and Fee Administration (CDTFA) says the definition of cannabis products expands on that date to include products containing industrial hemp concentrates, excluding CBD-isolate-only products. The Department of Cannabis Control describes the broader shift at the same date: intoxicating hemp must then be manufactured, tested and sold like medicinal and adult-use cannabis, and hemp products containing THC will pay the same taxes.
California already treats any hemp product with a detectable amount of THC as intoxicating. Once hemp is integrated, DCC says licensed distributors will be able to bring hemp plant material into the cannabis supply chain, where it must follow the same rules as cannabis, including good manufacturing practices, track and trace, final form testing, and packaging and labeling. Anyone making products with intoxicating cannabinoids will need a DCC manufacturing license, and licensed retailers will be able to sell products containing cannabis, hemp or both.
Two timelines are running. The state's restrictions on hemp are already in force: until DCC adopts new rules, licensed manufacturers can only use cannabinoids from licensed sources, licensed distributors cannot transport hemp, and licensed retailers cannot sell hemp products. DCC is still developing the rules that will let licensees work with hemp. The tax start date is the planning anchor, and it is about 14 months away.
Liability reaches holders, not only sellers
The CDTFA guide goes further than the sale. From January 1, 2028, any person who possesses, keeps, stores or retains for the purpose of sale in California, or sells or offers to sell there, a product presumed to be cannabis can be held liable for the excise tax plus applicable penalties and interest. CDTFA says the presumed-cannabis category includes products containing synthetic cannabinoids.
For a business, that means inventory exposure, not just retail exposure. A distributor or warehouse holding hemp products for sale can be liable even when another business makes the final sale. Map who holds each product and where it is stored, not just who completes the transaction.
DCC's enforcement guide, last reviewed November 5, 2026, adds two points. Under the state's definition of cannabis products, a product intended for human or animal consumption that contains or purports to contain any THC is presumed to be a cannabis product, regardless of the source of the cannabinoids, though that presumption can be rebutted. And beginning January 1, 2028, cannabis excise tax penalties will also apply to illegal hemp products.
Tobacco businesses face a separate AB 8 rule
AB 8 also changed the Cigarette and Tobacco Products Licensing Act. CDTFA says cigarette and tobacco product businesses in California are now prohibited from possessing, storing, owning or making retail sales of cannabis, cannabis products or presumed cannabis products. Any tobacco retailer that also carries hemp-derived items should review its inventory against that rule now, separately from the 2028 tax date.
How to prepare before 2028
Start with three questions. Which of your products contain hemp-derived concentrates, and which contain THC? Which legal entity holds each product, and where is it stored? Does any location combine tobacco activity with hemp-derived or cannabis-adjacent inventory? The answers form your exposure map. If any of those products are made, moved or sold outside the licensed market today, settle the licensing question before the tax question.
CDTFA encourages businesses to get tax answers in writing. Its guide says written advice protects you from tax, penalties and interest if CDTFA gives erroneous information, and requests can be emailed or mailed to the local office nearest you. Ask once your product list is final, because the answer depends on the actual products and how they are held.
What to do now
- List every product containing hemp-derived concentrates, and flag which contain THC.
- Map the legal entity and storage location for each product, including inventory held for sale.
- Check whether any tobacco business activity shares a location or inventory with hemp-derived products.
- Request CDTFA's written advice on how the 2028 tax applies to your product list.
- Build the January 1, 2028 start into your pricing, cash flow and bookkeeping plans now.
If you want help mapping that exposure before 2028, book a consultation or call (209) 636-4856.
Sources
- Tax Guide for Cannabis Businesses — California Department of Tax and Fee Administration
- Hemp — California Department of Cannabis Control
- Hemp for enforcement agencies — California Department of Cannabis Control, 2026-11-05
This article provides general educational information and does not constitute legal advice. Consult qualified counsel regarding specific facts or jurisdictional requirements.