One of the elements of a good business plan is performing market research to determine your target customers. Pricing, marketing, and product selection all depend on who your key consumer groups are – and what they’re interested in purchasing in the adult-use legal cannabis market.

In some ways, consumer data is extremely limited due to the government’s classification of cannabis as a Schedule I drug. Government research that is typical of other industries is simply not performed on the cannabis market. As a result, most data we have about cannabis consumers is limited to gender, residence, and spending amounts. This can be useful in valuing  your cannabis business for investors, but is less helpful for cannabis marketers hoping to build a customer persona.

While the demographics vary among cities and districts, some early trends have emerged that can help inform your cannabis business offering. Here’s what you need to know about the key cannabis consumer groups in 2018.

Who is the typical cannabis customer?

In a survey conducted by the Cannabis Consumers Coalition, the majority of respondents were between ages 21 - 35, which is not necessarily surprising. Interestingly, the second biggest group of cannabis consumers was 45 years or older, meaning cannabis consumers are likely to be professional adults. In fact, the study discovered that more than 58% of cannabis consumers are between the ages of 21 and 55. The perception that cannabis consumers are college age, unmotivated stoners is likely misguided. Cannabis customers are more likely to be working professionals, parents, and with some level of disposable income.

Aligned with the shift in age toward older cannabis consumers, the average household income of a cannabis customer has also risen. The Cannabis Consumers Coalition research indicates that cannabis consumption transcends economic class, with customers at all income levels partaking in cannabis consumption on some level. Inform your product pricing with the following data from their survey: the majority of cannabis customers have combined household incomes of $26,000 - $55,000.

What do we know about the gender of cannabis consumers? While movies like Dazed and Confused have widely popularized the impression that most cannabis consumers are male, this survey suggests the gender gap is much more narrow. Companies like Whoopi & Maya have popularized cannabis as an alternative therapy for women. Women hold nearly 30% of executive leadership positions in the cannabis industry – a significantly higher percentage than the nationwide average. When designing your marketing material, take into consideration that women make the majority of household purchasing decisions, and in the cannabis market, they will be a powerful consumer group.

Medical v. Adult-Use Cannabis Users

Though recreational cannabis is only legal in about half of the states, it’s an important trend to track for new cannabis entrepreneurs interested in entering the market. This statistic can help you understand the deeper motivation behind your customer: are they making a purchase because it’s a medical necessity, or for recreation? How frequently can you expect someone to make a repeat purchase? Diving into your customer behavior has implications for inventory management, loyalty programs, and pricing.

Data from the National Institute of Health reveals that the majority of customers partake in cannabis use for recreational reasons. Their national sample showed that among those consumers who lived in states with medical cannabis legislation, 17% used cannabis for medical reasons and 83% used it recreationally. However, those who do use cannabis medically do so with more frequency and regularity than those customers who purchase cannabis for recreational use. A good business practice would be to take medical consumers’ needs into your marketing plan, even if your primary target customer is a recreational user.

California’s Key Cannabis Consumer Groups

California has the potential to become the world’s largest cannabis market, making it a good bellwether for understanding developing consumer trends. Early studies by market research firm BDS Analytics indicates there are three key consumer groups across the state. Primary consumers in California are 39 years old and have used cannabis or cannabinoids in the past six months. A secondary group deemed “acceptors” by the study are 49 years old, and while they haven’t recently used cannabis, they would do so in the future. California’s “rejecter” group is an average of 56-years-old and are not likely to consider cannabis use.

It’s worthwhile to note that while rejecters and acceptors aren’t recent users of cannabis, that doesn’t correlate with disapproval of legal adult-use cannabis. The study showed that tolerance and acceptance of cannabis is becoming more common, and in fact, Californians are becoming more interested in the potential health benefits of cannabis use. This further reinforces the case for continuing to include medical-use customers as part of your business plan and marketing strategy.

For more insight into how to build your cannabis company, get in touch with one of the experts at GreenGrowth CPAs. ​

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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The most common question our experts get isn’t always tax related. In fact, it’s a bit more complicated. Everyone wants to know: “what do I need to do to start a cannabis company?”

What seems like a straightforward question usually has a much more complicated response. In this post, we’ll cover the three high-level steps you need to take to get started in California’s $3.7 billion cannabis industry. Our experts have helped dozens of companies launch in cities across California, and without these three factors, getting a license is difficult, if not virtually impossible. Here’s what you need to start a California cannabis company.

Step 1A: Find Real Estate

As we outlined in a previous post, finding properly zoned real estate is the biggest and most important element of starting your business. If you don’t have a lease or purchased property, your cannabis license application will not be approved.

Finding real estate is made especially difficult by a city’s zoning restrictions. Often, a city will release their zoning ordinance just before announcing the opening of cannabis business applications. Commercial real estate is limited to green zone properties; and these properties are fiercely competitive among potential licensees. Our experts frequently see only ten properties available in compliant zones. Narrow those ten properties down to landlords willing to host cannabis businesses, and you’re looking at two or three spaces available to every prospective cannabis business in the city.

