Cannabis Compliant Accounting + Tax

CA License Extensions for Cannabis Business

Although cannabis businesses cannot avail themselves of the federal relief response to COVID-19, the California state cannabis licensing boards are offering some relief. If your license expires between May 14 and June 30, 2020 you can request a deferment of up to 60 days from renewal fees.

Some cannabis businesses may be eligible for some fee and tax relief

Licensees must submit a written Request for Regulatory Relief to be considered for a license fee deferral. Deferral requests will begin to be accepting immediately.

Although you can simply write requesting relief there is an optional form which can be filled out to request relief. All requests should be sent by email to MCLS@cdph.ca.gov. If not using the form be sure to include the business name, license, premises address, the length of the deferral request, and the name of the owner submitting the request.

Cannabis businesses may also be able to avail themselves of tax relief. The CDTFA has offered some tax deferrals to businesses.

Visit CA.gov to see the state’s response to COVID-19.

Cannabis Markup to Remain the 80%

The CDTFA (California Department of Tax and Fee Administration) is charged with determining the California excise markup amount every six months.

Earlier this year it was raised from 60% to 80%. The CDTFA has now released its determination for what the markup will be for June-December 2020 and it will remain 80%.

Distributors of cannabis products are responsible to calculate and collect the excise tax from retailers. You can find out more about cannabis tax rates and calculations at CDTFA.ca.gov

US Spot Index Higher than a Year Ago

One of the markers of success in the cannabis industry is the wholesale price per pound. According to the U.S. Spot Index from Cannabis Benchmarks, prices peaked in mid-February. Since then, the volume-weighted average price has fluctuated within a seven-percentage-point range – or more than $100 per pound.

US cannabis market holding steady in the era of coronavirus

While the trend may be downward prices are at least higher than a year ago in 2019 when the market was recovering from a difficult 2018.

It would be logical to assume the downward trend is directly related to the COVID-19 pandemic. A few states like Massachusetts ordered the industry to shutter, considering it a non-essential business. And the Nevada average price is down which may be related directly to tourism in Las Vegas coming to a full stop in the pandemic.

But overall this industry marker is holding indicating that activities like consolidation in markets, better supply chain management, and increased number of markets coming online in the last 12 months have left the industry in good stead.

Cannabis Industry Pummeled

The road after legalization for recreational use of cannabis in California has not been paved with gold. Strangling excise taxes, license uncertainty, vape crisis…

Already uncertain industry manages through uncertain times

When California decided that dispensaries could remain open as an essential business there was, no doubt, a collective sigh of relief in the already fragile industry. With the stay at home order in mid-March there was an initial spike of sales, and there have been bumps since but overall sales are down. Reduced hours undoubtedly have had an impact. But the industry is surviving.

Even though Gov. Gavin Newsom declared marijuana an essential business, the State has been deferring to local governments to determine the restrictions needed to enforce social distancing. Meaning, some localities have made sales permissible curbside only or via delivery, which, if a dispensary does not have a relationship with an entity that has a license to deliver, or possess their own, it could take months to be approved.

In counties where the “delivery only” order has come down, like Santa Clara, the industry has been able to rally and get reversal. The Bureau of Cannabis Control is currently backing the new rules local governments are putting out but that brings uncertainty, in a time of great uncertainty, to a industry that was already filled with uncertainty.

Marijuana Industry Recession Proof?

Could the marijuana industry be essential?

We all know grocery stores are open – because, well, everyone has to eat. And with the orders to social distance all over the country in place, states do have some leverage when considering what essential business looks like.

Even as grocery stores have stayed open to feed us, businesses like gas stations, convenience stores, and even home improvement stores remain open in some locations, though with now limited hours.

But what of marijuana dispensaries? California and Colorado as of this writing have deemed them essential, along with liquor stores. Some states, like Michigan, have allowed the continuation of medical sales only.

After the initial stay at home orders began coming down cannabis sales spiked. But with limited hours and more people unemployed sales began to dip a few days later.

But even with the downturn some analysts in the industry predict that marijuana, like alcohol, will remain somewhat recession-proof. With record high unemployment all industries will invariably see negative impacts. Whether benefit from the CARES Act recently passed that will infuse money into the economy will trickle down to the cannabis industry is to be seen.

Cannabis Deemed Essential Business

On Thursday, March 19, 2020 Governor Gavin Newsom issued a stay at home order to protect the health and well-being of all Californians and to establish a consistent approach across the state to slow the spread of COVID-19. This order went into effect on Thursday, March 19, 2020, and is in place until further notice.

The order identifies certain services as essential, including food, prescriptions, and healthcare. These services can continue despite the stay at home order. Because cannabis is an essential medicine for many residents, licensees may continue to operate at this time so long as their operations comply with local rules and regulations.

Any licensee that continues to operate must adopt social distancing and anti-congregating measures and must follow the CDC’s Interim Guidance for Businesses and Employers to Plan and Respond to Coronavirus Disease at all times.

Donated Cannabis Now A Reality

The adoption of Senate Bill 34 made donating cannabis to qualified medical patients a reality. Beginning March 1, 2020, cannabis retailers may provide free cannabis or cannabis products to qualified medicinal patients or their primary caregivers which exempts these donated items from excise, sales and use, and cultivation taxes. Licensed cultivators, manufacturers, distributors, retailers or microbusinesses may designate cannabis or cannabis products that they hold in their inventory for donation. But those items designated for donation may then only be provided to a medicinal patient or primary caregiver through a licensed retailer.

