Due to legislative, compliance, and other hurdles, the cannabis market in California can be tricky to get into. Learn all about the California cannabis tax.
California's cannabis excise tax generated more than $70 million in the second quarter of 2019.
If you're thinking about setting up a cannabis business in the Golden State, then you'll need to know about California cannabis tax rules.
That's easier said than done, however. You'll need to pay different taxes depending on whether you're a cultivator, distributor, or retailer. Luckily, we know have eveyrthing you need to know about selling cannabis in California.
Read on as we take a brief look at what you need to know about California cannabis tax policy.
A cultivator is anyone involved in the planting, growing, harvesting, and processing of cannabis. As a cultivator, you'll need to register with the California Department of Tax and Fee Administration (CDTFA) for a seller's permit.
Cultivation tax is based on the category of cannabis products that you're selling. As of January 1, 2020, the rates are as follows:
• Cannabis flower: $9.65 per dry-weight ounce
• Cannabis leaves: $2.87 per dry-weight ounce
• Cannabis plants: $1.35 per ounce
You'll need to pay this tax to your distributor.
You're classified as a distributor if you sell, procure, or transport cannabis between other businesses.
If you make sales, you'll need to register with the CDTFA to get a seller's permit as well as a cannabis tax permit. You're then required to collect the cannabis cultivation tax from anyone who you receive cannabis products from. You'll also need to collect the cannabis excise tax from any retailers you sell cannabis to.
Finally, you'll need to file a cannabis tax return and pay the amounts you've collected to the CDTFA.
Retailers sell cannabis products directly to the consumer. You'll need to register for a seller's permit to do this.
First off you'll need to pay any excise tax that is owed to your distributor. You'll then need to collect the excise tax on any sales you make to your customers.
The current excise tax rate is 15%. This gets more confusing because you don't calculate 15% of the price your customer pays but instead, you must work out 15% of the average market rate.
This is calculated by adding a markup set by the CDTFA to the wholesale prices you pay. Currently, the markup rate is 80%.
If you buy from a wholesaler for $100, the markup at 80% would be $80, giving an average market price of $180. You'd then pay 15% on this value, so $27. You are able to set your own markup on the products you sell, but the excise tax will always be calculated based on this average market price.
To make matters worse, the CDTFA review their markup rates every six months and may change them. It's your responsibility to check the current rates via their website (or use a service that can help you manage this process) to ensure you're collecting the right amount of excise tax. If there is an increase in the markup rate, it's up to you as a retailer to decide whether you absorb these costs, or pass the increase onto the consumer.
Finally, you'll also need to collect sales tax on any taxable sales of cannabis products.
California Cannabis Tax Is Complex
Keeping abreast of the ever-changing California cannabis tax laws can be tough.
Due to legislative, compliance, tax and cash flow hurdles, California is a trickier market to get into than other states. If you're thinking about setting up a cannabis business in California, you most likely need a little help. That's where we come in.
Headquarters is a next generation cannabis collective that has deep areas of expertise across all facets of the industry. We have the know how to help cannabis brands launch, grow, and scale in California and beyond. Get in touch today to find out how we can help you.