Secondly, a landlord willing to lease to a cannabis business is likely going to charge a premium (because they can). Budget ahead of time for a largely inflated lease price, and keep in mind that some landlords will ask for a large deposit to account for the chance that your cannabis license application might not be approved.

Step 1B: Select your Jurisdiction

We’re calling these step 1A and step 1B because these two items are really concurrent processes. Selecting a jurisdiction has as much to do with the available real estate in a district or city as other factors: tax rates, the cost of doing business, and application fees.

To reiterate: without real estate, you will not be able to operate as a cannabis business. However, there are other planning aspects that should play a role in getting your business off the ground. Select your jurisdiction carefully! Not every city allows for every type of cannabis business. Read the regulations (and check out blog for updates as new cities come online) to see how many cannabis licenses will be available and what the selection criteria will be. Check tax rates, crime statistics, and other city-wide regulations to see how easy your life will be once you get approved.

Pro-tip: try to narrow it down to 2-3 jurisdictions before looking for real estate. This will make your life easier!

Step 3: Complete and Submit the Cannabis Business Application

This step sounds pretty straightforward, but our experts say submitting a strong cannabis business application is a full-time task. Give yourself three to four weeks of effort to put together the best application possible. To help you, we’ve compiled our best tips from helping dozens of businesses through the process. Read our advice on how to submit a strong cannabis permit application in California before you get started.

Remember: cities update their ordinances roughly once a year. As this is the first year that cities are releasing cannabis regulations, 2018 can be considered something of a test run. If you have feedback for your respective city, be sure to submit a public comment. When these ordinances and regulations are revisited next year, these comments will be taken into account.

Questions? Get in touch with our experts to learn more about starting a cannabis business in California.

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As spring warms up and nicer weather starts bringing customers out of hibernation, you may be wondering how to increase your sales this season. As a cannabis retailer or manufacturer, one tactic is to offer free cannabis samples to customers to encourage them to try – and buy more of – your product. Is that legal, and what are the tax repercussions of giving away free cannabis? We discuss below.

Can I give away free samples of my cannabis product?

First, check to make sure that you can offer free samples legally in your area. You can ask your local officials or ask for guidance guidance from the Bureau of Cannabis Control and the California Department of Public Health.

Second, know that these details only apply to licensed manufacturers, not dispensaries.

Use Tax and Free Cannabis Samples

So, assuming you can legally offer free samples of cannabis, do you have to pay use tax? Remember, use tax is charged on all items that you use or consume and purchased without paying tax. The rate for use tax is the same rate as sales tax.

The short answer: yes, you do have to pay use tax when you give away free samples of cannabis.

Here’s a more detailed explanation. The use tax comes into play when a product is, literally, “used.” As long as cannabis is part of your inventory being held for sale in the regular course of business, it’s not being used, and therefore you do not pay tax on that supply. When you offer your cannabis product for use – i.e., for a customer to try for free – the use tax will kick in.

The tax due on that sample is based on the purchase price by the manufacturer. If you want further details on how this works, read Regulation 1669, Demonstration, Display and Use of Property Held For Resale-General, subdivision (a) as well as Regulation 1670, Gifts, Marketing Aids, Premiums and Prizes.

What if I’m offering free samples to employees?

Ok, so maybe you’re not so tempted to give away free samples to customers. But what about to your employees? It can be helpful in making a sale to have knowledgeable employees who can personally attest to the quality of your product. So, do you need to pay use tax on cannabis being used for internal promotional purposes?

Unfortunately, yes, you still need to pay use tax on free samples given to employees. This still falls under the realm of “use,” as in you are using tangible personal property for any purpose other than demonstration and display. Use tax is measured by the cost of the cannabis product purchase price.

Does the use tax rate ever vary?

Use tax can vary not by who you are selling cannabis to, or why you are giving it away (e.g. free sample versus normal sale), but by where you sell or give away the cannabis product. The tax rate depends on where the manufacturer gives the sample away. For example, if you give a sample to an employee, the tax applies where the sample was dispensed from (not where the recipient then used the sample). If the sample is given to an employee for personal use, the rate of tax that applies is that of where you made the gift to the employee.

Summary and Conclusion

While it may be tempting to give away samples of your product for free, note that you will still have to pay use tax on the transition of those samples. The use tax rate that you will pay depends on where the sample was gifted, not where the sample is consumed. Likewise, it doesn’t matter whether you’re offering a sample to an employee or customer; use tax still applies. You may still decide it’s a worthwhile marketing tool to offer a sample, but make sure you are legally allowed to do so before continuing your marketing effort.

If you still have questions, check out additional resources in the CDTFA’s Tax Guide for Cannabis Businesses or consult with one of the experts at California Cannabis CPA. ​

Effective for years beginning after 12/31/17, the 70% DRD will be reduced to 50% and the 80% DRD will change to 65%.

The Fine Print

There are a few key limitations to know, including the taxable income limitation and the timeline for owning shares limitation.

• Taxable income limitation: this rule applies to companies with less than 80% ownership. Generally, you cannot take the DRD if it will create a net loss for your company.
• Timeline: to receive the dividend and claim your DRD, a company must have owned shares in the company paying the dividend for at least 45 days prior to dividend payment.
• The DRD is only available to C corporations. Entities including LLCs, S corporations, or individuals cannot claim the DRD.

