Tax Tips For Californian Cannabis Investors
FAS CPA & Consultants
The Proposition 64, the “Control, Regulate and Tax Adult Use of Marijuana Act.” Its goal was to reshape the use and taxation in California by designating specific agencies to license and regulate the marijuana industry. It also imposed specific marijuana excise and cultivation taxes for:
Distributors
⇒ Produces
⇒ Sells
⇒ Transports marijuana between licensed marijuana enterprises like:
⇒ Cultivators
⇒ Manufacturers
⇒ Retailers
Cultivators
⇒ Plants Marijuana.
⇒ Grows Marijuana.
⇒ Harvests Marijuana.
⇒ Drying Marijuana.
⇒ Curing Marijuana.
⇒ Grading Marijuana.
⇒ Trimming Marijuana.
Manufacturers
⇒ Produces Marijuana.
⇒ Prepares Cannabis products at a fixed location that packages or repackages marijuana or cannabis products.
⇒ Labels Containers for Marijuana.
⇒ Relabels Containers for Marijuana.
Retailers/Dispensary
⇒ Sells marijuana or cannabis products directly to the public.
The road to compliance
⇒ Secure the required license and permits.
⇒ Register with the California Department of Tax and Fee Administration (CDTFA).
⇒ Collect taxes.
⇒ Pay taxes.
⇒ File Taxes.
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Amendment: Proposition 64 was amended by SENATE BIL 94 (SB 94). SB 94 repealed the Medical Cannabis Regulation and Marijuana Safety Act (MCRSA) and defined the collection and payment between distributors, cultivators, manufacturers, and retailers.
Permits and Licenses
Local
⇒ All marijuana distributors, cultivators, manufacturers, and retailers must apply for the appropriate permits and licenses at the jurisdiction where they intend to operate the marijuana business.
⇒ Each jurisdiction has a different process.
⇒ Marijuana entrepreneurs must secure the local permit by following the local process and paying the required fees.
State Licenses
⇒ All marijuana distributors, cultivators, manufacturers, and retailers must secure the required license and permits from the applicable state agency.
State Permit Type and State Agency
⇒ Cultivator
⇒Department of Food and Agriculture
⇒ Distributor
⇒ Department of Consumer Affairs
⇒ Manufacturer
⇒ Public Health
⇒ Retailer
⇒ Public Affairs
The Bureau of Cannabis Control (BCC) is the agency that is developing regulations for medicinal marijuana use. The rules became available in November 2017. Therefore, we recommend that cannabis entrepreneurs apply for a temporary license from the BCC as soon as possible. Temporary licenses also became available on January 1, 2018.
To qualify for a temporary license, your enterprise must have authorization from a city or county government to operate a cannabis enterprise. The permit will be valid for 120 days.
Register With CDTFA
⇒ All cannabis enterprises must register for seller’s tax permits with the California Department of Tax and Fee Administration (CDTFA). Seller’s and tax permits are not the same, and it requires a separate application for each.
⇒ When registering, the following information is required:
⇒ Business Information.
⇒ Federal and state tax identification numbers.
⇒ North American Industry Classification Number (NAICS).
The NAICS number for medical marijuana enterprises is the same as the number for pharmacies and drug stores – CODE 44610. However, manufacturers will most likely receive different numbers depending on their activities.
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Distributors
Cultivation Tax Collection
Distributors must collect cultivation taxes from retailers, manufacturers, and cultivators that supply any marijuana or cannabis products to them.
⇒ A cultivation tax must be collected from CULTIVATORS when the product is harvested and enters the commercial market after quality assurance and standard testing.
⇒ A cultivation tax must be collected from MANUFACTURERS when the product is first sold or transferred to the distributor for assurance inspection and testing.
Cultivation Tax Rates:
⇒ $9.25 per dry weight ounce of cannabis flowers.
⇒ $2.75 per dry-weight ounce of cannabis leaves.
Cultivation tax rates are subject to change. Starting from January 1, 2020, the CDTFA will be required to adjust the cultivation rate annually based on inflation.
⇒ Every transaction must be backed up by documentation providing the following information:
⇒ The licensee receiving the product.
⇒ The cultivator where the product originates.
⇒ The product identification number.
⇒ The amount of cultivation tax.
Excise Tax Collection
Distributors must collect excise taxes from retailers they supply with (sell and transport) marijuana and cannabis products.
⇒ The excise tax must be collected within 90 days of the sale or transfer of the marijuana or cannabis products in arm’s length transactions.
⇒ An arm’s length transaction is a sale that reflects the fair market price in the open market between two informed and willing parties.
If The Sale is A no Arm’s Length
The taxes must be collected from the retailer on or before ninety days after the sale or transfer of the marijuana or cannabis product to the retailer, OR At the time of the retail sale by the cannabis retailer, whichever is earlier.
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