A cannabis cultivator is a person who is in engaged in the business of planting, growing, harvesting, drying, curing, grading or trimming cannabis. A microbusiness licensed to act as a cultivator, must comply with all of the same requirements as a cultivator.
Registration & Licenses
If you are a cannabis cultivator, the California Department Of Tax And Fee Administration (“CDTFA”) requires that you:
- Register with the CDTFA for a seller’s permit.
- Pay the cultivation tax to your distributor or manufacturer.
- Electronically file your sales and use tax returns and pay the tax due, if any, to the CDTFA. Even if you do not make taxable sales of cannabis, you are still required to file a return indicating your total sales with your claimed nontaxable or exempt sales during that particular reporting period.
In addition, you must also:
- Obtain a cultivation license issued by the California Department of Food and Agriculture.
- Register with your city and/or county government to obtain a local license and meet all requirements to secure and maintain that license.
Cannabis Cultivation Tax
Effective January 1, 2018, a tax on cultivation of cannabis (including medicinal cannabis and adult-use 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).
The flower category includes all dried flowers of the cannabis plant, whether trimmed or untrimmed. The leaves category includes all other parts of the dried cannabis plant other than flowers that are consumed or sold. The fresh category includes flowers, leaves, or a combination of adjoined flowers, leaves, stems, and stalks of the unprocessed fresh cannabis plant that is invoiced as such.
Application of the Cultivation Tax
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 products, 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, you are entitled to the return of the cultivation tax collected from you. The distributor is responsible for returning to you the cultivation tax collected from you.
Sales to a Distributor
Distributors are required to collect the cultivation tax from you, as the cultivator, on all harvested cannabis based on weight and category of the cannabis that enters the commercial market.
Sales to a Manufacturer
If the first transfer or sale of unprocessed cannabis is to a manufacturer, and not a distributor, the manufacturer is required to collect the cultivation tax from you at the time of the first sale or transfer of the unprocessed cannabis based on the weight and category of the cannabis sold or transferred. The cultivation tax you pay to a manufacturer will be passed on to a distributor for payment to the CDTFA.
The invoice or receipt you receive from the manufacturer or distributor showing the amount of cultivation tax paid relieves you of the liability for the cultivation tax. The invoice or receipt should identify:
- The distributor or manufacturer’s name, as the licensee receiving the product.
- Your name, as the cultivator.
- The associated unique identifier for the cannabis.
- The amount of cultivation tax.
- The date of sale or transfer.
Cannabis Cultivation Tax Imposition
The cultivation tax is imposed on the cultivator. As a cannabis cultivator, you are responsible for the payment of the cultivation tax to your distributor or manufacturer. The tax is due on all harvested cannabis based on the weight and category of the cannabis that enters the commercial market. No cannabis may be sold unless the cultivation tax has been paid. The cultivation tax does not apply to harvested cannabis that you transferred or sold to a manufacturer or distributor prior to January 1, 2018. The cultivation tax is based on the category and weight of cannabis that you, as a cultivator, sell or transfer to a distributor or a manufacturer. The distributor will need to know the weight in ounces of each category of cannabis that is sold or transferred to properly calculate the amount of cultivation tax due. Partial ounces, rounded to the nearest hundredth, must be included in the calculation of the cultivation tax due. The amount of cannabis that is sent for testing is excluded from the calculation. There is no cultivation tax category for whole dry cannabis plant. If you sell or transfer cannabis as a whole dried cannabis plant to a distributor or manufacturer, you must use the cannabis flower category for the whole dried plant at a tax rate of $9.25 per dry-weight ounce.
Removal from a Cultivator’s Premises
All cannabis removed from your premises, except for plant waste, is presumed to be sold and is subject to the cultivation tax. There may be circumstances when cannabis is removed from your premises for valid purposes other than for entry into the commercial market.
When you sell cannabis to a customer, such as a distributor, manufacturer, or retailer who provides you with a valid and timely resale certificate, the sale is not subject to sales tax; however it is subject to the cannabis cultivation tax.
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!