CA Allows for Medical Cannabis Donations’ Tax Exemption

Beginning March 1, 2020, California law provides that cannabis retailers may donate free medicinal cannabis or medicinal cannabis products (medicinal cannabis) to medicinal cannabis patients, or cannabis licensees may donate free medicinal cannabis to cannabis retailers for subsequent donation to medicinal cannabis patients, without payment of certain taxes (see Senate Bill 34).

Some cannabis donations can be tax free after March 1, 2020

The cultivation tax will not apply to medicinal cannabis when the cultivator designates for donation in the California Cannabis Track‑and‑Trace system.
The cannabis excise tax does not apply when a cannabis retailer donates free medicinal cannabis to a medicinal cannabis patient.
The use tax will not apply when a cannabis retailer donates free medicinal cannabis to a medicinal cannabis patient, or when another licensee, such as a distributor or manufacturer, donates free medicinal cannabis to a retailer for subsequent donation to a medicinal cannabis patient.

Who qualifies as a medicinal cannabis patient?
A medicinal cannabis patient is a qualified patient who possesses a qualifying physician’s recommendation, or a qualified patient or the patient’s primary caregiver with a valid Medical Marijuana Identification Card issued by the California Department of Public Health.

How do you certify that the medicinal cannabis will be donated?
The cannabis licensee that receives medicinal cannabis for donation must certify in writing to the licensee donating it that the medicinal cannabis will ultimately be donated to a medicinal cannabis patient. Cannabis licensees may use a written document, such as a letter, note, purchase order, or preprinted form, as a cannabis donation certificate. Or, a cannabis licensee may use CDTFA‑230‑CD, Cannabis Donation Certificate as a written certification that the medicinal cannabis will be donated to a medicinal cannabis patient.

More detailed information can be found in the CDTFA’s Tax Guide for Cannabis Businesses.

Cannabis Taxes

Ever wonder what other states pay in taxes on cannabis products? The non-profit Tax Foundation has done an analysis of cannabis taxes on states where it has been legal for recreational sales.

It may feel as if taxes in California are high, but in a state like Alaska, where this is no state-wide sales tax, the $50 per ounce levy must feel high.

California is subject to an ever changing tax landscape and starting this year increased its retail markup value – the percentage used to calculate what distributors must collect from retailers – to 80%. These costs get passed along to customers who also pay the local sales tax rate on the products they purchase along with the local marijuana excise tax imposed by the municipality where the dispensary is housed.

When Illinois made recreational sales legal this year they started with a graduated tax system where products are taxed higher based on potency. Even still, they ended up with one of the highest tax rates, topped only by Washington State whose rate is over 43%.

Other states like Massachusetts, Colorado, Oregon and Michigan’s state excise tax hovers around 17%. But, of course, on a state by state and municipality by municipality there are other imposed tax burdens along the supply chain that affect the retail price to customers.

One thing is certain, the taxing landscape is shaping up to be uneven and burdensome in some places, mirroring the convoluted nature of the tax system on beer, wine, spirits and cigarette and nicotine products.

Cannabis Rate Changes Effective January 1, 2020

Cannabis Mark-up Rate
The California Department of Tax and Fee Administration (CDTFA) is responsible for determining the cannabis mark-up rate every six months. An analysis of statewide market data was used to determine the average mark-up rate between the wholesale cost and the retail selling price of cannabis and cannabis products. Based on this analysis, effective January 1, 2020, the mark-up rate will be set at 80 percent.

The 15 percent cannabis excise tax is based on the average market price of the cannabis or cannabis products sold in a retail sale. The mark-up rate is used when calculating the average market price to determine the cannabis excise tax due in an arm’s length transaction. In an arm’s length transaction, the average market price is the retailer’s wholesale cost of the cannabis or cannabis products plus, the mark-up rate determined by the CDTFA. In a nonarm’s length transaction, the average market price is the cannabis retailer’s gross receipts from the retail sale of the cannabis or cannabis products.

Cultivation Tax Rates
As required by the Cannabis Tax Law, effective January 1, 2020, the cultivation tax rates reflect an adjustment for inflation. The adjusted rates for each category shown below will be reflected on the monthly and quarterly cannabis tax returns beginning January 1, 2020.

