Lead photo via Flickr user Dave Dugdale
We’re still a long way off from mid-April, but in California, an impending shift in the cannabis industry is creating a second busy season for the state’s Department of Tax and Fee Administration. With thousands of cannabis businesses trying to update their administrative processes to fit new regulations, and countless others trying to hop in the game as soon as midnight strikes on December 31st, the tax agency is doing its best to make sure everyone involved in the Golden State’s legal weed industry knows exactly how much they’ll have to kick back to the state if they want to stay in business.
To make California’s tax info a little more cannabis-friendly, the Department of Tax and Fee Administration has released a comprehensive pamphlet to inform ganjapreneurs and legal weed customers alike about what kind of cut each type of industry player will need to fork over to California state coffers.
First, no matter what kind of canna-business you own or run, you are required to register with the state tax agency and, if your business sells marijuana in any form, obtain and maintain a state-approved seller’s permit.
Once a cannabis businesses is approved for operation, the tax fun starts.
For growers, a cultivation tax of $9.25 per ounce, or $148 per pound, will be imposed on dry flowers, while trim and leaves typically used for concentrate production will see significantly lower tax rate of $2.75 per ounce, or $44 per pound.
If you’re a distributor that’s planning on bringing legal weed from cultivators to retail stores, you’ll still have to register with the California Department of Tax and Fee Administration and then do double the tax work. Distributors will become responsible for collecting the cultivation tax and a retail excise tax, as well as funnelling those funds back to the state agency, even if the distributor doesn’t make any sales themselves. For distributors that are amassing product and then reselling it to other dispensaries or producers, a separate resale certificate is required.
At the retail level, California’s legal weed customers will have to fork over an excise tax set at 15% of the state’s average market price of the individual sale. In addition to the excise tax, California’s legal weed sales will be subject to the standard state sales tax of 7.5%.
Certain medical marijuana sales will still be exempt from the state’s sales and use tax, but a simple sign-off from a beachside doctor won’t do the trick. To qualify for tax-free weed, medical patients must have certification paperwork specifically granted by the California Department of Health.
Once a canna-business figures out how much money they’re required to pay and who to pay it to, the question then becomes how. Even with state tax regulators accepting payment by cash, check, or online payment portal, the lack of banking options available to the cannabis industry is expected to fill state tax coffers with more cash than the Tax and Fee Administration has ever seen.
If that sounds like a lot to remember, you’re absolutely right. And with recreational cultivation, sales, and production licenses going out in just over two months, the California Department of Tax and Fee Administration is encouraging everyone involved in the cannabis industry to keep detailed records, receipts, and accounts of all business transactions to better smooth the transition.
For a more detailed look at California’s cannabis tax code, check out the CDTFA’s full marijuana tax guide here.
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