As you know, cannabis operators have to pay many different taxes. 

From sales tax to excise tax, the system is quite complex; and once your cannabis company starts to thrive, the tax system becomes even more complicated. 

California’s sales tax is a great example of where successful cannabis entrepreneurs get tripped up with being compliant while maximizing their profit. 

California’s state sales tax for cannabis operators is 7.25% – 6% state tax, plus a 1.25% mandatory local tax. Depending on where your business is located, the local tax may be an additional 3% to well over 10%. 

For cannabis operators who are achieving a certain amount of sales each month, you will be required to pay the sales tax monthly, rather than quarterly. 

Here’s how the process works, and how our experts can help you manage your tax burden more effectively.

As the saying goes, there are two things certain in life: death and taxes. 

Taxes are the number one reason why most cannabis companies fail; the IRS is not shy about auditing cannabis operators, and the 280E is one of the primary tools the government uses to penalize cannabis ventures. 

This burdensome 280E regulation makes a lot of money for the IRS in the form of fees and fines; so much so that Colorado is able to fix roads that aren’t even broken because they have so much tax revenue. 

It’s important to protect you business as much as possible from the tax authorities; and the first step is to understanding cannabis sales tax and commit to paying your taxes monthly. 

As a side note: having a CPA prepare your taxes is best because they will use an accepted methodology for their calculations that can then be used as exhibits during a potential audit.

As previously mentioned, the state sales tax rate varies slightly depending on where you are. Most cannabis organizations can expect to pay 8% - 10% of sales. Sales tax is charged at the cannabis dispensary on top of the sales price and the cannabis business tax. Here is a breakdown of cannabis tax calculations for California.

Cannabis sales tax in California is paid to the CDTFA. When you apply for a sales tax permit, the Administration will ask you a series of questions to see what your payment schedule should be. 

Typically, most companies pay their taxes quarterly – meaning that taxes are due April 30, July 31, October 31, and January 31 for the periods Q1, Q2, Q3, and Q4 (respectively). If you have low sales volume (meaning less than $5,000 in sales), the CDTFA may put you on an annual payment schedule. 

For successful, high sales organizations, it’s likely that you will be asked to pay sales tax monthly to the city and state. Here’s what that process looks like and why it’s best to have an experienced CPA calculate your payments for you.

In our experience, some clients are asked to pre-pay sales tax every single month because they have such high cannabis sales. How does this work? 

In this instance, the cannabis operator must pay estimated payments for month one and month two of the quarter. Then, when the quarterly return is filed, the CPA firm squares up discrepancies from the first two months of the quarter into the third month’s payment. 

How do we estimate your month one and two sales? 

The GreenGrowth CPAs usually look at your POS software on the 20th day of the month to see your current run rate, and in addition compare that rate to the past year for the month we are evaluating. 

From there, we create an estimate of the monthly of ABC$$ to the CDTFA, thereby covering your state taxes.

The CDTFA will now let you know that you are subject to pre-payments or any changes to the frequency of your payments.

If you don’t make payments on time, then penalties and interest will be assessed. Note that these penalties are compounding – so if you are faced with a fine, pay it right away.

In addition to paying your state sales tax, cannabis operators must also pay city sales tax. This rate and due date varies depending on your location. 

For example, if you are based in the city of Vallejo, you are required to file a monthly return based on gross receipts, rather than sales. These are due by the 20th or 25th of the following month. Get in touch with our experts or the local tax authority to make sure you know the deadline and cannabis sales tax rate you are responsible for. 

There’s a lot of confusion and grey area when preparing for your tax payments to the city – mostly because cannabis is an all-cash industry, and most cities aren’t equipped to process monthly payments of cash. 

Most cities have self-reporting taxes with no audits required (yet). It’s likely, however, that California cities are missing out on major tax revenue, and as a result will insist on proper reporting and auditing in the future. It’s best to be rigorous about your tax payments to make sure there are no issues down the road. 

How can you make sure you’re paying the right amount? 

Make sure you’re instituting great cash-handling practices and create strong SOPs. Despite having little to no access to a bank account, manage your cash responsibly to make sure everything balances correctly. 

Plan ahead: if you're looking at your cash or bank account, start setting up an account or repository for taxes. Put money aside each week so that you’re not forced to come up with a large sum of cash all at once. 

To give yourself total peace of mind, engage an accountant with specific cannabis-industry experience who can give you monthly guidance and be by your side in the event that you get audited by the city, state or federal government. Click the button below to get started with one of our experts. ​

In Part 1 of our guide to starting a hemp farm in California, we outlined the process for registering as a hemp farmer with the CDFA, as well as the difference between seed breeders and cultivators. This second part of our hemp farm guidance series will provide detail about the importation and movement of industrial hemp; details on manufacturing, processing, and selling industrial hemp; and tips on how to get started in this new market. ​

Obviously, the first step in starting a hemp farm (after registering with the CDFA) is to procure hemp seeds. Remember, there are some conflicting laws at the federal level in regards to the legality of growing hemp. It’s not possible to import seeds from outside the US to California, per federal regulation from the USDA. However, California state law does not have any restrictions to the importation of industrial hemp seeds or plants from other states into California.

The CDFA requires all industrial hemp seeds and plants to pass plant pest quarantines, and may inspect your hemp seeds further at their discretion. Likewise, the California Food and Agriculture code requires that registered growers and seed breeders only grow hemp varieties from an approved list of seed cultivars. Of course, this regulation does not apply to seed breeders developing new seed cultivars.

Where can you sell the hemp you grow on your farm? It’s possible to sell hemp through the California Farmers’ Market (CFM) Program. You must first be certified as  producer through the CDFA's CFM Program. You may also be able to sell hemp in a licensed cannabis retail store; however, cannabis retailers are governed by the Bureau of Cannabis Control (not the CDFA). Therefore, you should get in touch with the BCC to be sure you meet the cannabis industry’s strict regulations before adding hemp to a cannabis dispensary.

By some estimates, more than 25,000 products can be made from hemp. Hemp is used in everything from the automotive industry to personal care products. California is a leader in the hemp market: California companies earn 77% of nationwide sales of hemp food and personal care products.

Hemp is a plant that thrives in California’s environment. It does well in warm weather, and grows best in well-drained, highly organic soil. Experts recommend planting hemp seeds directly in the ground, rather than starting the plants in a pot and transplanting them later on. You will need a lot of space: for hemp to be profitable,  you must plant at least 50 acres. Besides space, hemp has relatively few other needs. It’s resistant to pests and diseases, and grows fast and tall, minimizing the need for hand cultivation. Estimates from a recent Cornell University analysis found that hemp profits ranged from $130 to $730 per acre.
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A good way to get started in California’s hemp industry is to go to a workshop by the California Hemp Association to learn about the constantly changing forms, fees, and regulations and other information coming from the CDFA and the USDA.

​You should also speak to our experts about the registration process and to get your taxes in order before entering this new market. Click the button below to get started.

Last week, we covered some key findings for cultivators, distributors, and retailers released in the California Cannabis Advisory Committee 2018 Annual Report. The CAC provides recommendations o the California’s cannabis licensing authorities, and helps set forth priorities when it comes to the standards and regulations of the cannabis market.

