A Breakdown of the California Cannabis Industry

A Breakdown of the California Cannabis Industry

California cannabis tax procedures are a little more complex than many of the other states that have legalized cannabis recently. California has designated four categories for people wishing to seek licenses or participate within the marijuana industry. The four categories are: a cultivator, a manufacturer, a distributor, and a retailer. In terms of tax liability, a distributor has the most responsibility within the State of California. Below please find a breakdown of each category to see where you would fall and what requirements you would have to meet for each.

1. Cultivatoranyone that engages in the business of planting, growing, harvesting, drying, curing, or grading cannabis

Requirements for a cultivator:

  • Obtain a seller’s permit from the CDTFA (California Department of Tax and Fee Administration)
  • Pay a cultivation tax to its manufacturer and/or distributor
    • $9.25 per dry oz. of cannabis flower.
    • $2.75 per dry oz. of cannabis leaves.
    • $1.29 per ounce of fresh cannabis plants.
      • To qualify for the “fresh” plant category, the unprocessed cannabis must be weighed within two hours of harvesting.
  • Obtain a cultivation license
  • File and pay Sales and Use taxes with the CDTFA.
    • Sales tax varies between each city and county and ranges from 7.25-10.25%
    • An exemption exists for sales tax if cannabis will be resold; however, a resale certificate is needed.

 

2. Manufacturer – is a person who: produces or prepares cannabis or cannabis products at a fixed location, packages or repackages cannabis or cannabis products, and/or labels or relabels cannabis or a cannabis product’s container.

Requirements for a Manufacturer:

  • Obtain a seller’s permit from the CDTFA.
  • Obtain a manufacturer license from the CA Department of Health.
  • Collect the cannabis tax from the cultivator from which he receives unprocessed cannabis.
  • Pay the cultivation tax to the distributor.
  • File and pay Sales and Use taxes with the CDTFA.
    • Sales tax varies between each city and county and ranges from 7.25-10.25%
    • An exemption exists for sales tax if cannabis will be resold; however, a resale certificate is needed

 

3. Distributor – is a person who produces, sells, and/ or transports cannabis between licensed cannabis businesses, such as a cultivator, manufacturer, or retailer.

Requirements for a Distributor:

  • Obtain a seller’s permit from the CDTFA.
  • Register with the CDTFA for a cannabis tax permit.
  • Collect cannabis cultivation tax from your manufacturers and cultivators.
  • Collect the cannabis excise tax from your retailers.
    • 15% of the average market value of the cannabis sold.
    • Average market value is the whole sale cost multiplied by the current markup rate (60%).
  • Quarterly file and pay the cultivation and excise taxes with the CDTFA.
  • File your sales and pay your sales and use taxes with the CDTFA.
    • Sales tax varies between each city and county and ranges from 7.25-10.25%
    • An exemption exists for sales tax if cannabis will be resold; however, a resale certificate is needed.

 

4. Retailer – is a person who sells cannabis and/or cannabis products directly to a consumer.

Requirements for a Retailer:

  • Obtain a seller’s permit from the CDTFA.
  • Obtain a cannabis retail license from the Bureau of Cannabis Control.
  • Charge and collect sales tax and an excise tax on taxable retail sales of cannabis and/ or cannabis products.
    • Excise tax is 15% of the average market value of the cannabis sold.
    • Average market value is the whole sale cost multiplied by the current markup rate (60%). The State of California reviews the markup rate every six months.
  • Pay the cannabis excise tax to your distributor.
  • File your sales and pay your sales and use taxes with the CDTFA.
    • Sales tax varies between each city and county and ranges from 7.25-10.25%
    • An exemption exists for sales tax if cannabis will be resold; however, a resale certificate is needed.
      • Indirect production costs that are deductible: repairs to production and storage facilities, maintenance costs for production and storage, utilities, rent for a production facility, indirect materials and supplies, indirect labor, costs of quality control and inspection.

 

Contact us if you have questions about the California cannabis tax procedures.

© Vault 8 Advisors, Inc. 

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