Registration & Licenses.
If you are a cannabis distributor in California, the California Department Of Tax And Fee Administration (“CDTFA”) requires that you:
- Register with the CDTFA for a seller’s permit, if you make sales of cannabis, cannabis products, or tangible personal property in California.
- Register with the CDTFA for a cannabis tax permit (this is separate from your seller’s permit).
- Collect the cannabis cultivation tax from cultivators and manufacturers from which you receive cannabis and/or cannabis products.
- Collect the cannabis excise tax from cannabis retailers you supply (sell and/or transport) with cannabis and/or cannabis products.
- Provide an invoice or receipt to the businesses from which you collect the cultivation tax and the cannabis excise tax.
- Electronically file both your sales and use tax and cannabis tax returns and pay the amounts due to the CDTFA.
In addition, you must also:
- Obtain a distributor license issued by the Bureau of Cannabis Control within the California Department of Consumer Affairs.
- Register with your city and/or county government to obtain a local license and meet all requirements to secure and maintain that license.
California Cannabis Excise Tax and Cultivation Tax.
Effective January 1, 2018, two new cannabis taxes apply as follows:
- A tax on cultivation of cannabis is imposed on cultivators at a rate of:
- $9.25 per dry-weight ounce of cannabis flowers,
- $2.75 per dry-weight ounce of cannabis leaves, and
- $1.29 per ounce of fresh cannabis plant (to qualify for the “fresh” plant category, the unprocessed cannabis must be weighed within two hours of harvesting).
- A 15% excise tax is imposed upon all purchasers of cannabis and cannabis products, including medicinal cannabis and adult-use cannabis.
The cultivation tax applies to all harvested cannabis, medicinal or adult-use, that enters the commercial market. Cannabis “enters the commercial market” when the cannabis or cannabis product, except for immature cannabis plants, clones and seeds, have completed and comply with both the quality assurance review and testing as required in the Medicinal and Adult-Use Cannabis Regulation and Safety Act. The cultivation tax also applies to cannabis transferred or sold to a distributor if the licensing agency allows cannabis or cannabis products to enter the commercial market without being tested. If the cannabis or cannabis product does not pass testing, cannot be remediated and does not enter the commercial market, the cultivator is entitled to the return of the cultivation tax collected.
The cultivation tax does not apply to cannabis that was sold or transferred to you or a manufacturer prior to January 1, 2018. You should keep documentation to support that the purchase or transfer of the cannabis from a cultivator was made prior to January 1, 2018.
Tax Collection And Remittance.
Excise Taxes
As a cannabis distributor, excluding a transport-only distributor, you are responsible for collecting the cultivation tax from cultivators and manufacturers from whom you receive cannabis and/or cannabis products and remitting these taxes and underlying tax filings to the CDTFA. Unless special circumstances apply, a penalty of 50% applies for failure to pay the cultivation tax or cannabis excise tax when due.
Sales Taxes
As a cannabis distributor, you are responsible for transporting cannabis and cannabis products between licensed cannabis businesses. Even if all your sales or transports of cannabis and cannabis products are not subject to sales tax, you are still required to file a sales tax return and report your activities to the CDTFA. When you purchase a product that will be resold, you can purchase it without paying sales or use tax by providing the seller a valid and timely resale certificate. Sales tax will apply if you sell the product at retail. However, when you purchase a product for resale without paying sales tax but, instead of selling it, you consume or use the product, then you owe use tax based on the purchase price.
Having access to a Board Certified Tax Attorney-CPA with specialized knowledge in the cannabis industry and more than 30 years of experience in advising businesses in tax compliance and planning, accounting systems and cash management can help you meet your challenges to minimize your taxes and conduct business in a manner that avoids prosecution by the Federal authorities and meets State & Local laws and regulations to ensure your cannabis business remains operational. Don’t delay call us today!