What this means for Cannabis Companies

It’s not uncommon for our experts to see a cannabis holding company (the company which a main investor will agree to fund) operate with a subsidiary (e.g., a real estate company, operating company, or management company). Creating a structure that allows you to maximize your DRD will decrease your overall effective tax rate and increase your cash flows to re-invest in your companies. Be aware of the latest changes in the tax code if you want your company to survive in the new highly taxed marketplace.

Specific questions? Get in touch with our experts today to make sure you’re claiming your full deductions on this year’s tax return and mitigate the possibility of overpaying your taxes.

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Last week, we covered how to find an investor for your cannabis business. It can be hard to find a cash infusion in this industry – many banks won’t issue loans due to federal regulations against the legal sale of cannabis. Instead, look for private equity firms, crowdfunding, or non-specific business or personal loans you can use to get your business off to a running start.

Hopefully, this will lead many cannabis companies to connect with angel investors, private equity firms, or venture capitalists. If you fall into that category, how can you be prepared for the future influx of opportunities from cannabis companies?

There are a few things to seek when evaluating cannabis companies from an investor standpoint. Cannabis companies come with a lot of inherent risk: the industry is new, regulations are still evolving, and there is a lot of cash involved. Bad record-keeping, poor cash control, and outright fraud are just a few of the things many investors worry about. Ask these questions to determine if a cannabis enterprise is worthy of investment.

Does the company use a cloud-based accounting system?

What’s wrong with a traditional accounting system, like keeping track of your sales and purchases in an Excel spreadsheet? A few things:

• The system is limited to one computer (and duplicates can be inaccurate or out-of-date)
• Only one person has user access at one time
• It’s complicated (and costly!) to keep backups
• Customer support can be expensive or non-existent
• It’s not secure or reliable.

Cloud-based systems are more secure, mobile-friendly, and easily auditable. Keep tabs on your investment with a cloud tool that lets you quickly review invoices and receipts. Cloud software is more secure: if a laptop is stolen, the data stays safe. A cannabis business can limit the actions an employee can take by deploying different user roles, and make sure that only certain people can enter cash flow transactions. Ask for transparency from a cannabis business to ensure that your money is being used as it should be.

Does the producer or extractor use a robust system of measurements?

Cannabis producers or extractors work with lots of raw material. The end product is like liquid gold: so throughout the process, it’s important to have controls in place to minimize waste. Ask to see evidence that the ratio of final product to raw material makes sense. Can the cannabis extractor/producer demonstrate tight production controls? Can they show the use of standardized measurements at multiple points throughout the process? Can they show that they have taken steps to safeguard against fraud? These are all things you can look for when at an onsite visit to a cannabis operation.

Have they done their due diligence on third-party vendors?

Make sure anyone you’re entering into a partnership with has cleared their third-party vendors. Cannabis businesses have lots of secondary partners  – from suppliers to distributors, it’s important to make sure these vendors are fully licensed and aboveboard. Ask a cannabis company for copies of their partners’ California cannabis permits, records of vendors’ physical addresses, contact names and numbers, and any mutual business references that can be checked. See that the cannabis company keeps vendor agreements with every partner on file.

Does the canna-business use a system of checks and balances?

Checks and balances can be as simple as separating staff roles for different accounting functions. Fraud is easy when one person handles all the bookkeeping functions: things such as processing customer payments, managing petty cash, keeping accounting records, or paying invoices. The cannabis business should have at least two people to manage these functions, and keep their accounting and cash handling separated. It’s also recommended that they also keep separate systems for inventory and manufacturing accounting.

Some companies might find it helpful to use a tool like Clover or Xero to keep an eye on their employees. Tools like Clover Payments Plus can give you as the investor better insight into things like cash in and cash out, sales, employee management and scheduling, and inventory tracking, and more.

Do they have up-to-date records?
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Keeping up-to-date records show that that the cannabis business is the real deal. Here are just a few things to ask for:

• Monthly trial balances
• Monthly profit/loss records
• Breakdown of sales and cost of goods sold per month
• A rationale/standardization for accounting cost of goods sold
• Sales returns and any price adjustments after sales
• Product warranties
• Invoices on sales orders (and accordingly, shipping documents)
• Insurance agreements, licenses, and permits
• Employee and vendor agreements

Depending on the unique cannabis operation, get specific on what other permits, records, and local licenses you need to see. Do they have municipal permits? Do they use a system of dual signatures to control cash flow? Does the cannabis company have the right insurance?
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If you have any questions, we’re here to help. Don’t hesitate to reach out to California Cannabis CPAs!

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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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So, you want to start a business in California’s booming cannabis industry. Now seems like the perfect time to get in on the ground floor: the market estimates that cannabis will bring an additional $5 billion to California each year. It would be nice to get a slice of that pie, no?
Before you dive in, take some time to learn about the different ways to structure your business in a way that will give you the biggest slice of the pie -- not the leftover sliver that’s all crust (unless crust is your thing). The way you setup your company can mean the difference between growth and success and burning out after a year in business. Ask these five tax questions when setting out to structure your canna-business!