Today, we’ll outline what the CAC recommended for Manufacturers, Licensing Applications, Microbusiness and Enforcement. It’s important to keep an eye on this committee, as they can have direct impact on the regulatory environment for your cannabis operation. Here’s what the committee accomplished last year.

CAC Subcommittee for Manufacturers

Last year, the Advisory Council’s Subcommittee on Manufacturers made a total of four recommendations. The licensing authorities moved forward to implement two of these recommendations, partially implemented a third, and declined to implement one.

1. Illustrative Guide: the Subcommittee for Manufacturers asked for an an illustrative guide for packaging and labeling to be  broken down into clear components. The CDPH developed and published three guides in June in response to this recommendation:
   1. Packaging Checklist
   2. Cannabis Products Labeling Checklist
   3. Cannabis Products (Small Containers) Checklist

Please note that the CDPH website has been updated to include more than 20 FAQs on packaging and labeling as well as some additional checklists to come. The CDPH intends to release a revised set of checklists, updated FAQs and an illustrative guide after adoption of the permanent regulations.

1. Clarification on Packaging: The Subcommittee asked the CDPH to clarify the concepts of primary packaging, secondary packaging, and child-resistant packaging (with respect to primary versus secondary) and labeling. As a result, the CDPH issued the Packaging Checklist (linked above) which outlines guidance for child-resistant packaging. They also cover this topic in the FAQs on their website.
2. Child-Resistant Packaging: The Subcommittee asked the CDPH to clarify how and where child-resistant packing should be used. When the CAC’s annual report was published, the questions and timeline surrounding child-resistant packaging was still unclear, but we recommend reviewing the guidance on this checklist as well as section 5303 of the Bureau’s regulations and section 40417 of CDPH’s proposed regulations.
3. Dosage Limits: the committee asked for an increase the limitation on dosage from 2,000 mg to 4,000 mg for any non-edible medical product that is not restricted by statute; and raise the dosage limitation from 1,000 mg to 2,000 mg for non-edible adult use products. This recommendation was not adopted by the CDPH.

CAC Subcommittee for Licensing Applications

This subcommittee specifically addressed the risk of large, consolidated cannabis operators dominating California’s nascent cannabis market. The Subcommittee for Licensing Applications was primarily concerned with adding transparency to the licensing process; offering financial relief and lowering barriers to entry for new applicants; encouraging marketing stability; and protecting the health and safety of workers in the cannabis industry. As a result, the Subcommittee had four recommendations which were adopted by the committee, of which two were implemented, one was partially implemented, and not implemented one.

1. Disclosure of Owners: The Subcommittee asked the licensing authorities to require any license applicant who lists a corporation or other entity as an owner to also disclose the names of the owner(s) of the corporation or other entity. This recommendation was adopted via regulatory language found in section 5002.
2. Annual Fees: under this recommendation,  the licensing authorities should evaluate the amount of annual fees, especially fees paid by people with disabilities, military veterans, locally licensed equity applicants, and nonprofit compassion programs. This recommendation has been partially adopted in the permanent regulations.
3. A and M Licenses and Transition Period: the Subcommittee asked to combine application and annual renewal fees for A and M licensees conducting the same business activities at the same licensed premises and to extend the grace period until January 1, 2020 under section 5029 subdivision (b)(1). This was adopted by the licensing authorities. All three licensing authorities included a provision that allows applicants to conduct both A and M activities at the same licensed premises as well as to conduct business across licensing types regardless of A or M designation.
4. Use of Preparers:  finally, the Subcommittee asked for applicants to be allowed to use preparers to assist in the preparation of an annual license application. This was not adopted by the licensing authorities; the owner must verify the accuracy, attest, and submit the application. However, owners are not prohibited from using or seeking the guidance and assistance from experts.

CAC Subcommittee for Microbusinesses

Cannabis microbusinesses are operators that meet a minimum of three out of four of these allowed commercial cannabis activities:

• The commercial cultivation of cannabis on an area less than 10,000 square feet.
• The ability to act as a licensed distributor.
• The ability to manufacture commercial cannabis as a Type 6 manufacturer.
• The ability to sell commercial cannabis as a retailer.

The Subcommittee for Microbusiness offered four recommendations, of which one was partially implemented and three were not implemented.

1. License Tiers, Incentives for Compassionate Use and Rural Operators, and
   Fee Schedule Cap: the Subcommittee asked to clarify the definition of a “microbusiness” to include tiers based on gross receipts and number of employees. Then, the fee schedule would be redefined to include a ceiling at which point the operation is no longer considered a microbusiness. This was not implemented by the Bureau.
2. Recommendation #1: the Subcommittee asked state regulators to provide a “sub-microbusiness” or “microbusiness A” license which would allow up to 10,000 square feet of cultivation including nurseries; three out of four activities to be fulfilled by allowing any type of non-volatile solvent manufacturing including shared space manufacturing; retail sales to happen at events in addition to storefront sale and delivery; and distribution to be fulfilled by full distribution or distribution transport only. This recommendation was partially implemented by the Bureau:
   1. The Bureau has stated that nursery licenses qualify as cultivation so long as the nursery does not exceed 10,000 square feet.
   2. The Bureau has also stated that microbusinesses authorized to engage in retail and / or distribution activities may conduct any activities allowable by the corresponding type of license.
   3. The Bureau has amended language to include licensed infusion as a license type option to fulfill the manufacturing activity  requirement.
3. Recommendation #2: the Subcommittee asked the Bureau and CDPH to create a document that to jointly clarify that local governments may further limit the types of activities that are permitted to occur under a microbusiness  license. This is because although the state allows multiple activities under this license type, local municipal regulations may restrict certain types of activities if they so choose. This recommendation was not implemented by the Bureau / CDPH.
4. Recommendation #3: finally, the Subcommittee asked the Bureau to remove the prohibition on activities allowed within the home, so long as the activities that the applicant is choosing to conduct are activities commonly allowed under cottage business. This provision was not implemented by the Bureau.

CAC Subcommittee on Enforcement

Last, but not least, the Subcommittee on Enforcement is dedicated to improving public safety and protecting the business interests of the cannabis operator. They strive to “ensure that there is a balance between allowing for the feasible operation of cannabis businesses while deterring illegal and criminal activities.”

The Subcommittee adopted five recommendations; in response, the licensing authorities implemented two, partially implemented one, and declined to implement two.

1. Enforcement Authority: the Subcommittee asked the Bureau to:
   1. clearly identify the enforcement authority regarding advertisement and placement;
   2. clearly communicate who the enforcement authority is and how to contact them with complaints;
   3. collect data on enforcement actions; and
   4. require all advertisements have information regarding the license holder placing the advertisement.

This request was not implemented by the Bureau as it was not deemed to be a “policy/regulatory change.” Meanwhile, the Bureau did provide additional clarification on advertising.