CANNABIS CATEGORY	CURRENT RATE	RATE EFFECTIVE 1/1/2020
Flower per dry-weight ounce	$9.25	$9.65
Leaves per dry-weight ounce	$2.75	$2.87
Fresh cannabis plant per ounce	$1.29	$1.35

On or after January 1, 2020, the rates apply to cannabis that a cultivator sells or transfers to a manufacturer or distributor.
Cultivator cannabis sales or transfers made prior to January 1, 2020, will use the current rate listed above.

For current cannabis mark-up and tax rates, see our Special Taxes and Fees rate page at www.cdtfa.ca.gov/taxes-and-fees/tax-rates-stfd.htm, under Cannabis Taxes.

New Sales and Use Tax Rates Operative April 1, 2019

The tax rate changes listed below apply only within the indicated city or county limits. The new tax rates, tax codes, acronyms, and expiration dates will be available to view and download as a spreadsheet prior to April 1, 2019, on our webpage California City & County Sales & Use Tax Rates (scroll down to “Download” for the spreadsheet).

To find the specific tax rate for your area or business location, go to Find a Sales and Use Tax Rate by Address. (Please note: The new rates will not be available here until April 1, 2019.) You can also call our Customer Service Center at 1‑800‑400‑7115 (TTY:711). Customer service representatives are available to assist you Monday through Friday from 8:00 a.m. to 5:00 p.m. (Pacific time), except state holidays.

DISTRICT TAX RATE INCREASING
Citywide	New Code	Acronym	Prior Rate	New Rate
City of Alameda (located in Alameda County)	648	ALTG	9.250%	9.750%
City of Oroville (located in Butte County)	649	OVTG	7.250%	8.250%
City of Angels Camp (located in Calaveras County)	650	ACGT	7.250%	7.750%
City of Antioch (located in Contra Costa County)¹	652	ANIT	8.750%	9.250%
City of Martinez (located in Contra Costa County)	654	MZGT	8.750%	9.250%
City of Coalinga (located in Fresno County)	656	COLG	7.975%	8.975%
City of Fowler (located in Fresno County)	658	FWLG	7.975%	8.975%
City of Kerman (located in Fresno County)	660	KERM	7.975%	8.975%
City of Bakersfield (located in Kern County)	741	BSVG	7.250%	8.250%
City of Burbank (located in Los Angeles County)	662	BURB	9.500%	10.250%
City of Covina (located in Los Angeles County)	664	COGT	9.500%	10.250%
City of Culver City (located in Los Angeles County)	666	CULG	10.000%	10.250%
City of Pomona (located in Los Angeles County)	668	PMAG	9.500%	10.250%
City of La Puente (located in Los Angeles County)	670	LUPG	9.500%	10.000%
City of Santa Fe Springs (located in Los Angeles County)	672	SFSG	9.500%	10.500%
City of Glendale (located in Los Angeles County)	674	GNDG	9.500%	10.250%
City of Lawndale (located in Los Angeles County)	676	LAWG	9.500%	10.250%
City of Cudahy (located in Los Angeles County)	678	CDHG	9.500%	10.250%
City of Pasadena (located in Los Angeles County)	680	PSGD	9.500%	10.250%
City of Chowchilla (located in Madera County)	682	CHCS	7.750%	8.750%
City of Los Banos (located in Merced County)	684	LSBS	8.250%	8.750%
City of King City (located in Monterey County)²	686	KNGG	8.250%	8.750%
City of Marina (located in Monterey County)³	688	MRGT	8.750%	9.250%
City of Placentia (located in Orange County)	690	PLCT	7.750%	8.750%
City of Santa Ana (located in Orange County)	692	SATA	7.750%	9.250%
City of Seal Beach (located in Orange County)	694	SEAL	7.750%	8.750%
City of Garden Grove (located in Orange County)	696	GGGT	7.750%	8.750%
City of Roseville (located in Placer County)	697	ROSG	7.250%	7.750%
City of Norco (located in Riverside County)	699	NOGT	7.750%	8.750%
City of Murrieta (located in Riverside County)	701	MURG	7.750%	8.750%
City of Wildomar (located in Riverside County)	703	WILG	7.750%	8.750%
City of Sacramento (located in Sacramento County)⁴	705	SARG	8.250%	8.750%
City of Barstow (located in San Bernardino County)	710	BARS	7.750%	8.750%
City of Oceanside (located in San Diego County)	712	OTGT	7.750%	8.250%
City of Lodi (located in San Joaquin County)	714	LOGT	7.750%	8.250%
City of Redwood City (located in San Mateo County)	716	REDG	8.750%	9.250%
City of Santa Maria (located in Santa Barbara County)⁵	718	SMPG	8.000%	8.750%
City of Carpinteria (located in Santa Barbara County)	720	CARG	7.750%	9.000%
City of Los Gatos (located in Santa Clara County)	722	LGTG	9.000%	9.125%
City of Santa Rosa (located in Sonoma County)⁶	732	SATG	8.625%	9.000%
City of Porterville (located in Tulare County)	734	PVGT	8.250%	9.250%
City of Port Hueneme (located in Ventura County)	736	PHEG	7.750%	8.750%
City of West Sacramento (located in Yolo County)	738	WSGT	8.000%	8.250%
Countywide	New Code	Acronym	Prior Rate	New Rate
San Benito County (This rate applies in all unincorporated areas and in incorporated cities that do not impose a district tax.)	706	SBRT	7.250%	8.250%
City of Hollister	707		8.250%	9.250%
City of San Juan Bautista	708		8.000%	9.000%
Sonoma County (This rate applies in all unincorporated areas and in incorporated cities that do not impose a district tax.)	744	SCPS	8.125%	8.250%
City of Cotati	726		9.125%	9.250%
City of Healdsburg	727		8.625%	8.750%
City of Rohnert Park	728		8.625%	8.750%
City of Sebastopol	729		8.875%	9.000%
City of Sonoma	730		8.625%	8.750%
City of Santa Rosa⁶	732	SATG	8.625%	9.000%
Unincorporated Area⁷	New Code	Acronym	Prior Rate	New Rate
Santa Cruz County Unincorporated Area	724	SCUG	8.500%	9.000%
Yuba County Unincorporated Area⁸	739	YBUA	7.250%	8.250%
CURRENT DISTRICT TAXES EXTENDED
County/City	Code	Acronym	Tax Rate	Expiration Date
Humboldt County	389	HBGT	7.750%	Indefinite
Marin County	102	TAMC	8.250%	3/31/2049
Santa Clara County	331	SCCR	9.000%	Indefinite
City of Albany (located in Alameda County)	298	ALBG	9.750%	Indefinite
Town of Paradise (located in Butte County)	381	PTTG	7.750%	3/31/2031
City of Rio Dell (located in Humboldt County)	390	RDGT	8.750%	12/31/2024
City of San Fernando (located in Los Angeles County)	347	SNFE	10.000%	Indefinite
City of El Monte (located in Los Angeles County)	199	EMGF	10.000%	3/31/2029
City of Monterey (located in Monterey County)	403	MTRS	8.750%	3/31/2027
City of Sebastopol (located in Sonoma County)	344	SBCGS	8.875%	Indefinite
City of Red Bluff (located in Tehama County)	424	RDBF	7.500%	3/31/2031