1. What kind of legal entity do you want to be?
Historically, before California decided to have a fully regulated state system for medical marijuana, cannabis companies were set up as non-profits. Now, there are other options for structuring your business. Figuring out which model is right for you depends on many factors, including your role in the cannabis industry (i.e. grower, distributor, or partner); county and local regulations; and your projected growth. Here are some options available:

Nonprofit (allowed pre-2018):

• The California Cooperative Corporation: in this scenario, cooperatives will be able to operate both as for-profit and non-profit entities.

For profit (allowed in 2018):

• The B-Corporation: B-Corporations are now authorized at the state level in California. A B corporation is a benefit corporation, a for-profit with a certain score for social and environmental performance.
• ​​C-Corporation: a C-Corporation refers to a for-profit corporation that is taxed separately from its owners. In this scenario, your business will be taxed on its income at a corporate level, and then as the owner, you will be taxed on your personal return for any income received from your canna-business. If this double-taxation seems unfair, you’re not wrong; however, having C-Corporation status creates a firewall against any personal tax liability, lowering your personal risk.
• S-Corporation: an S-Corporation is another for-profit model, like the C-Corporation. The difference here is that the business doesn’t pay income taxes. Your canna-business’s income or loss is divided among your shareholders. Then, each shareholder must report the income or loss on their individual tax return. This puts the liability on each individual -- and can have big repercussions depending on how well your business succeeds.
  
  
  

There’s no one model fits all for your cannabusiness. Consult with a tax professional to learn about these options -- and others -- before incorporating.

2. What are your growth goals?
Do you plan to have multiple locations and holdings? Depending on how your business operates, you can structure to account for different levels of liability. If you have multiple corporate entities, for example, you can limit your liability within each one. Then if one of your locations is sued or forced to shut down, your other locations can continue to operate independently. Conversely, managing multiple corporate entities can be a logistical nightmare -- especially if you intend to grow big or go home. It is much more efficient to run all your branches under one corporate entity if you’re smart about handling your risk.

3. What are your investors looking for?
Investors will be interested in your company’s assets, inventory, cash receivables, and profit potential. They will want to see your business model in all its parts: trademarks, intellectual property, physical locations, and more. When you want to raise some serious capital -- going beyond your personal investment and a Kickstarter campaign -- the way you structure your company can impact an investor’s interest. For example, in a multi-entity structure with different locations and sub-companies, an investor can pick and choose which parts of your business they want to fund. Having a multi-entity structure can be very attractive if you’re shopping your canna-business around to people with low risk tolerance (and it widens your potential pool of funders). However, different ownership stakes can start to lead to conflicting interests for you as a manager. Having a seat at many tables with multiple influential voices can cause some real cross-company conflicts for you as a leader.

4. How should you structure compensation and benefits?
Cannabis tax regulations have two special rules. First: cannabis companies can deduct the cost of goods sold on their tax return. Second: cannabis companies cannot deduct any sales and marketing expenses. Ouch.
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What this means is that many traditional expenses can’t be claimed as decreed by tax law section 280E. Know the ins and outs of payroll tax, executive compensation, and healthcare benefits you’ll be accountable for as a business owner in the California cannabis industry. The best way to do that is to consult with a tax professional in your community.

5. What do you need to do to be compliant?
This is a big question -- and pretty broad at that. If you’ve made it this far, this step is the most crucial. Knowing what forms you need to fill out, what licenses you need, and how to best account for your expenses is what will make or break your business in the long run. California Cannabis CPA will be releasing more guides and checklists in the coming weeks to help you keep track of everything, but know that compliancy varies by district, county, and between the federal and state levels. If you’re going to have locations in different parts of California, do the research for each area you’re operating in. When in doubt -- pay your taxes! 

The local government of Cathedral City, CA has adopted several ordinances that define a set of regulations allowing certain Medical Cannabis Businesses to operate.  Anyone who would like to originate a Medical Cannabis Business within the City must obtain prior approval from the City before beginning operations.  Cathedral City issuing Conditional Use Permits for Dispensaries, Cultivation and Manufacturing.

Cathedral requires each Medical Cannabis Business to obtain a Medical Cannabis License and a Conditional Use Permit in addition to any other generally applicable permits, licenses or approvals that are required of businesses.  A separate Medical Cannabis License and Conditional Use Permit are required for each proposed location.  Prospective Medical Cannabis Businesses may submit applications for a Medical Cannabis License and a Conditional Use Permit at the same time, or may wait until after the Medical Cannabis License has issued to apply for a Conditional Use Permit.  A Conditional Use Permit cannot be issued until after the Medical Cannabis License has been approved.  A Medical Cannabis License must be renewed annually.

Follow these steps to obtain the required permits for a Medical Cannabis Business in Cathedral City, CA.

Step 1:  Determine an Acceptable Location for a Medical Cannabis Business

Step 2:  Complete the application process for a Medical Cannabis Business License in Cathedral City, CA.

Step 3:  Complete and Review the application process for a Medical Cannabis Business Conditional Use Permit (CUP) in Cathedral City, CA.

Step 4:  Complete Criminal History Check (Live Scan)

Prior to applying:

• Review the information and learn about the application process and which documents you will need. 
• Taking a good look at the entire application and ensure all the of required information is available. 