1. Clarify Difference Between Citations and Orders of Abatement and Clarify
   References: the Subcommittee asked the Bureau to clarify an order of abatement versus a citation. They also requested that the Bureau clean up language and clarify the process and procedural guidelines within the regulations, reference, and citation sections. This was implemented by the Bureau; see section 5802. Citations; Orders of Abatement; Administrative Fines for details.
2. Advertising: the Subcommittee asked the Bureau to clarify rules around the type and location of advertising permitted, as well as the collection of data on when and where advertising rules were violated. The first part of the recommendation was adopted via section 5040. Advertising Placement and section 5415.1. Deliveries Facilitated by Technology Platforms.
3. Public Records Act Requests: the Subcommittee asked the Bureau to include language related to sharing information between the Bureau and local government entities that acknowledge the information shared is in accordance with the Public Records Act and protects information that is not discoverable under the Public Records Act. This was not implemented by the Bureau.
4. Labor Standards: the Subcommittee asked that all licensing authorities be
   required to include violations of labor standards as part of the licensing process and enforcement, which shall include revocation of the license. This was implemented by the Bureau.

If you have any questions about the CAC or their policy recommendations, please get in touch with our experts. You can also read the full 2018 Annual Report, which covers every Subcommittee statement, to see more about how the regulations in California continue to evolve.

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Failed tests

If your cannabis and/or cannabis products fail to pass the required testing and cannot be remedied, then, according to State Regulations, the entire batch must be destroyed. This obviously has an impact on your bottom line: cutting losses means implementing industry best practices. We recommend you continually engage the services of testing laboratories at fundamentally significant steps in the cultivation and manufacturing process. This could potentially save your cannabis and cannabis products from failing tests and destruction.

Compliance Assistance

If you are a commercial cannabis operator and need assistance and/or guidance with compliance, contact a team member today. Part of every operator’s responsibility is to meet state regulations and incorporate best industry practices into your operations.

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California’s permanent cannabis regulations were reportedly finalized on Monday, December 3, although operators may not be privy to the new regulations until January 2019. State officials have decided not to make the rules public until the Office of Administrative Law (OAL) has finished conducting its review.

The news is frustrating, but it also makes it hard to prepare your business for the potential impact of the permanent cannabis regulations. Here’s what we know about the most recent draft of California’s permanent marijuana business regulations – and how you can prepare for 2019.

What are California’s permanent cannabis business regulations?

The permanent business regulations related to the cannabis industry are joint effort of California’s Bureau of Cannabis Control, Department of Food and Agriculture, and Department of Public Health. The regulations cover a variety of issues related to cannabis, including delivery, packaging, and events.

Experts who have studied the proposed regulations warn that these rules will hurt current operators. Here are a few of the key changes that may affect your business.

End to Contract Manufacturing
All licensed companies could be barred from doing business with a commercial cannabis company lacking a license.

Contract manufacturing, commonly known as white labeling or co-packaging, is a way for licensed manufacturers to produce and package products for those businesses that are still unlicensed. We see this partnership commonly with celebrity-endorsed brands or an established cannabis company that has a production facility located in a municipality which does not allow for commercial cannabis. This is simply the best way to do business for many operators who are hamstrung by the varied cannabis allowances from county to county. If this rule ends up as part of the final regulations, it could put many contract manufacturers out of business.

New Delivery Regulations
The proposed rules reduce the amount of cannabis product a single delivery vehicle can transport from $10,000 to $5,000.

The economics of this rule change could have big implications for licensed cannabis operators. Currently, the $10,000 limit allows for drivers to leave for their delivery window with one order for $100 and $9,900 in additional product to fulfill orders as they come in. However, the rule change forces drivers to leave with at least $2,000 in product designated for orders already placed. This leaves just $3,000 available for fulfilling orders while on the go.

Obviously, this severely restricts the sales opportunities for delivery operators and damages the customer experience. Slower service is bad for business, and the higher overhead of making more trips to and from the delivery hub could put some companies in the red.

New Disclosures for Business Owners
If you have a cannabis business license or own a financial stake in a cannabis venture in California, you will be reclassified as a “salesperson” or “consultant” under the proposed California cannabis business regulations. Why is this important?

The key to this rule is the part where any employee who has a say in what the business should sell, manufacture, or cultivate will be considered an owner. More individuals will therefore have to file state disclosure paperwork. Logistically, this becomes a bureaucratic nightmare. What’s even more concerning is this provision could amount to a ban on silent partners, with big implications for those ventures still seeking funding.

How to Prepare for California’s New Regulations

Until January, we won’t know which of these proposed regulatory changes made it into the permanent bill. However, it’s prudent to start preparing your business now. Talk to your silent investors to make sure they’re aware of the changes in disclosures. If you need to find a new investor for your cannabis business, it’s better to start now.

If you run a delivery service, take a look at your operating budget to see if you have space to hire extra vehicles and drivers. You can also prepare your customers by asking for minimum orders or changing up the checkout process in incremental changes. Minimize the disruption to the user experience by making small adjustments to your delivery service ahead of time.

Finally, if you’re working with a contract manufacturer, protect your business by seeking a plan B partner. Lock up relationships with other licensed operators now, as competition is only going to get steep.

For more on the proposed regulations, get in touch with our experts today. ​

Every cannabis business operator in California is required by state laws to have insurance. There are quite a few insurance agencies and brokers that offer cannabis business-specific insurance packages. As recently as this June, California began offering property insurance for cannabis businesses. In a cash-rich industry that deals with a very valuable product, you may want to look into insurance to make sure your business is protected. Regardless, it’s up to you to make sure your insurance is meeting the state, local, and federal requirements and standards. Here’s a quick guide to your state, local, and federal insurance responsibilities as a cannabis operator in California.

California Cannabis Insurance Requirements

California requires cannabis businesses to have a minimum commercial general liability insurance policy of $2 million, with insurance of up to $1 million for each loss, when submitting a cannabis license application. The state also requires a $5,000 surety bond that should be addressed to the state of California.  

Anyone who does not meet the insurance requirement will likely have their business application rejected. Likewise, if your cannabis business insurance lapses, you must take the proper steps to alert the state by notifying the Bureau of Cannabis Control in writing within 10 days.

Types of Insurance for Cannabis Companies

What other insurance do you need in California? Especially as it pertains to your cannabis licensing application, you will want to have a policy for worker’s compensation insurance for your employees. The state also requires all small businesses to have disability insurance. Our experts also suggest looking into these other types of cannabis business insurance:

• Commercial General Liability Insurance: this type of insurance protects against various claims such as bodily injury, property damage, personal injury, slander, libel and even copyright infringement.
• Worker’s Compensation: protects employees, since every employee has the right to have compensation for short and long term injuries and disabilities incurred on the job.
• Crop Insurance: at the moment, crops for indoor cultivation facilities is the only type of crop that can be insured. It provides some security in the event that a crop is defective and must be destroyed.
• Vehicle Insurance: In the event that an accident occurs while on the job, this type of insurance covers physical damages and injuries.
• Property Insurance: it covers any damages and/or repairs to the physical place of business.
• Cargo Coverage: this protects items being transported by the business for business purposes.
• Equipment Insurance: provides protection for equipment damage, theft and vandalism.
• Equipment Breakdown Insurance: this type of insurance covers the cost to repair or replace damaged equipment, the costs for time and labor to repair or replace damaged equipment, as well as the costs to replace damaged cannabis stock, materials or perishable items.

To help you understand which, if any, of these additional insurance types would be most helpful for your cannabis venture, we have a guide on everything you need to know about California cannabis insurance. Check it out and get in touch with our experts if you have any questions.