¹The city increased its existing tax (ANTG) of 0.50 percent to 1.00 percent (ANIT) and extended the expiration date to March 31, 2039.

²The city increased its existing tax (KING) of 0.50 percent to 1.00 percent (KNGG) and extended the expiration date to March 31, 2029.

³The city approved a new 1.50 percent tax (MRGT) to replace the existing 1.00 percent tax (MRNA) which will expire March 31, 2019.

⁴The city approved a new 1.00 percent tax (SARG) to replace the existing 0.50 percent tax (SACG) which will expire March 31, 2019.

⁵The city approved a new 1.00 percent tax (SMPG) to replace the existing 0.25 percent tax (SMAG) which will expire March 31, 2019.

⁶The city approved a new tax of 0.25 percent (in addition to the Sonoma countywide increase of 0.125 percent listed in the countywide table).

⁷These new taxes apply in the unincorporated area of the county only. They do not affect the rate that applies in incorporated cities within these counties.

⁸The Yuba County Unincorporated Area tax is subject to pending litigation. Information regarding this tax will be updated if necessary.

Microbusinesses or Cannabis Businesses with Multiple Licenses: How to Calculate the Cannabis Excise Tax on Nonarm’s Length Transactions

Microbusinesses or Cannabis Businesses with Multiple Licenses: How to Calculate the Cannabis Excise Tax on Nonarm’s Length Transactions

Distributors or microbusinesses authorized to operate as distributors are required to calculate and collect the 15 percent cannabis excise tax from cannabis retailers on the sale or transfer of cannabis or cannabis products (cannabis) based on the average market price of the cannabis. In a nonarm’s length transaction, generally when a cannabis retailer is also the distributor, the average market price of the cannabis is equal to the gross receipts, and the 15 percent cannabis excise tax is applied to the gross receipts of the retail sale of the cannabis.