Step 1:  Determine an Acceptable Location for a Medical Cannabis Business
 
The application must include the address and a detailed description of the proposed Medical Cannabis Business location.  Dispensaries, Cultivation Sites and Manufacturing Sites are only being permitted in certain zones listed in Section 9.108.090 of the City Code.  Dispensaries may be located in the I-1, CBP-2, and PCC zones.  Cultivation Sites may be located in the I-1, CBP-2, PCC and OS zones.  Manufacturing Sites may be located in the I-1 zone.  Dispensaries, Cultivation Sites and Manufacturing Sites are subject to other locational restrictions, as stated in Section 9.108.090 of the City Code, including minimum distance requirements from schools, day-care centers and youth centers, residential zones, and East Palm Canyon Drive.  Any person who desires to open a Medical Cannabis Business in the City should ensure that the proposed location of the use satisfies the City’s locational restrictions in Section 9.108.090 prior to filing an application for either a Medical Cannabis License or a Conditional Use Permit.
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• Dispensaries are prohibited within 600 feet of a school, day care center, or youth center; or within 250 feet of East Palm Canyon Drive or a residential zone as defined by the City’s Zoning Ordinance and dispensaries are only allowed in the I-1 Light Industrial, CBP-2 Commercial Business Park District or the PCC Planned Community Commercial District zoning areas.
• Cultivation, transportation, distribution site facilities are prohibited 600 feet of a school, day care center or youth center, or within 250 feet of East Palm Canyon or 300 feet of a residential zone as defined by the City’s Zoning Ordinance and cultivation, transportation and distribution facilities are only allowed in the I-1 Light Industrial District, CBP-2 Commercial Business Park District, PCC Planned Community Commercial District or the OS Open Space zoning areas.
• Manufacturing Facilities are prohibited 600 feet of a school, day care center or youth center, or within 250 feet of East Palm Canyon or 300 feet of a residential zone as defined by the City’s Zoning Ordinance and are only allowed in the I-1 Light Industrial District, allowed in I-1 Light Industrial Zoning District and the CBP-2 Commercial Business Parks. 

City of Cathedral Zoning Map:  http://www.cathedralcity.gov/home/showdocument?id=5350

Step 2:  Complete and Review the Application Process for a Medical Cannabis Business License in Cathedral City, CA.

Medical Cannabis Business License Application

Completed applications need to be submitted in person at:

Cathedral City Community Development Department
68-700 Avenida Lalo Guerrero
Cathedral City, CA 92234

All applicants are required to complete the application form and submit two (2) copies.  A deposit in the amount of $7,500.00 is required along with the application and the following additional documentation: 

• Proof that the applicant is, or will be, entitled to the possession of the premises for which the application is submitted.  Acceptable evidence includes leases, rental agreements, recorded deeds evidencing ownership, and letters of intent.  If the Medical Cannabis Business is proposed to be located on real property that is not owned by the applicant, a notarized statement from the property owner that it agrees to a Medical Cannabis Business being operated on the property.  
• Documented ownership structure such as; articles of incorporation, by-laws, organizational minutes, articles of organization, and partnership agreements.  The City may accept other evidence as determined by the City Manager.
• A detailed description of the products and services to be provided by the Medical Cannabis Business.
• A floor plan, drawn to scale on no smaller than 8.5 x 11-inch paper providing, at a minimum, all interior dimensions of the premises and the layout of the proposed Medical Cannabis Business.  The floor plan must show which areas are limited access, all ingress and egress points, the principal uses of the floor area depicted, and the locations of security cameras.
• A security plan that addresses how the applicant intends to comply with and implement the requirements of Chapter 5.88.065 and other relevant provisions of the City Code and state law, including, but not limited to, a description of how the security measures are sufficient to ensure the safety of members and employees, protect he premises from diversion and theft, and ensure that buildings are secured sufficiently to prevent unauthorized entry.  The security plan shall include a diagram indicating all areas to be covered by 24-hour security cameras and the methods the Medical Cannabis Business will use to ensure medical cannabis is under secure control of its staff at all times.
• A employee list.  An updated employee list shall be provided to the City if there are any changes to the employee list at any time prior to the approval or denial of the Medical Cannabis License.
• If the application is for a Dispensary, an estimate of the size of the group of ID Card holders and/or Qualifying Patients who will be served by the Dispensary, and a statement as to whether delivery service will be provided.
• If delivery service will be provided, an explanation of the extent of such service and a detailed delivery plan explaining how the delivery service will comply with applicable Cathedral City ordinances and state law.
• If the application is for a Cultivation Site, a declaration that the applicant is an “agricultural employer,” as defined in the Alatorre-Zenovich-SunlapBerman Agricultural Labor Relations Act of 1975 (Labor Code section 1140.4(c)).  
• A map prepared and signed by a licensed land surveyor stating that the premises meets the distance requirements set forth in Section 9.108.090 of the City Code.  The distances shall be measured in the manner provided for in Section 9.108.090.  If the Business is proposed to be located within a multi-unit building, the measurements shall be taken from the nearest point of the suite in which the Business will be located, provided that the suite has been legally established and approved by the City prior to the submission of the application for the License.