Federal Insurance for Adult-Use Cannabis Businesses
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Because cannabis is still considered a Schedule I drug by the DEA, there is no official requirement from the federal government requiring a cannabis business to have insurance. However, there may be other small business insurance requirements your cannabis venture needs to meet to be compliant. Health insurance is required at the federal level – one option for businesses with one to 50 employees is the Small Business Health Options Program (SHOP) program. Generally speaking, the federal government defers insurance requirements to be decided at the state level. As a rule of thumb – with the exception of ACA regulations, make sure you’re meeting California’s insurance requirements, and you should be compliant under US federal law.

It’s also worthwhile to note that when it comes to deducting insurance from your tax return, the regulations are a little complicated due to the 280e regulation. It really depends on your specific role in the cannabis industry – commercial general liability insurance may be deductible as a COGs for some businesses, but not for others. It’s important to check with a tax expert to make sure you’re making the right choice for your insurance deduction.

If you have more questions about cannabis insurance, please get in touch with GreenGrowth CPAs today!

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Recently, our experts led a webinar outlining everything you need to know to get your Los Angeles cannabis business license. If you missed it, you can listen to the full webinar on-demand. We covered many topics, including Los Angeles’ cannabis social equity program.

Los Angeles’ cannabis social equity program is a part of the city’s commercial cannabis licensing system. The goal is to give a boost to past victims of cannabis criminalization by offering assistance and benefits to any communities that were unfairly punished by the drug war. Read on for more information on how this program works and how your cannabis business might be able to participate in the program.

What is Los Angeles’ Cannabis Social Equity Program?

LA’s social equity program has the stated goal of promoting “equitable ownership and employment opportunities in the cannabis industry in order to decrease disparities in life outcomes for marginalized communities and to address the disproportionate impacts of the war on drugs in those communities.”

The program intends to offer assistance in the form of funding, physical space, and a separate licensing timeline to any commercial cannabis licensees who meet the program criteria. Some of the program benefits as of July 2018 include:

• Verification of the program qualification without premises verification (e.g., a candidate may be approved without a site evaluation);
• Priority processing (more on that in a minute);
• Business, licensing, and compliance assistance (TBD by the city);
• Training via an incubator (TBD by the city);
• Fee waiver (TBD by the city);
• Access to an industry investment fund (if established in the future)

As you can tell from some of the notes next to the listed benefits, the city is still developing the specific benefits of the cannabis social equity program.

Who qualifies for Los Angeles’ Cannabis Social Equity Program?

There are three tiers qualifications under which a prospective cannabis business owner might qualify for the social equity program.

• Tier 1:  the candidate is considered “low income” with earnings of less than $41,230 annually, as well as EITHER (a) a cannabis conviction prior to November 8, 2016 (the date when Prop 64 was enacted) that now would be prosecuted as a misdemeanor or citation OR (b) 5 years cumulative residency in a qualifying zip code.  
  • Qualifying zip codes include:  90057, 90037, 90062, 90003, 90061, 90059, 90061, 90001, 90011, 90008, 90016, 90013, 90059, 90002, 90014, 90021, 90044, 90043, 90037, 90058, 90008, 90027, 90033.

 

• Tier 2: the candidate is considered “low income” with five years cumulative residency in a qualifying zip code OR has ten years cumulative residency in a qualifying zip code.  

 

• Tier 3: the candidate is a landlord entering into a Social Equity Agreement with the city to provide capital and/or leased space, as well as business, licensing and compliance assistance to Tier 1 and Tier 2 applicants. The landlord agrees to provide access to real estate property for Tier 1 applicants rent-free and with prorated utilities for a minimum of two years, provided that the property meet certain requirements.

Please note that to be eligible for the benefits of the social equity program, you must own at least one third (and for Tier 1, 51%) of the business applying for the license.  

Even if you do not fall under one of the three tiers, you can qualify for the social equity program. To do so, you can either pay a fee to the city fund or agreeing to provide a small portion of your physical space to help the beneficiaries of the program.  

How can I apply for Los Angeles’ Cannabis Social Equity Program?

If you recall from our webinar, Los Angeles is issuing cannabis business licenses in three phases. Phase 2 of the cannabis licensing program started on August 1 and will remain open for 30 days. During this phase, applicants must qualify under the social equity program.

You can currently apply for a Phase 2 license on the Los Angeles City cannabis page. Read this primer for instructions on how to log in to your account and submit an application. Our experts are standing by to help out if you have any questions.

For more information on getting your cannabis business license in Los Angeles, check out our webinar or read our three-part guide on cannabis in Los Angeles:

• Part 1: Los Angeles Rules and Regulations for Cannabis Businesses
• Part 2: Los Angeles Zoning for Cannabis Businesses
• Part 3: Los Angeles Requirements for Cannabis Licenses

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If you have specific questions related to your business, please get in touch with our experts today.

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Just this month, California Department of Public Health (CDPH) approved the re-adoption of emergency regulations for cannabis manufacturers for an additional 180 days. What does this mean, and how does it impact your cannabis business?

What are California’s cannabis emergency regulations?

Just a quick refresher: the emergency regulations cover the policy known as MAUCRSA, the Medicinal and Adult-Use Cannabis Regulation and Safety Act. These regulations outline California’s standards and licensing requirements for commercial cannabis manufacturers. They were originally passed in December 2017, and as is the standard for “emergency regulations,” valid for a period of 180 days. They were renewed for another 180 days just recently – with a few key changes.

What are the changes to California’s re-adopted emergency regulations?

The biggest change is the removal of restrictions created by the adult use (“A”) and medicinal (“M”) license designations. Originally, MAUCRSA regulations required cannabis plants be designated for either the A or M market at the cultivation stage. Plan material and cannabis products resulting from cultivation had to maintain that A or M designation while moving through the supply chain – complicating logistics and operations for cannabis businesses across the market.

In the newly re-adopted cannabis emergency regulations, the CDPH is attempting to resolve some of the A and M confusion. They have removed restrictions of A and M license designations, meaning businesses can complete one license application for use in both the adult-use and medicinal markets. Starting June 6, 2018, cannabis and cannabis products will only be labeled as adult-use or medicinal at the time of retail sale (with one exception for higher-THC products that are only allowed in the medicinal market).

To review the re-adopted emergency regulations in detail, click this link.

What does that mean for cannabis cultivators?
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There are a couple scenarios where you might have questions, especially if you’re still waiting to hear about your cannabis cultivation license. If you submitted two applications, one for an A license and one for an M license, here are a few points of clarification:

• CDPH will use your A license application as the primary application and aggregate the total gross revenue of your A & M license to determine your license fee.
• If you have paid two application fees, the balance of the funds will be applied to your license fee. These fees, as mentioned above, are due upon approval of your application by the Department and determined by the aggregate total gross revenue of your two license applications.
• The label, “FOR MEDICINAL USE ONLY” is still required on products with more than 1,000 milligrams of THC. These products can only be sold in the medicinal market and must be labeled by the manufacturer.
  • Other products – those that can be sold in either the M or A market – will be labeled with this phrase by retailers at the time of sale to a medicinal consumer.

If you have any specific questions about the MAUCRSA emergency regulations or any of these changes, please get in touch with the experts at California Cannabis CPA.

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Los Angeles is further clarifying their cannabis rules, regulations, and city ordinances to surrounding this growing industry. In this series, we’ll be tackling Los Angeles revised planning ordinances and licensing. First up: the city’s rules and regulations for cannabis businesses.


