The California Department of Tax and Fee Administration released emergency tax regulations regarding commercial cannabis activity in California, which take effect January 1, 2018. The Cannabis Corporate Law Firm is dedicated to helping its clients and the public understand the evolving regulations surrounding the legal recreational and medicinal cannabis industry in California. The new regulations affect all cannabis industry stakeholders, including consumers of cannabis products.
The Distributor’s Role in Tax Collection and Reporting:
The distributor is responsible for collecting taxes from the cultivator at rate of $9.25 per ounce of dried flower and $2.75 per ounce of dried trim. Once the distributor brings the cannabis product to the retailer, it is responsible for collecting the 15% California cannabis excise tax from the retailer after the cannabis products are sold to the consumer. The state makes the following transactional distinctions, which determine when the excise tax is collected from the retailer:
- Arm’s Length Transaction:
- Within 90 days following the sale to the consumer, the distributor is required to collect the excise tax from the retailer.
- Non-Arm’s Length Transaction:
- A non-arm’s length transaction is one where the distributor has some level of control over the retail pricing. This would apply to vertically integrated cannabis businesses as well as microbusinesses engaged in distribution activities.
- In this case, the excise tax is tendered to the distributor at time of sale or within 90 days, whichever is earlier.
- The Department of Tax and Fee Administration has indicated that is area of regulation needs to be clarified.
- Inventory on hand as of January 1, 2018 that has yet to be sold:
- For inventory on hand as of January 1, 2018, retailers are expected to collect taxes in compliance with the new laws, including the excise tax. Since California previously did not require the involvement of a licensed distributor to transport the cannabis goods to the retailer, the excise tax for cannabis goods in inventory as of January 1, 2018 will be collected by the distributor servicing the retailer’s needs after the first of the year under the new regulatory scheme.
- However, the retailer is required to tender the excise tax to the distributor by within 15 days after the close of the month in which the cannabis goods are sold to the consumer. Therefore, for any cannabis goods on hand as of January 1, 2018 sold during the month of January 2018, the retailer will need to tender the excise taxes collected to the distributor by February 15, 2018.
The distributor is responsible for reporting and paying all taxes collected to Department of Tax and Fee Administration quarterly, due by last day of month following close of quarter:
- April 30th
- July 31st
- October 31st
- January 31st
Retail or Dispensary Operations
California has determined to impose a 15% state excise tax on all cannabis goods sold in the state of California. This excise tax is based on the average market price, which, according to the Department of California Tax and Fee Administration, is calculated as the actual wholesale cost paid by the retailer for the cannabis goods or cannabis products, plus a 60% markup. This markup rate will remain in effect for the first six months of 2018 and will be adjusted by the California Department of Tax and Fee Administration every six months based on the prior six months’ sales data.
We confirmed with the Department of Tax and Fee Administration that no other industry in California is subject to a tax based on an average market price rather than actual pricing.
The sales tax calculated based on the actual price paid by the consumer to the retailer, including the excise tax. This means California consumers will be paying sales tax on the excise tax!
Sales tax is collected by the retailer and reported directly on its Sales & Use Tax Return. Sales tax varies by county and cities may include additional sales taxes as well.
MMIC – Medical Marijuana Identification Card
The California MMIC offers an exemption from Sales & Use Tax for qualified patients with a Medical Marijuana Identification Card (MMIC) issued by the California Department of Public Health.
Medicinal marijuana patients are able to apply through the county for the MMIC by making an appointment, submitting documentation (typically the recommendation issued by a physician) and proper identification in person to a county representative. Patients will also need their photograph taken. Once this is completed, it will be instantaneously transmitted to the Department of Public Health, who prints the MMIC within 5-7 days and sends it to the county agency for distribution to the consumer.
We also posted real world examples highlighting the tax at the retail level to our Instagram page. Let us know if you have any questions. We are here to help and educate!
The Cannabis Corporate Law Firm