December 23, 2017

[Video] CA Tax & Licensing Overview for Cannabis Businesses

If you are interested in the California tax and licensing overview for cannabis businesses, you should consider the following information:

Licensing of Cannabis

The Bureau of Cannabis Control (BCC) is the lead agency in developing regulations for medical and adult-use cannabis in California. BCC is responsible for licensing retailers, distributors, testing labs and microbusinesses. BCC is currently accepting licensing applications. New users will be required to register an account on the Bureau’s online self-service portal prior to applying for a license.

The Manufactured Cannabis Safety Branch, a division of the California Department of Public Health (CDPH)is responsible for regulating the manufacturers of cannabis-infused edibles for both medical and nonmedical use. CDPH is currently accepting licensing applications. Interested parties can submit their temporary license application by email or mail to the Manufactured Cannabis Safety Branch with a copy of their local authorization.

Manufactured Cannabis Licensing System, a division of the California Department of Food and Agriculture (CDFA), is responsible for licensing cultivators of medicinal and adult-use (recreational) cannabis and implementing a track-and-trace system to record the movement of cannabis through the distribution chain. CDFA is currently accepting temporary licensing applications. 

Those interested in preparing for the application process are also encouraged to read through each licensing authority’s proposed emergency regulations.

Temporary License Application Information

Business and Professions Code section 26050.1 allows the Bureau of Cannabis Control to issue temporary licenses. A temporary license is a conditional license that allows a business to engage in commercial cannabis activity for a period of 120 days. The Bureau can only issue a temporary license if the applicant has a valid license, permit, or other authorization issued by the local jurisdiction.

The Bureau intends to start issuing temporary licenses January 1, 2018. NO TEMPORARY LICENSE WILL BE EFFECTIVE PRIOR TO JANUARY 1, 2018.

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 will be 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.

If you have any questions, please feel free to contact Mendes Weed, LLP to schedule an appointment.

Tax Guide for Cannabis Businesses – Tips from a California Tax Attorney

This video only covers California law, please remember that cannabis is still a Schedule I drug under the Federal Controlled Substances Act and wholly illegal, even for medical use. Anyone interested in this industry should make sure they are fully informed of the Federal laws related to cannabis. Contact Mendes Weed, LLP for more information.

Disclaimer: The tips and materials provided on this page are for informational purposes only, offered as public service. No information on this website should be considered legal advice or used as a substitute for legal advice. For legal advice, you should contact an attorney directly.