What is included in gross receipts?

Gross receipts include all charges related to the sale of cannabis, such as labor, services, and certain transportation charges. For example, as a retailer, when you deliver cannabis to your customers using your own vehicles and there is no explicit written agreement prior to the delivery that passes title to the purchaser before delivery, the charge for that delivery is included in the gross receipts subject to the cannabis excise tax. Additionally, if you add a separate amount to your customers’ invoices or receipts to cover a cannabis business tax required by your city, that amount is included in the gross receipts subject to the cannabis excise tax.

Example

You are a licensed microbusiness authorized to cultivate, distribute, and make retail sales of cannabis. You sell cannabis flowers to your retail customers for $35.00 per eighth of an ounce and charge $5.00 for delivery. You have an 8.5 percent sales tax rate and a 10 percent business tax. In this nonarm’s length transaction, the average market price is your gross receipts from the retail sale of the cannabis flowers.

Excise tax calculation:

Selling price of cannabis	$35.00
Cannabis business tax	$3.50
Delivery	$5.00
Subtotal ($35.00 + $3.50 + $5.00)	$43.50
Excise tax ($43.50 x 15%)	$6.53

Sales tax calculation:

Subtotal ($43.50 + $6.53)	$50.03
Sales tax ($50.03 x 8.5%)	$4.25
Total due ($50.03 + $4.25)	$54.28

The distribution part of your business is responsible for reporting and paying the cannabis excise tax of $6.53 ($43.50 × 15%) to the CDTFA on your cannabis tax return along with the cultivation tax that is due on the cannabis flowers that entered the commercial market. The cannabis retail part of your business is responsible for reporting and paying the sales tax of $4.25 ($50.03 x 8.5%) to the CDTFA on your sales and use tax return.

This email is intended to give you an overview of how the cannabis excise tax is calculated in a nonarm’s length transaction and does not address all requirements for the cannabis industry. We encourage you to read our online Tax Guide for Cannabis Businesses, or contact us at www.cdtfa.ca.gov/contact.htm.

Microbusinesses or Cannabis Businesses with Multiple Licenses Cultivation Tax Requirements

Microbusinesses or Cannabis
Businesses with Multiple Licenses
Cultivation Tax Requirements

You are subject to the same requirements as an independent/third party distributor if you are a cannabis business licensed as a microbusiness that is authorized to engage in distribution, or if you hold multiple cannabis license types to operate as a distributor as well as a cultivator and/or manufacturer. This email explains how and when to report the cultivation tax if you are a distributor that obtains cannabis or cannabis products from a related or affiliated cultivator and/or manufacturer.

Cultivator supplies cannabis to a related/affiliated manufacturer
If you are a microbusiness that cultivates and manufactures cannabis, or a related/affiliated cultivator and manufacturer, you are responsible for calculating the cultivation tax due based on the weight and category of the cannabis that you transfer from the cultivation part of your business to the manufacturing part of your business.

Manufacturer supplies cannabis products to a related/affiliated distributor
As a manufacturer, you are responsible for keeping track of the weight and category of the cannabis used to make a cannabis product. You should provide the weight and category of the cannabis to your related/affiliated distributor.

Distributing cannabis or cannabis products for a related/affiliated cultivator or manufacturer
As a distributor who distributes cannabis or cannabis products for a related/affiliated cultivator or manufacturer, you are responsible for keeping track of the weight and category of the cannabis or cannabis products. If you are also the distributor who arranges for the required testing and you conduct the quality assurance review, then you are responsible for reporting the weight and category of the cannabis or cannabis products entering the commercial market and paying the cultivation tax due to the California Department of Tax and Fee Administration (CDTFA) on the cannabis tax return.

When to report and pay the cultivation tax

Distributors are required to report and pay the cultivation tax to the CDTFA during the reporting period that the cannabis or cannabis products passes the required testing and quality assurance review and is considered to have entered the commercial market.
The electronic return and payment of the cultivation tax is due the last day of the month following the reporting period. For example, the filing deadline for the first quarter of 2018 is due by April 30, 2018.

This email is intended to give you an overview of some of the requirements for cannabis businesses that distribute cannabis on their own behalf and does not address all requirements for the cannabis industry. We encourage you to read our online Tax Guide for Cannabis Businesses, or contact us.