The applicant will be notified in writing by the City Manager of the decision to approve or deny the Medical Cannabis License.  If approved the license will not be issued until the applicant posts a cash deposit or letter of credit in the amount of $5,000 as the security required by Section 5.88.040(I)(5) of the City Code.  The Medical Cannabis License will not be considered final, and no Conditional Use Permit may be issued, until this amount is posted.

Step 3:  Complete and Review the Application Process for a Medical Cannabis Business Conditional Use permit (CUP) City of Cathedral, CA.

Conditional Use Permit Application

Applicants may apply for the Conditional Use Permit CUP at the same time as the Medical Cannabis License or they can wait until the Medical Cannabis License is approved. The City will not schedule the Conditional Use Permit for a public hearing before the Planning Commission until a Medical Cannabis License has been approved by the City Manager and the appeal period has expired or all appeals have been exhausted.  The Conditional Use Permit application might require at least one site visit by City Planning staff and the potential need to revise submitted plans to ensure they comply with all applicable laws and regulations prior to scheduling of the hearing before the Planning Commission.

The CUP application form must be submitted to the City in person, along with the following documentation: 

• Proof that the applicant has received a Medical Cannabis License for the premises, or a statement the applicant has applied for a Medical Cannabis License concurrently with the Conditional Use Permit.
• Plans and specifications for the interior of the building as built and plans and specifications for any proposed alterations to the building, if the Medical Cannabis Business is proposed to occupy an existing building.
• A plot plan, detailed sketch of the interior of the premises, and an architect’s drawing of the building, if the Medical Cannabis Business is proposed to occupy new construction,
• For new construction, a site plan of the premises evidencing that the design of the premises conforms to City Code and design requirements. 
• For Cultivation Sites, verification of the source(s) of water for cultivation. 
• For Manufacturing Sites, A report from a Professional Engineer that details the type of equipment that will be used to extract cannabinoids from Medical Cannabis. If Flammable Gas, Flammable Liquefied Gas, Flammable and Combustible Liquids, or compressed carbon dioxide (CO2) are used for extraction, then the report must certify that only closed-loop extraction system(s), that are UL or ETL listed or have a sign off by a Professional Engineer, capable of recovering the solvent are utilized.
  • A separate diagram of any room where extraction occurs that details the location of the extraction equipment, areas of ingress and egress, emergency eye-wash station, any other fire suppression or emergency equipment required by Title 8 of the Cathedral City Municipal Code, City and California building codes, fire codes, electrical codes and all other applicable laws. 

Step 4:  Complete Criminal History Check (Live Scan)

Once an application has been submitted, applicants may contact the Police Department at (760) 770-0304 to schedule an appointment to start the LiveScan fingerprinting and the background check process.  The background check can begin after the application is submitted or after the City has completed the courtesy pre-screening or made a formal determination that the application is complete.  

At the time the application is submitted the City will provide the applicant with a Live Scan form for each person identified in the application as an owner, director, officer, or person who is managing or otherwise responsible for the activities of the proposed of the Medical Cannabis Business.  Live Scan forms will also be available on the City’s website.

Background checks consist of a two-step process:

Step 1:   Each individual associated with the application must be fingerprinted using Live Scan technology.  

• The individuals must personally appear at the Cathedral City Police Department and present a completed Request for Live Scan Service form and valid Driver’s License or Identification Card. 
• The City will not allow individuals to be Live Scanned at any location other than the Cathedral City Police Department. 
• A representative from the Cathedral City Police Department will scan the individual’s fingerprints and transmit them to the Department of Justice. 
• Individuals should schedule an appointment to be Live Scanned with the Cathedral City Police Department by calling (760) 770-0380.  The date and time stamped copy of the Medical Cannabis License application form returned to the applicant by the Planning Division must also be submitted to the Police Department. 

Step 2:  The background check shall generally consist of, but not be limited to:

• A review of each individual’s twenty (20) year residential history, a review of public records, a search to determine probation status, parole status, contacts with law enforcement; and
• An interview or interviews with the Background Investigator as appropriate. 

The Background Investigator will submit a full report to the Chief of Police upon completion of the background check.  The Background Investigator shall be tasked solely with providing factual information in his or her report in order to provide the Chief of Police with a sufficient factual basis to decide as to whether the application should be approved or denied.

Once the Chief of Police reviews the report from the Background Investigator they will make a recommendation as to whether the criminal history of one or more of the individuals indicates that Good Cause exists to deny the application. The Chief of Police’s recommendation shall be issued in writing within ten (10) calendar days of his receipt of the report from the Background Investigator and shall include an explanation as to the Chief of Police’s reasoning in making the recommendation, including the analysis bridging the facts to the ultimate conclusions.   

Currently, the City of Desert Hot Springs is accepting applications for temporary marijuana facilities.  These temporary options allow facilities in the City Desert Hot Springs to begin operation while the state develops the appropriate regulations for  Proposition 64 (Prop 64), the “Control, Regulate and Tax Adult Use of Marijuana Act”. 

