A cannabis manufacturer is a person who produces or prepares cannabis or cannabis products at a fixed location, that packages or repackages cannabis or cannabis products, or labels or relabels its container. A microbusiness licensed to act as a manufacturer must comply with all of the same requirements as a manufacturer.
If you are a cannabis manufacturer, the CDTFA requires that you:
- Register with the CDTFA for a seller’s permit.
- Collect the cannabis cultivation tax from cultivators from which you receive unprocessed cannabis and provide the cultivator with a receipt.
- Pay the cultivation tax collected from cultivators to your distributor.
- Electronically file your sales and use tax returns and pay any sales and/or use tax owed 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 manufacturer license issued by the California Department of Public Health.
- Contact your city and/or county government office for information on local licenses you may be required to obtain.
Cannabis Cultivation Tax
As a cannabis manufacturer, you are required to collect the cannabis cultivation tax from cultivators when the unprocessed cannabis is first sold or transferred to you. You must then pay the cultivation tax collected to your distributor when the cannabis products are sold or transferred to the distributor for quality assurance, inspection, and testing.
You must provide an invoice, receipt, or other similar document to the cultivator that identifies:
- The licensee receiving the product.
- The cultivator from which the product originates, including the associated unique identifier.
- The amount of cannabis cultivation tax.
Effective January 1, 2018, a cultivation tax on all harvested-cannabis (including medicinal cannabis and adult-use cannabis) that enters the commercial market 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.
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.
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 your product to a customer, such as a distributor or retailer, and the customer provides you with a valid and timely resale certificate, the sale is not subject to sales tax.
When you purchase a product that will be resold, you can purchase it without paying sales and use tax by timely providing the seller with a valid 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 the use tax based upon the amount of the purchase price.
You are required by law to keep business records so that we may verify the accuracy of your sales and use tax return and determine how much tax is due, if any.
Manufacturing and Research & Development Partial Exemption
Manufacturers and certain research and developers may qualify for a partial exemption of sales and use tax on certain manufacturing and research and development equipment purchases and leases. To be eligible for this partial exemption of sales and use tax, you must meet certain specified conditions.