Let’s tackle cannabis tax education.
This market looks nothing like what it used to a year ago. The newly regulated California cannabis industry has been through ups and downs with taxes taking a central position in the conversation. Information on recent changes for the entirety of the industry can be found in our Definitive Guide to California Compliance.
Taxation on cannabis goods means that there are “certain sales and cultivation taxes” (BCC) which have been implemented; and we all know Uncle Sam doesn’t let anything slide. This has caused some turmoil for those within the industry and in particular, for consumers. Reports show that after all of the taxes attached to cannabis—state excise, regular, and local business taxes—the black market is thriving more than ever as the result of tax percentages on a spectrum of 25-40%.
It’s not rare for customers to purchase a product and look at the bottom of the receipt to have their jaw drop at the breakdown of the taxes that have been tacked onto their most recent purchase. We all know what comes next—questions about who, what, when, where, why, and how these tax amounts came to be.
Be prepared by gaining a solid understanding of how taxes work (or don’t) in the CA market.
Let’s keep it simple.
Adult-Use (A-U) and Medical Tax Differences
Not everyone who purchases cannabis is subject to equal taxes. Medical patients are not required to participate in state taxes, but are required to pay local and excise tax. This means that their total for purchases will be lower than that of a recreational user without proper state-supplied MMIC/MMICP cards.
15% California Excise Tax
Excise tax is collected by distributors from retailers, which retailers then pass onto consumers. To complicate the matter, it isn’t concretely explained as to whether or not this tax should be listed onto the retail price of the product, resulting in confusion when the time to collect money from your customer comes.
The BCC has proposed that the revenue collected from this tax gets put towards cannabis research at UCSD and social equity programs for high-risk areas that have previously been affected by drug use. Law enforcement research with the purpose of developing an accurate way to measure intoxication for drivers and a program that takes environmental cleanup as its subject are among the other places that excise tax dollars are allocated.
8-12% State Sales Tax
Generally speaking, the state sales tax is dependent upon your location in California. This tax typically varies from 8-12 percent in some areas and is collected at the time of purchase for Adult-Use (A-U) customers.
MMIC/MMICP patients that adhere with the state’s medicinal program are entirely absolved of this tax category and funds collected for A-U customers are allocated with public safety and local transportation improvements.
5-15% Cannabis Business Tax
Local governments need a piece of the cake and have made it clear that they need to take home part of the cake. It’s not uncommon for these tax rates to fluctuate between 5-15% depending on the city or country that you are located in. This category of taxation and the amount collected is left entirely up to the local officials.
Are taxes going to be this way forever?
We sure hope not! The percentage of taxes currently hurts the legitimate market more than helping it succeed. Running a legal operation that has to compete with the illicit market as a result of taxes has proven to be a difficult task for everyone involved. Consumers don’t want to have to pay taxes upwards of 40% when they can go down the street to an illicit shop and receive the same product for that much less.
In one way, taxes have aided in the allocation of revenue to programs that look out fo rate public’s best interest and with future development of the industry in mind. In another, it has allowed for the illicit market to thrive more than ever.
Explaining the way that these taxes are allocated not only educates your customer on how complicated the regulated cannabis market is, but also helps illustrate the reason that illicit shops are still up and running with a high success rate. Taxation is part of the legitimization of the industry and although more complicated than it needs to be, it’s what we all have to work with at the time being.
Educate your customers, push them to petition for change, and know that everyone is riding the same tax wave that you are!
How have California taxes impacted the way that you do business?