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.
If you are a cannabis cultivator, the 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.
- Contact your city and/or county government office for information on local licenses you may be required to obtain.
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, and
- $2.75 per dry-weight ounce of cannabis leaves.
The cultivation tax applies to all harvested cannabis that enters the commercial market. Cannabis has “entered the commercial market” when the cannabis or cannabis products, except for immature cannabis plants and seeds, have completed and comply with the Medicinal and Adult-Use Cannabis Regulation and Safety Act required quality assurance review and testing.
Distributors are required to collect the cultivation tax from you, as the cultivator, on all harvested cannabis that enters the commercial market based on the appropriate cannabis category. The flower category includes all dried flowers of the cannabis plant, whether trimmed or untrimmed. The leaves category includes all other parts of the cannabis plant other than flowers that are consumed or sold.
However, as a cultivator, 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. The cultivation tax you pay to a manufacturer will be passed on to a distributor for payment to the CDTFA.
Beginning January 1, 2020, the CDTFA is required to annually adjust the cultivation tax rates to account for inflation. A special notice will be mailed to cannabis businesses informing them of the rates. The cultivation tax rates will also be posted on the Special Taxes and Fees Rate Page
Cannabis Cultivation Tax Imposition
The cannabis cultivation tax is imposed on the cultivator. As a cannabis cultivator, you are responsible for the payment of the cannabis cultivation tax to your distributor or manufacturer. The tax is due on all harvested cannabis that enters the commercial market. No cannabis may be sold unless the cannabis cultivation tax has first been paid.
You should obtain an invoice, receipt, or other similar document from the distributor or manufacturer to which you pay the cultivation tax. The invoice should identify:
- The licensee receiving the product.
- Your name and associated unique identifier.
- The amount of cannabis cultivation tax.
You are liable for the cultivation tax until it has been paid to the state or you are provided such an invoice or receipt from a distributor or manufacturer.
Cultivation Tax Computation
The cultivation tax is based on the dry-weight ounce of cannabis. To properly calculate the cultivation tax due, it is important that you know the weight in ounces of each category of cannabis that is sold. Partial ounces must be included in the calculation of the cultivation tax due. The example below provides a sample scenario and guidance on how to compute the amount of cultivation tax due.
Measurement of Weight Conversion
Cannabis may be weighed using many different units of measurement. To properly calculate the cultivation tax due, it is important that you know the weight in ounces.
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.
Generally, most of the products you purchase for use in your business are subject to sales or use tax. However, purchases of certain supplies may not be taxable, whereas purchases of other products may qualify for a partial exemption.
A processor conducts trimming, drying, curing, grading, or packaging of cannabis and non-manufactured cannabis products. These activities are fabrication labor and are subject to sales tax.
Partial Exemption for Farm Equipment and Machinery
In general, the sale of farm equipment and machinery is subject to sales and use tax. However, certain sales and purchases of farm equipment and machinery are partially exempt from sales and use tax. As a cultivator, you may be able to take advantage of this partial exemption.
Buildings for Raising Plants
Certain buildings may meet the definition of farm equipment for purposes of qualifying for the partial exemption from sales and use tax for farm equipment. The building must be a single-purpose building to house plants, such as a greenhouse.
Solar Power Facilities
If you qualify for the partial exemption from sales and use tax for farm equipment, your purchase of a solar power facility may also qualify.
Exemptions for Diesel Fuel Used in Farming Activities
Most sales and/or purchases of diesel fuel are subject to sales and use tax and diesel fuel tax. However, a partial sales and use tax exemption exists for certain sales and purchases of diesel fuel used in farming activities.
Exemption for Liquefied Petroleum Gas (LPG) Used in Farming Activities
Sales of LPG for agricultural use are not subject to sales and use tax or use fuel tax when purchased by a qualified buyer.
The exemption from sales and use tax applies to the sale or purchase of LPG only if it is used in commercial crop production or harvesting.
When you make a purchase that qualifies for an exemption, you must provide an exemption certificate to your supplier.
You are required by law to keep business records so that we may verify the accuracy of your sales and use tax and cannabis tax returns and determine how much tax is due, if any.