Los Angeles Cannabis Application Procedure

If you’ve applied for a Los Angeles cannabis license, congratulations in taking the first step towards become a cannabis business owner.  If you are still looking to apply, read on!

The Department of Cannabis Regulation (DCR) plays a crucial role in cannabis licensing. The DCR provides a master license application form to the public. If you applied, every applicant will be given a time stamp on their application to indicate when it was received. If for some reason the DCR determined your application was incomplete, you will be notified.

If you are applying for the first time, your application should include:

• Your name
• The commercial cannabis activity and license type you are applying for
• Did you apply for an M (medical) type or A (Adult) license type?
• The date you began/are beginning operations
• Any license types and/or license numbers issued from the State of California (or any other states in which you have licenses). You must notify the state if you have been denied a license in the past as well.
• General information about your premise and location. This includes the address, phone number, a diagram of the premise, proof of insurance, security plan, website and district in which the business is located.  
• A summary about how your business will benefit the local economy and community. Share how your business may contribute to job growth or revenue increases for the city.
• Staffing plans and organizational charts
• Ensure that no alcohol or tobacco is sold on your premise
• Include a detailed plan that summarizes how you will meet the requirements for track-and-trace, maintaining inventory, returns, destruction of products, waste management, and maintain accurate records

Click through for a more detailed list of the application requirements. California Cannabis CPA is also here to help with the details of your application, so please don’t hesitate to get in touch.  


Specific Requirements

There are a few additional requirements you may be required to meet, depending on the type of license you are planning to acquire. Here are a few extra things you should know:

• If you are a retailer:
  • You must also provide a retailer plan. This plan will discuss how you plan to adhere to the operational requirements around running a retail operation.
• If you are a delivery business:
  • Provide a delivery plan and a summary about how you plan to meet all operational requirements that the DCR requires.
• If you are a microbusiness:
  • Provide a specific microbusiness plan and discuss (in detail) how you will meet operational requirements that may include retailers, indoor cultivation, distribution and manufacturing.
• If you are a cultivation business:
  • Provide a specific cultivation plan and discuss how you plan to meet the operational requirements as required by the DCR. As a cultivator, you are also requirement to provide the city your water source, power source and energy efficiency plan. You must also provide proof that the Fire Department’s Bureau of Fire Prevention and Public Safety has been notified that your cannabis business will be opening in their jurisdiction.
• If you are a manufacturer:
  • Provide a proposed manufacturing plan and include operational requirements. This plan needs to include detailed descriptions of the manufacturing activity that will be happening on the premise.  These activities could include extraction and infusion methods, the types of products that will be manufactured, etc. Similar to a cultivation business, there must also be proof that you have notified the Fire Department’s Bureau of Fire Prevention and Public Safety alerting them that your business is opening in their jurisdiction.  
• If you are testing commercial cannabis activity:
  • Provide a proposed testing plan including a plan for how you will meet the operational requirements.  You must also provide proof that your facility is ISO 17025 accredited. If you do not have accreditation yet, provide proof that you are going through the proper application steps.   
• If you are a distributor:  
  • Provide a specific distribution plan in addition detailing how you plan to meet all operational requirements.

No matter which license you are applying for, you will be subject to a pre-license inspection.  This will likely include employees or agents from the following city or county departments stopping by for a friendly visit: DCR, Building and Safety, Police Department, Fire Department and Los Angeles County Department of Public Health. Read additional details of the inspection requirements on page eight at the link.

Operational Requirements and Violations


As far as regulation penalties, the city divides violations into minor, moderate and serious offenses. Below is a brief overview of the three categories. These represent a high-level overview of the rules, and if you’d like to read the rules in greater depth, we suggest clicking through to review specific operational violations beginning on page ten.

Minor Offenses
An offense is considered minor if….

• Agents, officers or other people employed by a licensee do not display a laminated or plastic-coated identification badge.
• All license, operating conditions and emergency contact info are not displayed.
• If there is an unfortunate incident and your building is subject to graffiti, it must be removed or painted over within 24 hours. It needs to match the color of the building as well. (Fingers crossed this doesn’t happen to you.)
• Your violate trash pick-up hours. Trash pick-up, compacting, loading, unloading and receiving activities are limited to the hours of 7:00 a.m. to 6:00 p.m. Monday through Friday and 10:00 a.m. to 4:00 p.m. on Saturday. Nothing is stated about Sunday.
• The outdoor lighting is not shielded and pointing directly onto the site. Your next door neighbors or public spaces should not be able to see the light source.
• You use devices like security bars, grates, grills, barricades or barbed wire. DON’T use these security measures.

Moderate Offenses

• Do not physically change or alter the premise so that it differs from the diagram you provided in your application.
• Your video surveillance system must have a minimum camera resolution of 1280 * 720 pixels. Each camera shall be permanently mounted in a fixed location. Check page 12 of this document for additional rules for surveillance cameras.
• Physicians cannot prescribe, recommend or approve medical cannabis on the property
• No consumption of alcohol or consumption of cannabis allowed on the business premises.  This is a moderate violation.
• You must hire/contract security personnel for your premise. Security personnel must not be your personal employees.  You must also maintain an alarm system and document it in your security plan.
• The premise must be properly ventilated. The air will need to be filtered to neutralize any odor from the cannabis.
• You must notify the DCR within 24 hours if you discover any of the following:
  • A significant discrepancy in inventory
  • Theft, loss, or any other criminal activity
  • A breach of security

Serious Offenses

• You can only use the business name stated on the license
• Do not sublet any portion of the premises without written approval from the DCR.
• You are not required to have your cannabis goods tested until 120 days after the city grants you a license, or April 1, 2018 – whichever is sooner. After that, all cannabis goods shall be tested.

Record Retention

It is your responsibility to maintain the following records for at least seven years.  It is considered a serious violation if you do not!

• Personnel records – All employee’s names, social security and tax ID numbers. Keep as much as possible around about the employee’s history with your business. This also includes training records.
• Financial records – including sales receipts, copies of anything to do with taxes and bank statements. Err on the side of caution with this one – more records are better.
• Keep all of your permits and licenses, and any of the paperwork associated with them.
• You may be aware of the electronic Track and Trace Systems. This is a way for the state to track and maintain records of cannabis sales. The equipment you have must be able to record business activities, inventory, transactions, etc. so it is compliant with the track and trace regulations.  Examples of electronic equipment may include barcode identifiers, scanning equipment and cloud based technology. Read the full requirements on page 17.

The Los Angeles Rules and Regulations are incredibly extensive and although this list goes into great detail, it does not cover them all. California Cannabis CPA is here to walk you through the extensive steps in order to secure a license. Contact us today to get started.

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Newsflash: last week, the California Department of Public Health (CDPH) proposed new emergency regulations that would allow cannabis manufacturers share facilities. These regulations are going to be filed on April 3, 2018, with an ensuing five-day public comment period until April 8, 2018.

These regulations intend to offer ways for small manufacturing businesses to enter the cannabis market at a lower start-up cost. Here’s what you need to know about the proposed regulations.

How do I get a Type S License?

Here is a quick overview of what you need to apply for your Type S License.