Medical patients can get donated cannabis

Cannabis and cannabis products designated for donation must comply with all requirements outlined in MAUCRSA and the state cannabis regulations. This includes, but is not limited to:

— Donated cannabis and cannabis products must move through the licensed supply chain in the same way as cannabis and cannabis products for sale and meet all applicable requirements for cultivation, manufacturing, distribution, laboratory testing, packaging and labeling, etc.;

— Cannabis and cannabis products that do not pass the required regulatory compliance testing cannot be donated; and

— Only licensees authorized for retail activity, or nonprofits working in conjunction with those licensed retailers, may provide donated product directly to qualified medicinal consumers.

— Licensees designating an item for donation are required to record that designation in Track-and-Trace and on invoices and sales receipts.

— Licensees cannot change the donation designation made by another licensee or after the donated item has been transported to another licensee. Any licensee that changes a donation designation will be liable for sales and use taxes on the items and may be subject to disciplinary action.

— Manufacturers producing cannabis products for donation must include the statement “FOR MEDICINAL USE ONLY” on the label.

Retailer’s Requirements:

Donated items may only be provided to medicinal cannabis patients, or primary caregivers, with a valid recommendation or medical marijuana identification card under Section 11362.7 of the Health and Safety Code.

Before providing free cannabis goods to a medicinal patient that does not possess a valid identification card, a retailer must:

— Verify with the Medical Board of California, the Osteopathic Medical Board of California, and the California Board of Podiatric Medicine that the attending physician providing the patient’s medicinal cannabis recommendation has a license in good standing to practice medicine or osteopathy in the state of California;

— Keep a copy of the patient’s or primary caregiver’s driver license or other government issued identification; and Prepare a written certification that the retailer verified the physician’s recommendation as required.

— A licensee authorized to engage in retail sales only through delivery may provide free cannabis goods only by delivery.

— A licensee authorized to engage in retail sales on a licensed premises open to the public may contract with an individual or organization to coordinate the provision of free cannabis goods on the licensee’s retail premises. A license may be held responsible for violations of applicable statutory and regulatory requirements by the individual or organization with whom the licensee has contracted pursuant to this subsection.

— The donated cannabis and cannabis products provided to a medicinal cannabis patient or the patient’s primary caregiver shall be applied toward the daily purchase limit for a medicinal cannabis customer contained in section 5409 of the Bureau’s regulations and the possession limits contained in Section 11362.77 of the Health and Safety Code.

Designating Packages for Donation in Track-and-Trace:

All items intended for donation must be marked as such in Track-and-Trace. A bulletin with step-by-step instructions for designating new or existing packages of cannabis, cannabis products, and immature plants and for entering retail donations these items has been posted in the California Cannabis Track-and-Trace system. Licensees can log into their Metrc account and find this bulletin under the Messages tab (appears as an envelope in the top left corner).

For questions about designating donations within the Track-and-Trace system, please contact the Metrc Support Desk: support@metrc.com.

Banks Report Fewer Cannabis Clients

The end of the last quarter brought a slight dip in the number of accounts that banks and credit unions informed federal regulators they are maintaining for cannabis businesses. But that seems to be primarily related to revised reporting requirements for financial institutions servicing hemp-specific businesses following that crop’s federal legalization, rather than a decline in the number of marijuana companies with bank accounts.

Fewer clients may just mean reclassifying

The Financial Crimes Enforcement Network (FinCEN) reported that Suspicious Activity Reports (SARs) for marijuana businesses declined from 747 as of November 2019 to 739 by the end of the following month.

Some in the industry expected to see an increase rather than drop. The House of Representatives passed a bill last year that would protect financial institutions from being penalized for working with legal cannabis businesses by federal regulators, the SAFE Banking Act. Even though this legislation has stalled in the Senate and has not yet been enacted into law, the industry was hopeful that the positive support alone would propel banks to working with cannabis clients more readily.

Because marijuana remains on the Schedule 1 of the Controlled Substances Act banks are required to make SARs to the Federal Government. But the 2018 Farm Bill removed hemp from the Controlled Substances Act, banks are no longer required to automatically submit SARs for businesses that produce, process or sell the crop and products derived from it. Thus the drop in cannabis clients may be a reclassification rather than a removal of clients.

Illinois’ First Month of Tax Revenue to Fund Programs

The Illinois’ cannabis industry saw massive sales during its first month in action — $39,247,840.83 worth of product sold, to be exact. But now the state’s Department of Revenue has released its figures on taxes, and it’s official that Illinois is also experiencing a windfall; $7.3 million in tax revenue from January cannabis sales alone.

Illinois announced first month of tax revenues from legal cannabis sales

With tax rates for the sale of many marijuana-infused products set at 20 percent, Illinois has one of the highest cannabis tax rates in the country.

That money is earmarked for important destinations, though the way that the revenue will be spent varies from jurisdiction to jurisdiction when it comes to local taxes.

Recipients of the funds include local municipalities, the State’s general fund, a restorative justice initiative to assist those harmed by the “war on drugs”, law enforcement training and substance abuse programs.

2019 A Banner Year for Colorado

Colorado’s Colorado Department of Revenue data reported that cannabis shops notched sales of nearly $1.75 billion during 2019, setting a new annual sales record for the state home to the nation’s longest-established recreational cannabis industry.

Colorado legal cannabis is a multi-billion dollar industry in the state

The 2019 figures showcase a surprising surge in growth from a market that a year ago appeared to be flattening out. The profusion of edibles, beverages, vapes and concentrates resulted in a smaller market share for the familiar flower. Separately, people are growing comfortable with buying cannabis products and integrating those purchases into their shopping patterns, he said, noting recent BDS studies that showed increases in the number of adults who reported consuming cannabis in the prior six month period.

Colorado has the longest standing legal cannabis for recreational use record. Even with a relatively high tax rate (15% sales, 15% excise) recreational use is the bulk of consumption in Colorado.