Proposition 64 was designed to reshape the use and taxes of marijuana in the state including designating specific agencies to regulate and licenses of the marijuana industry in California.  As the state works to create licensing procedures that meet the new law by January 1, 2018, cities like Desert Hot Springs have decided to implement temporary processes to cover businesses in the interim. 

Anyone interested in submitting a temporary marijuana facility application must go through the process outlined below:

Step 1:  Select A Temporary Facility Option

Step 2:  Obtain Appropriate Permits

Step 3:  Submit Application to Initiate the Approval Process

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Step 1: Select A Temporary Facility Option

The City of Desert Hot Springs is offering three options for temporary marijuana facilities.  Marijuana businesses must determine the best temporary option based on business needs.  Below are three options outlined by the City:

• Option 1: Conditional Use Permit (CUP): This option works for marijuana businesses that do not have a facility. Under this option the City allows the marijuana business to submit an “Amendment (pursuant to the Desert Hot Springs Municipal Code) to an existing Conditional Use Permit” to add a “Temporary Interim Phase”.  This phase allows for the construction of “temporary medical marijuana facilities”.  During this phase approved businesses will be issued a Temporary Certificate of Occupancy and Temporary Regulatory Permit by the City. 

 

• Option 2: Minor Modification Permit: This option works for marijuana businesses who already have been approved for construction but need to make changes to the existing project.   Marijuana business can “construct a portion of the already approved project” under an existing CUP.  The marijuana business should submit an application for Minor Modification to the CUP.  This will allow the construction of a portion of an already approved project under the existing CUP.  If approved the City will issue a Temporary Certificate of Occupancy and Temporary Regulatory Permit.

 

• Option 3:  Temporary Permit for Approval: This option offers a place for cultivation and manufacturing while the rest of the project is under construction.  According to the City of Desert Hot Springs, the marijuana business “may submit an application for a Temporary Permit to the approved Conditional Use Permit (pursuant to the Desert Hot Springs Municipal Code Chapter 17.136) to allow 1 (One) Administrative Trailer and 1(One) Shipping Container that may be used for Temporary Indoor Cultivation, to allow the issuance of a Temporary Certificate of Occupancy and Temporary Regulatory Permit while the rest of the project is under construction.”

Step 2:  Obtain Appropriate Permits 

All marijuana businesses must complete the Marijuana Facility Regulatory Permit application.  Marijuana businesses who want to open prior to the state issuing permits will be required to complete a Conditional Use Permit application.  This permit covers each of the three options for temporary facilities outlined by the City.  Each option has its own requirements, process and fees for a temporary facility approval.

The City encourages that businesses seeking temporary facilities meet with the Community Development Director in advance of submitting an application.  To schedule an appointment, contact Daniel Porras at (760) 329-6411 or dporras@cityofdhs.org.  

Step 3:  Submit Application to Initiate the Approval Process

Each option has its own application process.  Since each permit is temporary, the City is requiring that progress is shown on the project once Temporary Certificate of Occupancy has been issued. This progress can be demonstrated by documentation from the developer to the Community Development Director at the City.  The Temporary Certificate of Occupancy will become void in 180 days if the project fails to show progress.

All fess must be paid in advance.  

Option 1:  Conditional Use Permit

To obtain a temporary permit under Option 1, a “noticed” hearing is required with the City’s Planning Commission.  The Planning Commission will decide on issuing the temporary permit and the following will be issued upon approval: 1) Temporary Interim Phase; 2) Temporary Certificate of Occupancy; and 3) Temporary Regulatory Permit. 

The following information should be included in the application:

• Approval from utility agencies for permanent and temporary services
• Easy access for the City of Desert Hot Springs Police and Fire Department (turnaround areas, etc.)
• A waste disposal plan
• Building ability to meet Police and Fire Department Codes for all site and structures
• Any temporary structures must meet all City Building and Safety (structural, HVAC, plumbing, etc.).
• Security plan (with fencing, cameras, security, etc.)

Application fee:  $3,725

Application Approval Timeline:  Contact City Staff

Option 2: Minor Modification Permit

Minor Modification permits require that the marijuana business have City Staff review and approve the permit prior to making the modifications.  Applications should include the following information:

• The information physical structure including: exact location, size, shape and color. 
• A plan for public improvements must be completed prior to issuance of the Temporary Certificate of Occupancy.
• Storm water and drainage plan
• The property must contain proper access for Police and Fire Department with proper access to site, entry, and turn-around areas.
• The temporary facility (proposed portion of construction) must meet all code requirements for occupancy (structural, HVAC, plumbing, etc.).
• A site security plan with fencing, cameras and guards

Application fee:  $245

Application Approval Timeline:  2-3 weeks

Option 3:  Temporary Permit to the Conditional Use Permit

Temporary Permit to the Conditional Use Permits will only be issued for cultivation and manufacturing. 

Under Option 3, marijuana businesses can a request an extension on temporary facilities.  They must make this request 30 days prior to their 180-day permit’s expiration and it must be in sent to the Community Development Director in writing.  If the permit expires, the business must remove the additional structures within 30 days.