1. A non-refundable application fee of $500 for each new application
2. The location of a registered shared-use facility to be used by the licensee
3. A copy of the use agreement signed by the primary licensee and the applicant
4. A diagram of the designated area of operation that includes where the applicant will store cannabis, cannabis concentrates, and cannabis products

To get a Type S license, an applicant must fall into the Tier I or Tier II fee categories:

• Tier 1: annual gross revenue of up to  $100,000
• Tier 2: annual gross revenue of $100,001 to $500,000

Lastly, “cannabis manufacturing” means that a licensee can participate in the following activities:

• Cannabis infusions
• Packaging and labeling of cannabis products
• Extractions of butter or food-grade oils, as long as the extraction is then used solely for an infused product and not sold to any other licensee.

The application will be available on the CDPH website after the public review period has closed.

How do I register a shared-use facility?

If you are a cannabis manufacturer with a Type 7, Type 6, or N license, you can register your location for shared-use. As part of the approval process, you must apply for a Type S license. This is similar in structure to a commercial kitchen or coworking space in that it allows companies to share space and equipment. Note that the location where the cannabis shared-use license is held may only be used for cannabis-specific manufacturing activities.


To register as a shared-use facility, you must submit the following information:

1. Form DPH-9037 (to be made available 4/13)
2. A copy of your Type S license or permit.
3. The license number and address of the shared-use facility
4. The operating days and hours for your manufacturing business which the applicant will conduct manufacturing operations.

Why should I be interested in a shared-use facility?

The emergency regulations aim to provide equity among cannabis manufacturing companies who have limited access to the cannabis market. Many local regulations and zoning restrictions prevent cannabis manufacturers from operating in accessible neighborhoods. Likewise, the cost of opening and operating a manufacturing plant can disqualify new businesses from getting off the ground due to exorbitant costs. The state intends to ease that burden while providing a new source of revenue for existing operations who wish to share their space.

To review the details of the proposed regulations and a fact sheet with instructions for submitting public comment, visit the CDPH website and speak with one of our professionals about the process for sharing your manufacturing operation.

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There is a lot to think about when becoming a new business owner.  But making sure your business is properly insured is one of the most important.  You already went through the work to set up your cannabis business, obtained the proper licenses or perhaps secured an investor - now it is time to protect it.  Today, we will discuss the several types of insurance you need to cover yourself and your business.

General Liability Insurance
A customer can sue your company for negligence from third-party damages, whether they are injured on the premises or injured by your property. General liability insurance protects your business against these types of lawsuits.  Many small businesses buy General Liability Insurance packaged with Property Insurance through a bundled policy called a Business Owner's Policy.

Commercial Property Insurance
Commercial property insurance covers your building or contents if your business is damaged.  It will also cover any theft that occurs and replace your business products in the event of a loss.  In addition, any lost income that has occurred due to these events, or your business being closed, will be covered.

Workers’ Compensation Insurance
If you have any employees, California requires you to have workers’ compensation insurance. This will cover your employees if they get injured on the job.  Most states require this form of insurance.

Professional Liability Insurance
Professional Liability Insurance covers your business should a negligence claim be made against you.  This can also include mistakes, oversights or errors that are made by accident. This type of insurance is also called Malpractice or E&O (errors and omissions) insurance.  If your mistakes cause a financial loss for your client, they may try to recoup court costs, legal defense fees or judgments.

Cyber Liability Insurance
Doing business today is drastically different than 10 years ago.  With major companies recently in the headlines for having their personal client information hacked, you want to be sure your business is protected should that happen to you. Cyber liability insurance is especially important if your website collects personal information or you sell items online.

Employment Practices Liability Insurance (EPLI)
If your employees interact with the general public as part of your operations, it is smart to get EPLI Insurance.  EPLI insurance covers claims against your company for sexual harassment, wrongful termination and discrimination.  These allegations can come from the employees or the general public.  This insurance would cover your legal costs and any potential payouts you may be responsible for.  


Beyond insurance, California’s minimum wage also increased in 2018.

• California minimum wage (statewide) increases to $11.00/hour for employers with 26 or more employees, and increases to $10.50/hour for employers with 25 or fewer employees.  Many California cities have higher minimum wage laws. Where applicable, these supersede the lower state minimum wage amounts.

California Cannabis CPAs wants to make sure your business is protected.  We are here to walk you through each type of insurance, to help you make sense of it all.  Each individual county within California may also have its own requirements, so please review accordingly. Ask us how we can help today.



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Whether you’re a cultivator, manufacturer, retailer or distributor, it’s important to become familiar with California’s Cannabis Track-and-Trace system. Through a platform called Metrc, California state officials can regulate and supervise the cannabis industry. Here are some of the basic things you need to know about this system.

What is the Cannabis Track-and-Trace System?
The California Cannabis Track-and-Trace system tracks all commercial cannabis and cannabis products—from cultivation to sale. CCTT is run by the the CalCannabis Cultivation Licensing division of the California Department of Food and Agriculture, which covers tracing cannabis in three different branches: Licensing, Compliance and Enforcement, and Administration.

Do I need to know about CCTT?
Yes. If you are a licensed cannabis business, you are required to use the CCTT system to record, track and maintain information about your cannabis and cannabis product inventories. CCTT is hosted on a system called Metrc, which is a cloud hosted online reporting tool you can use to maintain information about your cannabis products as they make their way from seed to sale.

Why does CCTT exist?
Cannabis Track-and-Trace is important for a few reasons:

• Quality assurance: to detect traces of pesticides, record THC / THCA levels, and make sure cannabis products are safe for consumption.
• Transport tracking: for oversight into the movement of cannabis and cannabis products, including the chain of custody from cultivator to customer
• Manufacturing monitoring: for oversight into the transformation of plant material, as well as the proper recording of plant waste.
• Supply chain oversight: to maintain insight into the location and amount of batches of products at any given time.
• Compliance: to maintain the regulated standard of packaging, labeling, taxes, etc.
• Accounting: to minimize the black market and track the growth of the legal market.

Basically, Metrc allows the state government to have oversight into the cannabis inventories, maintain quality control, make sure all taxes are being paid correctly, and regulate the transfer of cannabis supplies from cultivator to customer.

How do Metrc and CCTT work?
Metrc uses two types of tags to keep tabs on cannabis and cannabis products. The two tag categories are Plants and Packages.

Plants are are further categorized as either immature or flowering. Immature plants are cannabis plants that are not flowering. Flowering plants are those that have formed a mass of pistils measuring greater than one half inch wide at its widest point.  All plants must enter the system through immature plant lots (up to 100 plants/lot). With these lots, up to 100 plants are assigned a Unique Identifier Plant tag. Each immature plant gets a label with the lot UID, while individual flowering plants get a Plant tag.  

Meanwhile, Packages are created from immature plants, harvest batches, testing lab samples, production batches, and other packages. Any amount of cannabis or cannabis product that may be sold, manufactured or transferred must be placed into one or more packages. Then, each package receives an UID package tag created in Metrc. Make sure that any product that you intend to transfer from one licensee to another has an UID physically attached to the package.

What is a unique identifier (UID)?
The UID is a unique alphanumeric code or designation used to uniquely identify cannabis and cannabis products on a licensed premises. As an annual licensee, you will be responsible for assigning a CCTT-Metrc nonrepeating UID to each immature lot, flowering plant, and distinct cannabis product. Each UID then keeps track of the cannabis products as they make their way through the supply chain.