California’s Cannabis Distributors

Close-up of four medical marijuana prescription containers. One opened container is in the foreground with cannabis bud falling out.

Important Information for Cannabis Distributors

As a cannabis distributor, you must electronically file your cannabis tax returns and pay the cultivation tax and cannabis excise tax due to the California Department of Tax and Fee Administration (CDTFA). Below is an overview of the reporting and invoicing requirements for cannabis distributors as well as information on how to avoid substantial penalties for failure to pay the cannabis taxes due.

Cannabis tax return

As a cannabis distributor, you are required to electronically report and pay both the cultivation tax and cannabis excise tax on your cannabis tax return. The cannabis tax return filing and payment of the cannabis taxes are due April 30, 2018, for the first quarter reporting period (January 1, 2018, through March 31, 2018).

You may request to file your returns and pay the cannabis taxes on a monthly basis instead of quarterly beginning

April 1, 2018. To request a monthly reporting period, call our Customer Service Center at 1-800-400-7115 (TTY:711) and select Special Taxes and Fees from the menu. If your request for a monthly reporting period is approved, please remember that the return and payment of the cannabis taxes are due on the last day of the month following each reporting period.

Reporting the cultivation tax

The cultivation tax must be reported:

For the reporting period in which the cannabis or cannabis products enter the commercial market.
In ounces, including partial ounces rounded to the nearest hundredth, based on the category of dried flowers, dried leaves, or fresh cannabis plant as listed on the invoice from the original cultivator, less any cannabis that was used for
- You are required to enter adult-use ounces separately from medicinal ounces for each
- You will need to obtain additional information from manufacturers on the category and ounces of cannabis used to manufacture the cannabis products to report the cultivation tax

Reporting the cannabis excise tax

The cannabis excise tax must be reported:

For the reporting period in which you sell or transfer the cannabis or cannabis products to the cannabis retailer.
- For example, the total average market price of your sales or transfers within the first quarter of 2018 (January 1, 2018, through March 31, 2018) must be reported on the first quarter 2018
Based on the average market price of the cannabis or cannabis products.
- When you calculate the average market price in an arm’s length transaction (retailer’s wholesale cost plus the mark-up determined by the CDTFA, currently 60 percent), you are not required to reconcile the average market price you calculate with the retailer’s actual retail selling
As “excess excise tax collected” on your cannabis tax return if the tax is collected from retailers for any inventory they purchased prior to January 1, 2018, and sold at retail on or after January 1,
- For these types of transactions, the retailer will collect the cannabis excise tax from their customers and pay the amount collected to you, a cannabis
- For specific invoice requirements related to these types of transactions, please see our Tax Guide for Cannabis Businesses at cdtfa.ca.gov/industry/cannabis.htm.

Invoicing requirements for the cannabis taxes

As a cannabis distributor, you must properly document the amount of the cultivation tax and the cannabis excise tax you collect. When collecting the cultivation tax from cultivators or manufacturers, or the cannabis excise tax from retailers, you must provide an invoice, receipt, or other similar document that contains the following:

Your name, as the
The name of the other licensee (that is, the cultivator, manufacturer, retailer).
The associated unique identifier for the cannabis or cannabis product.
The amount of cannabis tax collected.
The date of the sale or transfer.

These invoices or receipts serve as verification to cultivators, manufacturers, and retailers that the cannabis taxes were paid to a distributor and relieves them of their cannabis taxes liability.

50 percent penalty for failure to pay the cannabis taxes due

In general, the law imposes a 10 percent penalty on taxpayers and feepayers for failure to timely pay the tax or fee due, or for filing a late return. In addition to these 10 percent penalties, the cannabis tax law imposes a mandatory 50 percent penalty for failure to pay the cultivation tax or cannabis excise tax due. Therefore, it is very important that you report and pay the cannabis taxes on or before the due date for each reporting period.

You may be relieved of the penalties assessed, including the 50 percent penalty, if the CDTFA finds that your failure to timely pay the tax was due to reasonable cause and circumstances beyond your control, and occurred notwithstanding the exercise of ordinary care and the absence of willful neglect. In order to be relieved of the mandatory penalties assessed, including the 50 percent penalty for failure to pay the cannabis taxes, you, as the cannabis distributor, must file an online request for relief of the penalty by filing a statement with the CDTFA, signed under penalty of perjury, which states the facts upon which the request for penalty relief is based. You may request relief of penalty by visiting our Online Services page at www.cdtfa.ca.gov/services/, and following the directions under the Request Relief tab.

