The topic of taxes in California’s soon-to-be legal recreational cannabis market has been a hot button issue for industry professionals—as echoed by many of the 20,000 attendees at last week’s MJBizCon.
By January 1, 2018, harvested cannabis will be subject to a cultivation tax, and both cannabis and cannabis products will be subject to a cannabis excise tax.
For cannabis professionals, it’s important to be aware of these new tax rates and how they will apply to your business activities.
Cultivation Tax Rates
The current cultivation tax rates are:
- $9.25 per dry-weight ounce of cannabis flowers.
- $2.75 per dry-weight ounce of cannabis leaves.
The cultivation tax applies to all harvested cannabis entering the commercial market. Cultivators will be responsible for paying the cultivation tax to the distributor—or to the manufacturer if the first transfer or sale of unprocessed cannabis is to a manufacturer.
Manufacturers collecting the cultivation tax will be required to pay the tax to the distributor. The distributor will need to report and pay the cultivation tax to the California Department of Tax and Fee Administration (CDTFA).
Cannabis Excise Tax Rates
The cannabis excise tax applies to all purchasers of all cannabis and cannabis products, with a rate of 15 percent of the average market price when purchased at retail.
Retailers will be responsible for collecting the cannabis excise tax from purchasers at the time of the retail sale and for paying the tax to the distributor. The distributor reports and pays the cannabis excise tax to the CDTFA.
Distributor Reporting, Cultivation and Cannabis Excise Tax Payments to the CDTFA
Distributors must register with the CDTFA for a cannabis tax permit to report and pay the cultivation tax and cannabis excise tax. A microbusiness licensee will be licensed to act as a distributor, and must comply with all the same requirements as a distributor.
Sales and use tax will apply to retail sales of cannabis and cannabis products. It does not apply to the sales of medicinal cannabis and cannabis products where a purchaser provides his/her Medical Marijuana Identification Card issued by the California Department of Public Health and a valid government identification card.
Gross receipts from the sale of cannabis and cannabis products for purposes of sales and use tax include the excise tax.
Registering Your Cannabis Business
Cannabis retailers, cultivators, manufacturers, and distributors making sales must register with the CDTFA for a seller’s permit to report and pay any sales and use tax due to the CDTFA. If you already have a seller’s permit that was issued by the Board of Equalization (BOE), it is not necessary to re-register for a seller’s permit with the CDTFA.
Cannabis professionals can register now for all the proper tax permits for your cannabis business here. From the CDTFA homepage, click the “Register” link.
If you have questions or comments, please don’t hesitate to connect with me. I’m happy to keep the discussion going.