How will I get my UIDs? And do I have to pay for them?
When you’re set up in the Metrc system (more on that in a minute), you’ll be able to order your UIDs through the system. The cost of UIDs is factored into the fee for your state’s cannabis license.

How do I use my UIDs?
Let’s divide this up once more into UIDs for Plants versus Packages.

• Plants: assigned on UID plant tag per immature plant lot (containing up to 100 plants per lot). Every plant in the lot must be labelled with the corresponding UID.
  • Flowering plants: assign a plant tag to every individual plant when moved to a canopy or when the plant flowers. These tags must be attached to the main stem a the base of each plant using a tamper evident strap or zip tie, and the tag must be clearly visible.
• Packages: package tags are peel and stick. Use the package tag for transferring packages and for the tracking of finished product for each licensee in the chain of custody.

What do you need to do now?
To get started using Metrc, follow these steps:

• Start by submitting your annual cultivation license application and completing the required training. You can submit your license application at the CalCannabis Licensing Site. Note that you MUST complete the training to gain access to the Metrc system.
• When you have finished the training, obtain approval of annual license. Call or email Metrc Support to receive confirmation of annual license and training completion.
• Next, complete your login credentials after receiving a welcome email:
  • Click on the first link in the "Welcome to Metrc" email. This will direct you to the website where you set-up your account.
  • Accept State Attestation and Metrc Terms and Conditions.
  • Setup a User Profile Introduction to California Cannabis Track. For tips on how to set up your account, read this presentation released by the CDFA.

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For more on how to get started using Metrc, follow the instructions listed in the primer released by the CDFA. If you get stuck or have any questions along the way, reach out to the experts at California Cannabis CPA to get advice.

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Leading up to 2018, the CDTFA passed two key regulations clarifying their requirements for correctly paying your cannabis cultivation and excise taxes. Regulations 3700 and 3701 pertain to collecting tax on inventory you’ve had in stock before the full legalization of cannabis in California, and are important to understand before filing your first-quarter report on April 30, 2018.
 
Cannabis Tax Regulation 3700: Cannabis Excise and Cultivation Taxes
Passed in December, 2017, this regulation clarified the existing excise and cultivation tax policy everyone must follow starting January 1, 2018. Specifically, this regulation clearly defines terms such as “fresh cannabis plant,” “distributor,” “cultivator,” and cannabis leaves and flowers. It also lays out the cultivation tax rates, which we’ve covered in previous articles.
 
Perhaps most importantly, Regulation 3700 also lays out the process for collecting the cannabis excise tax. Distributors are responsible for collecting, reporting and remitting cannabis excise tax from the cultivators and retailers each quarter. Late payments incur the following penalties:

• 50% of the unpaid cannabis excise tax or cannabis cultivation tax will be added to the cannabis excise and cultivation tax not paid.
• Potential additional penalties pursuant to the Fee Collection Procedures Law.

 
However, if the CDTFA finds that a failure to make a timely payment is due to reasonable cause, you may be relieved of penalty. To be relieved, you must prove that payment was late due to circumstances beyond the person’s control, and occurred in absence of willful neglect. If you find yourself in this situation, it’s best to consult with a tax or law expert to file a statement explaining the facts pertaining to your claim.
 
Cannabis Tax Regulation 3701: Collection and Remittance of the Cannabis Excise Tax
After passing Regulation 3700, California officials discovered a loophole to the cannabis excise tax– which regulation 3701 aims to close. Prior to the full legalization of cannabis in California, no person was required to obtain a distributor license until January 1, 2018. However, there were certainly individuals and companies operating as distributors before January 1 – distributors in the medical cannabis industry, for example. These companies would have existing cannabis inventory – so should this inventory be subject to the new cannabis excise tax?
 
Regulation 3701 says that if a retailer possesses or controls cannabis or a cannabis product at 12:01 a.m. on January 1, 2018, and makes a retail sale of that cannabis or cannabis product on or after January 1, 2018, then that retailer must charge a cannabis excise tax based on the average market price. This excise tax is due to the distributor by the fifteenth day of the calendar month following the close of the calendar month in which the tax was collected.
 
Here’s how this works in practice. A retailer purchases cannabis in 2017, and on January 3, 2018, purchases cannabis from a distributor for $100/oz. The wholesale cost is $100/oz. Therefore, the average market prices of an ounce is $160.00 ($100 x 1.6). The cannabis excise tax due on the sale of the cannabis purchased in 2017 is $24.00 ($160 x 15%) and the retailer must collect this excise tax from its customer.

Lastly, distributors need to know how to report the pre-2018 excise tax. When remitting the excise tax to the CDTFA, distributors should include the following information:

• Payment date
• Distributor name;
• Retailer name
• Amount of the Cannabis Excise Tax;
• Retailer’s Seller Permit Number;
• Distributor’s Seller Permit Number. A distributor not required to hold a Seller’s Permit must identify its exempt status.

Include this information on your first quarter tax return, due April 30, 2018. Questions? Get in touch, we’re happy to help. ​

Continuing our series from last week, today we’re covering the key tax policy that cannabis distributors in California are responsible for now that proposition 64 has been approved.  If you’re a retailer looking for detailed tax information, check out this for California cannabis retailers.

Distributors are also responsible for collecting and submitting a variety of taxes, including cannabis cultivation, sales, excise, and use taxes. Distributors are also responsible for filing the cannabis taxes after collecting cultivation and excise tax from the retailers and cultivators, and for keeping resale certificates on file from retailers. Here’s how to file your taxes, how much to collect from your cannabis partners, and how to handle sales tax.

Please consider that we are not a law firm, and this advice should not substitute any proper legal advice.

Are you a cannabis distributor?
You are cannabis distributor if you procure, sell and/or transport cannabis between licensed cannabis businesses such as cultivators, manufacturers or retailers. Distributors must meet also meet the following requirements:

• Register with the CDTFA (California Department of Tax and Fee Administration) for a cannabis tax permit.  This permit will be completely separate from any other permit you may have with the CDTFA.
• Collect the cultivation and excise tax.

• Electronically file your cannabis tax return and pay the amount owed to the CDTFA.
• Keep clear and precise records of all commercial cannabis activities.
• Have the appropriate business licenses.  They can be obtained from the Bureau of Cannabis Control.   Local governments licensing requirements may vary so we recommend checking with local city and county government offices to ensure you are compliant.

If you are also making sales, and not just transporting product, you are responsible for registering with the CDTFA to get a separate seller’s permit.  This will also require filing Sales and Use Tax Returns.
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Are you a microbusiness? This complicates things a little. Microbusinesses may operate as a distributor, but in that case they are only required to hold one license that authorizes the microbusiness as a distributor.  A microbusiness may operate as a cultivator, distributor, manufacturer and/or retailer.  Microbusinesses are responsible for all of the same requirements as distributor requirements listed above.

Distributor Cannabis Tax Requirements
CULTIVATION TAX
As a refresher, The cultivation tax is imposed imposed on all of the harvested cannabis that enters the commercial market.  Cultivators are responsible for paying the cultivation tax to the distributor. In some cases, the cultivator is responsible for paying the tax to the manufacturer if the cannabis is transferred or sold to a manufacturer first.  Either way, as a distributor, you are responsible for remitting the cultivation tax to the CDTFA. Cultivation tax rates are:

• $9.25 per dry-weight ounce of cannabis flowers
• $2.75 per dry-weight ounce of cannabis leaves
• A proposed $1.29 per ounce of fresh cannabis plant fee

To qualify for the third point, the cannabis plant must be weighed in an unprocessed state within 2 hours of harvesting. If you have immediate questions, please get in touch with our experts.

