cultivation tax | Nesteggg Accounting

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.

Cannabis Distributors: Information on Collecting and Paying the Cultivation Tax

As a licensed cannabis distributor (excluding transport-only distributors), you are required to collect the cultivation tax from cultivators, manufacturers, or other distributors based on the weight and category of the cannabis. The distributor who conducts the final quality assurance review after the cannabis or cannabis product passes the required testing is the distributor responsible for reporting and paying the cultivation tax to the California Department of Tax and Fee Administration (CDTFA). The cultivation tax must be reported during the reporting period in which the cannabis or cannabis product passes the required testing and quality assurance review, which is when the cannabis or cannabis product enters the commercial market.

In instances where there are multiple distributors and/or manufacturers involved, the associated cultivation tax collected will follow the cannabis or cannabis product and must be passed to the next licensee in the transaction until the cannabis or cannabis product reaches the distributor conducting the final quality assurance review. Each party to the transaction, from the original sale from the cultivator, to the final sale or transfer to the distributor, is relieved of its liability for the cultivation tax by receiving a proper receipt for payment of the cultivation tax from the next party in the transaction.

This email is intended to give you an overview of some of the requirements for cannabis distributors 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.

Information for the Cannabis Industry: How Tax Applies to Immature Plants, Clones, and Seeds

Cultivation Tax
The cultivation tax does not apply to the sale or transfer of immature plants, including clones or seeds. The cultivation tax is imposed on cultivators for harvested cannabis that enters the commercial market; however, the definition of “enters the commercial market” specifically excludes immature plants and seeds.

Excise Tax
Immature plants, clones, and seeds are subject to the 15 percent cannabis excise tax when sold at retail. Nurseries may sell immature plants, clones, or seeds to another cannabis licensee. However, a distributor is required to transport the cannabis from the nursery to the licensee and when the immature plants, clones, or seeds are sold or transported to a retailer, the distributor is also required to collect the 15 percent cannabis excise tax from the retailer based on the average market price of the immature plants, clones, or seeds. The retailer is responsible for collecting the cannabis excise tax from their retail customers when the immature plants, clones, or seeds are sold at retail.

Sales and Use Tax
Sales tax applies to the retail sale of immature plants, clones, and seeds. Sales and use tax does not apply to a cultivator’s purchase of immature plants, clones, and seeds when the products grown from them will be resold as part of the cultivator’s regular business activities. The seller should obtain and keep a valid and timely resale certificate from the purchaser as support that the sale was for resale. For information on sales for resale and resale certificates, see publication 103, Sales for Resale.

This email is intended to give you an overview of how tax applies to immature plants, seeds, and clones 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

How Taxes Apply to Cannabis Inventory Beginning January 1, 2018

Guidance on How Taxes Apply to Cannabis Inventory Beginning January 1, 2018

Beginning January 1, 2018, cannabis retailers must collect the cannabis excise tax from their customers on each retail sale of cannabis or cannabis products. The cannabis excise tax applies to all retail sales, including sales of cannabis or cannabis products the retailer purchased prior to January 1, 2018. Cannabis retailers are required to pay the cannabis excise tax to a cannabis distributor. Cannabis cultivators owe the cultivation tax on all harvested cannabis that enters the commercial market on or after January 1, 2018. The cultivation tax does not apply to harvested cannabis a cultivator transferred or sold prior to January 1, 2018. Cultivators are required to pay the cultivation tax to a distributor or manufacturer.

Cannabis excise tax must be paid to cannabis distributors

On and after January 1, 2018, distributors who sell or transfer cannabis or cannabis products to a cannabis retailer are required to collect the cannabis excise tax from the retailer. In addition, cannabis retailers, who acquired cannabis or cannabis products prior to January 1, 2018, upon which they did not pay the cannabis excise tax to a distributor, must collect the 15 percent cannabis excise tax from their customers. Retailers must pay the excise tax on those sales by the 15th of the following month in which they collected the tax to a licensed cannabis distributor with whom they have a business relationship (that is, a distributor that they purchase or acquire cannabis or cannabis products from on or after January 1, 2018).

Cannabis retailer – collecting and invoicing requirements

As a cannabis retailer, you are not required to separately state the cannabis excise tax on your receipt or invoice to your customer, but you must include the following statement, “The cannabis excise taxes are included in the total amount of the invoice.” The cannabis excise tax is imposed on the purchaser as 15 percent of the average market price.

To calculate the cannabis excise tax due on your retail sales of cannabis or cannabis products that you acquired prior to January 1, 2018, you must multiply the average market price by the 15 percent excise tax rate. For information on how to determine the average market price, please see our Tax Guide for Cannabis Businesses at www.cdtfa.ca.gov/industry/cannabis.htm.

Your sales of cannabis and cannabis products are generally subject to sales tax. The sales tax is due on the retail selling price of cannabis or cannabis products, including the cannabis excise tax.

Cultivation tax not due on cannabis transferred or sold prior to January 1, 2018

As a reminder, cannabis cultivators are required to pay the cultivation tax to a distributor or manufacturer on all harvested cannabis that enters the commercial market beginning January 1, 2018. However, the cultivation tax is not due on harvested cannabis transferred or sold to distributors or manufacturers prior to January 1, 2018, even if entry into the commercial market (completes testing and complies with quality assurance review) occurs after that date. Manufacturers and distributors must maintain documentation to support that the cannabis was transferred or sold from a cultivator prior to January 1, 2018.

Cannabis Rate Changes Effective January 1, 2020

Cannabis Distributors: Information on Collecting and Paying the Cultivation Tax

Cannabis Distributors: Information on Collecting and Paying the Cultivation Tax

Information for the Cannabis Industry: How Tax Applies to Immature Plants, Clones, and Seeds

Information for the Cannabis Industry: How Tax Applies to Immature Plants, Clones, and Seeds

How Taxes Apply to Cannabis Inventory Beginning January 1, 2018

Stay Connected

Get in Touch

constant contact