Sales and use tax return

If you make sales of tangible personal property, you are required to hold a seller’s permit. As a cannabis distributor, you are responsible for electronically filing both your sales and use tax return and your cannabis tax return by the filing due dates. You must still file a sales and use tax return by the due date even if you do not make taxable sales (for example, all your sales are for resale). If you sell cannabis or cannabis products for resale to other licensees, make sure the purchaser gives you a timely and valid resale certificate. For more information regarding sales for resale, please see our publication 103, Sales for Resale, at www.cdtfa.ca.gov/formspubs/pub103/.

The CDTFA’s online guide, Tax Guide for Cannabis Businesses, is your best resource

Not all requirements for the cannabis industry can be addressed within one single special notice. For more comprehensive information, we encourage you to read our Tax Guide for Cannabis Businesses at www.cdtfa.ca.gov/ industry/cannabis.htm which has separate tabs with important information, including videos, for distributors, retailers, cultivators, and manufacturers. If you have additional questions, you may call our Customer Service Center at 1-800- 400-7115 (TTY:711) Monday through Friday, 8:00 a.m. to 5:00 p.m. (Pacific time), except state holidays.

WILL CALIFORNIA LOWER THE CANNABIS TAX RATES?

Legalization has been a bumpy road for California cannabis operators, and since January 1, owners are learning that it also comes at a price. The state’s steep taxes on cannabis businesses – with effective tax rates as high as 57% for some cannabis activities – have many operators bracing, and calling for a reduction in these so-called sin taxes. Consumers are also encountering price increases — prices are up about 15% compared to last year.

Cannabis operators are pushing lawmakers to scale back these taxes and prevent business owners from being tempted to remain in the black market because of the high costs of legalization. In response to advocacy efforts from the cannabis industry, California lawmakers proposed a bill this month that would drastically reduce excise and cultivation taxes on legal cannabis for a period of three years. As one of the bill’s authors, Rob Bonta, is quoted in the LA Times, lowering taxes on legal cannabis operators would be a way of “keeping customers at licensed stores and helping ensure the regulated market survives and thrives.”

In particular, the bill, AB 3157, would temporarily remove the state tax on cannabis cultivation, which is currently set at $9.25/oz for flowers and $2.75/oz for leaves. Additionally, it would lower the excise tax on cannabis purchases from 15 to 11 percent. Both of these changes would be welcome steps for the legal cannabis industry: the excise tax is one of the more confusing and onerous burdens on legal cannabis operators, so having it lessened would be particularly well-received. However, even after these changes, California’s effective tax rate would still be comparable to Colorado’s during its early legalization struggles. Therefore, it may not be enough to ward off the black market entirely.

Colorado took a similar approach when they rolled back cannabis taxes after operators were being pushed into the black market. As the Washington Post reported, in the immediate aftermath of legalization Colorado’s up-to-33% effective tax rate created a large market for illicit goods: “Camouflaged amid the legal medicinal and recreational marijuana market, the ever-adaptable underground market thrives. Some in law enforcement and on the street say it may be as strong as it’s ever been, so great is the unmet local and visitor demand.” California lawmakers are aware of the risks of overtaxation and the resulting effects.

Special Thanks to MARGOLIN & LAWRENCE for Content Share

California’s Cannabis Distributors

Important Information for Cannabis Distributors

Cannabis tax return

You may request to file your returns and pay the cannabis taxes on a monthly basis instead of quarterly beginning

Reporting the cultivation tax

The cultivation tax must be reported:

For the reporting period in which the cannabis or cannabis products enter the commercial market.
In ounces, including partial ounces rounded to the nearest hundredth, based on the category of dried flowers, dried leaves, or fresh cannabis plant as listed on the invoice from the original cultivator, less any cannabis that was used for
- You are required to enter adult-use ounces separately from medicinal ounces for each
- You will need to obtain additional information from manufacturers on the category and ounces of cannabis used to manufacture the cannabis products to report the cultivation tax

Reporting the cannabis excise tax

The cannabis excise tax must be reported:

For the reporting period in which you sell or transfer the cannabis or cannabis products to the cannabis retailer.
- For example, the total average market price of your sales or transfers within the first quarter of 2018 (January 1, 2018, through March 31, 2018) must be reported on the first quarter 2018
Based on the average market price of the cannabis or cannabis products.
- When you calculate the average market price in an arm’s length transaction (retailer’s wholesale cost plus the mark-up determined by the CDTFA, currently 60 percent), you are not required to reconcile the average market price you calculate with the retailer’s actual retail selling
As “excess excise tax collected” on your cannabis tax return if the tax is collected from retailers for any inventory they purchased prior to January 1, 2018, and sold at retail on or after January 1,
- For these types of transactions, the retailer will collect the cannabis excise tax from their customers and pay the amount collected to you, a cannabis
- For specific invoice requirements related to these types of transactions, please see our Tax Guide for Cannabis Businesses at cdtfa.ca.gov/industry/cannabis.htm.