When you collect the cultivation tax, you will need to provide a receipt to the cultivators and manufacturers that lists the amount of the tax collected and relieves your cannabis partners from liability.

CANNABIS EXCISE TAX
Excise tax is a bit complicated: put most simply, excise tax is an added 15% of the average market price to the listed retail price of the cannabis product. It’s also contingent on the type of transaction between the customer and retailer. Read more about the cannabis excise tax under our post for retailers.

FILING YOUR CANNABIS TAX RETURN
The process for filing your cannabis tax return is slightly different from filing your income tax return and sales and use tax return. File your return on the CDTFA.gov site according to the quarterly schedule (so, your first return is due April 30). On this return, you are responsible for reporting the both the excise and cultivation taxes due for any cannabis and cannabis products that entered the commercial market during the reporting period. For example, on your April 30 return, you will report excise and cultivation taxes for January 1 – March 30, 2018. When reporting the excise tax, you must include reports for any product that has been transferred to a retailer (whether or not the product has already been sold).

Keep copies of your returns for future reference, and speak to one of our experts if you have any help.

Distributor Excise Tax Requirements
CANNABIS EXCISE TAX
As a distributor, you are responsible for paying the cannabis excise tax to the CDTFA and collecting it from your retailers you supply. 

Sales tax does not apply to valid sales for resale. Unless you’re operating as a cannabis microbusiness, your sales as a cannabis distributor are likely to be all resale  – meaning you won’t be responsible for paying sales tax. Enter: resale certificates.

Resale certificates allow you to buy resale inventory without paying sales tax reimbursement to the seller. You must provide a timely resale certificate to your supplier, with your seller’s permit information at the time you are making your purchases. Use Form CDTFA-230 as your resale certificate. Don’t use a resale certificate for any personal property – you may be penalized. Also, when you sell products to retailers, those retailers will give you a resale certificate that you should keep for your records. If you have any questions about using the resale certificate, get in touch! We’re happy to help. ​

Retailer Sales Tax Requirements
CANNABIS SALES TAX
Retailers will collect the sales tax from their customers and remit it to the CDTFA. The sales tax rate is based on where your sale takes place. To find the correct tax rate, check the database on the CDTFA site.  

While we’re not a law firm and cannot provide legal advice, there are a few key tax laws that cannabis retailers in California are responsible for now that cannabis is legal. The goal of this article is to give you an overview of these taxes and make you aware of your responsibilities as a cannabis business owner in California. In subsequent posts, we’ll dig into the excise, sales, and use taxes to give you everything you need to know about these tax requirements – and make sure your business stays compliant. For now, here are the basics you need to know.

Are you a cannabis retailer?
You are a retailer if you sell cannabis and/or cannabis products directly to a consumer. Microbusinesses that are licensed as retailers also must abide by the same regulations as traditional retailers.

A cannabis microbusiness is type of license category (Type 12) that allows your company to engage in multiple cannabis activities at one location. For example, as a microbusiness you could cultivate up to 10,000 sq. ft. of cannabis canopy and distribute your product under one license. Because often you are selling your product to a consumer, these microbusinesses follow the same regulations as retailers (detailed here). If you’re not sure whether you’re a cannabis retailer, get in touch with California Cannabis CPAs.

First Steps to Becoming a Cannabis Retailer
Before we dive into the tax law basics, a quick refresh: to be a cannabis retailer in California, you must start by applying for a seller’s permit and also secure local and state cannabis permits. Click this link to register with the CDTFA for a seller's permit. For details on what you need to get a seller’s permit – including a checklist of the documents you need to submit in your application – check out this blog post. Please keep in mind that you may be responsible for getting additional permits and licenses from your local county or city government. More on that to come!

Next, if you are an existing cannabis retailer (i.e., not a new company) you are also required to report all your sales and pay sales tax due to the California Department of Tax and Fee Administration (CDTFA). The amount of tax you’ll pay is based on your gross receipts, meaning the tax rate is set based on where the sale takes place and when the sale is over the counter vs. when you deliver the item yourself. Finally, keep in mind that as you grow your business, you will be taxed on items you use that are purchased without tax – so hold onto your receipts and keep track of your inventory.

Retailer Tax Law Basics
There are a few key taxes that retailers are responsible for as of January 1, 2018. 

Cultivation Tax
Anyone who cultivates cannabis is responsible for paying a cultivation tax – including retailers who grow their own cannabis. Pay this tax to the distributor in a similar process to the excise tax collection. Current cultivation tax rates are $9.25 per dry-weight ounce of cannabis flowers, as well as a tax of $2.75 per dry-weight ounce of cannabis leaves. Exempt from the cultivation tax are businesses that cultivate cannabis for personal use or by a qualified patient or primary caregiver -- i.e., medical cannabis cultivators.

Cannabis Excise Tax
An excise tax is a fancy name for a tax paid when purchases are made on a specific good – like cannabis and cannabis related products. The excise tax is usually included in the price of the product, meaning you’ll collect this tax from your customers every time you make a sale. Charge excise tax on everything from cannabis to cannabis edibles, oils, lotions, and waxes.

How much should excise tax be? Add on an extra 15% of the average market price to the listed retail price of your product. The average market price is based on the type of transaction between the seller and you. We will dig into this in detail later on.

Note that you are not required to list the excise tax separately on your receipt – this makes it much easier for you to pay your sales tax, as you will see in the following section. You do need to have the phrase “The cannabis excise taxes are included in the total amount of this invoice” included on every receipt.

Sales Tax
There remains an exemption for sales and use tax for all medicinal cannabis products, but usually, as a retailer, you will need to pay sales tax. Sales tax applies to retail sales of “tangible personal property” in California – in plain terms, this means anything you can touch and feel, including cannabis, cannabis products, and cannabis accessories such as rolling papers, vape pens, or pipes.

When calculating the amount of sales tax due, you must include the amount of your excise tax in the receipts. Since the excise tax should be included in your total sales price, this shouldn’t require any additional effort from you in totally your gross sales tax. You are liable for sales tax even if you don’t collect sales tax reimbursement. This means you must pay the excise tax even if you don’t sell the product.

How much is your sales tax? That depends. The sales tax rate is based on where your sale takes place when it is over the counter, or when you deliver the product yourself. So, for example, if you sell cannabis at your store location in Los Angeles, you may have a different sales tax than if you make a delivery to a customer in San Diego. All tax rates are on the CDTFA website – and more on this tax to come.

Use Tax
Use tax is a tax on items you use or consume that you purchased without paying tax. An example of a use tax in everyday life might be a tax on getting a massage. The use tax rate is the same rate as your sales tax rate. Broadly, expect to pay use tax on items you purchased outside the state of California without paying California state sales or use tax. If this sounds confusing, it is. We’ll cover in greater detail what kinds of products you can expect to pay use tax on in future posts. In the meantime, if you have any questions, don’t hesitate to reach out to the experts at California Cannabis CPAs!

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