New Emergency Regulation for Cannabis Distributors and Retailers Requires California Cannabis Track-and-Trace

The California Department of Tax and Fee Administration (CDTFA) recently adopted emergency Regulation 3702, California Cannabis Track‑and‑Trace, which requires distributors and retailers to enter the wholesale cost and the retail selling price of cannabis or cannabis products into the California Cannabis Track-and-Trace (CCTT) system. The emergency Regulation 3702 is now in effect.

The Medicinal and Adult-Use Cannabis Regulations and Safety Act and regulations adopted by the Bureau of Cannabis Control (BCC) require all commercial cannabis activity be recorded in the CCTT system. Distributors and retailers that obtain an annual license with the BCC must begin recording commercial cannabis activity in the CCTT system. In addition to the existing requirements, each licensee must now enter the following information related to the cannabis excise tax.

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Emergency Regulation 3702

Text of California Code of Regulations, Title 18, Division 2, Chapter 8.7, Section 3702
(A new regulation to be added to Cal. Code Regs., tit. 18, div. 2)

Regulation 3702. California Cannabis Track-and-Trace.

A distributor or cannabis retailer that is required to record commercial cannabis activity in the California Cannabis Track-and-Trace system pursuant to the Medicinal and Adult-Use Cannabis Regulation and Safety Act (commencing with section 26000 of the Business and Professions Code), shall enter into the California Cannabis Track-and-Trace system specified information as follows:

(1) Wholesale Cost. When cannabis or cannabis products are sold or transferred to a cannabis retailer in an arm’s length transaction, the distributor and cannabis retailer shall enter the cannabis retailer’s wholesale cost of the cannabis or cannabis products.
(2) Retail Selling Price. When cannabis or cannabis products are sold in a retail sale, the cannabis retailer shall enter the retail selling price of the cannabis or cannabis products.

Note: Authority cited: Section 34013, Revenue and Taxation Code. Reference: Sections 34010,
34011 and 34015, R

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Cannabis Distributors
A distributor is required to enter into the CCTT system the retailer’s wholesale cost of the cannabis or cannabis products that is sold or transferred to a retailer in an arm’s length transaction.

In an arm’s length transaction, the distributor is required to calculate the average market price of the cannabis or cannabis products, which is the retailer’s wholesale cost plus a mark-up established by the CDTFA. The wholesale cost used to calculate the average market price is the amount entered into the CCTT system.

Cannabis Retailers
A cannabis retailer is required to enter into the CCTT system:

The wholesale cost of the cannabis or cannabis products. The wholesale cost is the amount paid by the retailer for the cannabis or cannabis products in an arm’s length transaction and is the amount used to calculate the average market price.
The retail selling price of the cannabis or cannabis products when the product is sold at retail.

For More Information
This Special Notice is intended to give you an overview of some of the requirements for cannabis distributors and retailers and does not address all requirements for the Cannabis Industry. We encourage you to read our online Tax Guide for Cannabis Businesses at www.cdtfa.ca.gov/industry/cannabis.htm.

CalCannabis Cultivation Licensing (CalCannabis), a division of the California Department of Food and Agriculture administers the CCTT system. For more information visit CalCannabis at www.cdfa.ca.gov/is/mccp/ or call 1‑833‑CALGROW (1‑833‑225‑4769) with your specific questions regarding the CCTT system.

If you have additional questions regarding the excise or sales tax requirements, please 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.

Here are 3 important things to check before the July 1st deadline:

Sell or destroy non-compliant inventory by June 30th to comply with the BCC’s transition period requirements.
Make sure you’re collecting appropriate excise & sales taxes on your pre-2018 legacy products.
Have you applied for your temporary license extension? Please let us know where you are in the licensing process here if you haven’t already. This is the best way to ensure a smooth transition to track and trace.

1. Reminder: Sell or destroy non-compliant inventory by June 30th.

June 30, 2018 marks the end of the “grace period” dispensaries had to sell cannabis products that wouldn’t meet the Bureau of Cannabis Control’s new regulations.

What we recommend:

Prepare to sell or destroy non-compliant inventory by June 30th.
Stock up on tested, compliant product prior to June 30th in the event that there are shortages in supply beginning July 1st.
Train your staff on the new regulations to reduce the risk of employees accidentally putting you out of compliance.

What do California dispensaries need to do by June 30th?

Dispensaries need to sell or destroy non-compliant inventory by June 30th. The complete list can be found below, via the California Cannabis Portal.

2. Collect appropriate taxes.

Product purchased prior to January 1st, 2018, and goods produced under a micro business license require you to collect excise tax at the Register. Your sales tax on these products also needs to include an appropriate percentage of the excise tax value (source: CA Tax Guide for Retail Cannabis Business).

If you haven’t found the best way to calculate this, we have a solution here.

3. Help us help you transition to Track & Trace.

Where are you in the licensing process?

If you haven’t already, please let us know where you are licensing process here. This is the best way to ensure a smooth transition to Track & Trace.