Invoicing requirements for the cannabis taxes

Your name, as the
The name of the other licensee (that is, the cultivator, manufacturer, retailer).
The associated unique identifier for the cannabis or cannabis product.
The amount of cannabis tax collected.
The date of the sale or transfer.

These invoices or receipts serve as verification to cultivators, manufacturers, and retailers that the cannabis taxes were paid to a distributor and relieves them of their cannabis taxes liability.

50 percent penalty for failure to pay the cannabis taxes due

Sales and use tax return

The CDTFA’s online guide, Tax Guide for Cannabis Businesses, is your best resource

Tax Guide for Cannabis Businesses: Distributors in California

Tax Guide for Cannabis Businesses

If you sell cannabis or cannabis products, you must register with the California Department of Tax and Fee Administration (CDTFA) for a seller’s permit. Cannabis cultivators, processors, manufacturers, retailers, microbusinesses, and distributors making sales are required to obtain and maintain a seller’s permit as a prerequisite for applying for a license with the California Department of Food and Agriculture, the California Department of Consumer Affairs, or the California Department of Public Health.

Distributors of cannabis and cannabis products must also register with the CDTFA for a cannabis tax permit to report and pay the two new cannabis taxes to the CDTFA. The cannabis tax permit is in addition to your seller’s permit.

Beginning January 1, 2018, two new cannabis taxes are in effect:

A 15 percent excise tax is imposed upon purchasers of cannabis and cannabis products. Retailers are required to collect the excise tax from the purchaser and pay it to the cannabis distributor.
A tax on the cultivation of cannabis that enters the commercial market is imposed upon cultivators. Cultivators are required to pay the cultivation tax to either a distributor or a manufacturer depending upon the nature of the transaction. The cultivation tax rates are:
$9.25 per dry-weight ounce of cannabis flowers, and
$2.75 per dry-weight ounce of cannabis leaves.
Additional categories and rates may be specified at a later date.

All cannabis businesses making sales are required to:

Register online with the CDTFA for a seller’s permit.
File sales and use tax returns electronically and pay any sales and use tax to the CDTFA. Even if none of your sales are subject to sales tax, you are still required to file a return and report your activities on your return to the CDTFA.

In addition, if you are a cannabis distributor, the following requirements apply to you:

Prior to January 1, 2018, register online with the CDTFA for a cannabis tax permit. (Registration will be available in November 2017.)
Beginning January 1, 2018, collect the excise tax from retailers you supply.
Beginning January 1, 2018, collect the cultivation tax from cultivators or manufacturers that send or transfer cannabis and cannabis products to you.
File both your cannabis tax and sales and use tax returns electronically and pay any tax amounts due to the CDTFA.

Click here for more information on the California Department of Tax and Fee Administration’s Tax Guide for Cannabis.

CA Allows for Medical Cannabis Donations’ Tax Exemption

Cannabis Taxes

Cannabis Rate Changes Effective January 1, 2020

New Sales and Use Tax Rates Operative April 1, 2019

New Sales and Use Tax Rates Operative April 1, 2019

Microbusinesses or Cannabis Businesses with Multiple Licenses: How to Calculate the Cannabis Excise Tax on Nonarm’s Length Transactions

What is included in gross receipts?

Example

Excise tax calculation:

Sales tax calculation:

Microbusinesses or Cannabis Businesses with Multiple Licenses Cultivation Tax Requirements

Microbusinesses or Cannabis
Businesses with Multiple Licenses
Cultivation Tax Requirements

California’s Cannabis Distributors

WILL CALIFORNIA LOWER THE CANNABIS TAX RATES?

WILL CALIFORNIA LOWER THE CANNABIS TAX RATES?

California’s Cannabis Distributors

Tax Guide for Cannabis Businesses: Distributors in California

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