Under the measure, sugary drinks sold in the most populous US state would have to carry a label with a warning that sugar contributes to obesity, diabetes and tooth decay.
The legislation, which would have been the first of its kind in the United States, passed the state Senate in May.
But on Tuesday it failed to win enough votes in the health commission of the California State Assembly, the Los Angeles Times reported.
"We're in the midst of a diabetes and obesity epidemic that is wreaking havoc on the public's health and driving up healthcare costs," said Senator Bill Monning, the bill's author, in remarks before the Assembly Health committee, according to the newspaper.
The bill's supporters included the California Medical Association and an array of public health groups. They argued that labels would help consumers make healthier choices.
But an industry group said it would be unfair to single out sugary drinks as a cause of obesity and diabetes.
The bill garnered seven 'yes' votes but needed 10 to pass, the Times said.
However, the bill did receive reconsideration, which means Monning can try once more to get it through the panel.