Information for Cannabis Cultivators, Processors, Distributors: How the Cultivation Tax Applies to
Cannabis cultivators, including processors, are responsible for paying the cultivation tax when selling or transferring cannabis to distributors or manufacturers based on the weight and category (flowers, leaves, or fresh cannabis plant) of the cannabis. With respect to pre-rolled cannabis, a processor owes the cultivation tax when the processor transfers or sells the pre-rolled cannabis to a distributor. The following explains:
Processor that transfers/sells pre-rolls to distributor pays cultivation tax
When a cultivator sells or transfers cannabis to a processor for further processing, including making cannabis pre-rolls, the cultivator is not responsible for the cultivation tax at this time. However, documentation such as an invoice or manifest should, in addition to other requirements, indicate the transaction was between a cultivator and a processor and that there was no cultivation tax collected on the transaction. When the processor sells or transfers the cannabis pre-rolls to a distributor, the processor must pay the cultivation tax to the distributor based on the weight and category of the cannabis that was used to make the cannabis pre-rolls. The invoice or manifest between the processor and distributor should indicate the weight and category of the cannabis used to make the cannabis pre-rolls.
Distributor pays cultivation tax on cannabis tax return
The distributor that arranges for the required testing and conducts the quality assurance review is responsible for collecting and reporting the cultivation tax based on the weight and category of the cannabis used to make the cannabis pre-rolls. The distributor is required to report and pay the cultivation tax on their cannabis tax return during the reporting period that the cannabis enters the commercial market (that is, passed required testing and quality assurance review).
This email is intended to give you an overview of how the cultivation tax applies to pre-rolled cannabis and does not address all requirements for the cannabis industry. For additional information, we encourage you to read our online Tax Guide for Cannabis Businesses, or contact us.