The temporary structure must include the following outlined by the City:

• A minimum 4 Parking Spaces with 1 space designated as ADA Van accessible.
• All requirements for National Pollutant Discharge Elimination System (NPDES) and Storm Water On-site Retention apply to the temporary phase.
• All Building and Safety Codes must be met for Temporary Facilities Structures and for Temporary Certificate of Occupancy (structural, HVAC, plumbing, etc.) 1
• Corresponding utility agencies must approve the proposed temporary utility services for the Temporary Facilities Structures(s). • All corresponding permitting and associated fees for proposed temporary utilities must be completed.
• The Applicant/Developer/Contractor shall comply with section 8.08 Recycling and Diversion of Waste from Construction and Demolition of the Municipal Code and file a Plan with the City’s Building Department prior to the start of any construction
• Provide paved access for Police and Fire Department with property access to site, entry and turnaround areas. • All Police and Fire Department Codes must be met (1) for the site, and (2) for the Temporary Facilities Structure(s). • Site must be secured (with fencing, cameras, security, etc.) pursuant to all Conditional Use Permit approvals. • Adequate lighting must be provided for the entire temporary site.
•  Any proposed signs shall be reviewed under separate permit under the Sign Ordinance.
• A site plan showing all improvements proposed with the Temporary Use Permit shall be submitted with the application. 

The City requires additional plans required for this type of temporary permit.  Those requirements include: Grading Plan showing temporary improvements; Hydrology Report and Soils Report.  They also require the following plans:

• Storm Water Pollution Prevention

• Water Quality Management
• PM 10 Dust Mitigation
• Lighting
• Security Camera
• Landscape 

Application fee: $7,986 plus $40,000 cash deposit (returned up project completion or when site is returned to original condition)

Application Approval Timeline:  3-6 weeks

Obtaining a Cannabis license or permit can be an arduous process.  Often times, applicants experience difficulty navigating the complex licensing bodies and local requirements. While each jurisdiction is different, many share similar elements in their Cannabis business applications.  In general, communities want to see applications from businesses that stand out but complement their local culture. Here are best practices for a strong Cannabis business application:

1.Understand the Selection Process

2.Get Local

3.Know Your Business

4.Capital Needs

5.Follow Directions

 
1. Understand the Selection Process:

Cannabis businesses are awarded licenses or permits based on their applications.  Each municipality takes a different approach to their application process.  Some may have a cap on the number of permits issued, others may not.  Some cities use a scoring process to evaluate applicants, while other communities take a less traditional routes in their selection process. 
 
Scoring Process
Most communities use scoring for the selection process and list the requirements online.  Certain areas are weighted more heavily than others.  For example, the City of Hollister uses scoring for their applications.  The Security Plan and Proposed Development Agreement have the highest value on their application.  Since their values rank the highest in scoring, it is important to focus developing a strong plan in these areas of the application.  Engaging local security firms and real estate businesses may strengthen an application-as they may have knowledge of local requirements for Cannabis businesses. 
 
Diversity
Some Cannabis licensing bodies offer preferences to businesses led by certain groups.  Preference may be given to women, veterans and minorities to promote diversity in the industry. There have been concerns about the industry’s inclusion for these groups.  Cities like Sacramento are considering reserving up to 40% of the city’s Cannabis permits for minorities to address the disparities.   
 
Convicted felons and persons experiencing economic hardship may be able to apply for permits in some areas.  Communities like the City of Oakland have opened up the permit application process to include individuals convicted of drug related offenses.  Usually people with felony drug convictions are prohibited from participating in any aspect of a Cannabis business and/or application. Socio-economics have traditionally played a role in a person’s ability pay the application fee. Oakland’s Equity Program  offers application fee waivers to residents making less than 80% of the city’s medium adjusted income.    
 
2. Get Local:

A strong application is great when applying for a license, but relationships will help take the application to the next level.  Like any business moving into a new community, it is important that the business builds community rapport.  This is especially important with a Cannabis business which carries a lot of misconceptions.  Although the reputation of our businesses has improved over the years, it can still be very controversial for some communities. 
 
Safety and Economics
It is imperative that people understand the benefit having a Cannabis business in their community.  Emphasize how Cannabis businesses bring economic prosperity to many communities through taxes and employment opportunities for locals.  When possible, create business partnerships with well known local business to show the community your level of investment. 
Security can be an issue for many critics of Cannabis businesses in their communities. Share your plans to ensure a safe climate for your business and the surrounding community.  Ask for feedback as during the planning process.  Let the community know that safety is a priority of the business.
 
Community Image
It is a good practice to ensure that someone is identified as the face of the organization as the Cannabis business team is put together.  This person should be personable, possess great networking skills and an ability to represent the business well.  Having them join local advisory boards and attend municipal meetings is highly recommended.  They also need to identify the key players and decision makers involved with the application process and they should also find someone in the community to serve as an informal “advisor”.
 
3. Know Your Business: 

A strong business plan and leadership team will be a tremendous asset in the application process. 
 
Strong Business Plan
A strong business plan is an excellent roadmap for the application process.  A strong business plan possesses a healthy and realistic financial forecast as well as a SWOT (Strengths, Weakness, Opportunities, and Threats) analysis.  A business’s ability to plan for the future can help ensure sustainability.
 
Team – Human Capital
Hiring the best people in the field is ideal for the application process. The ability to article the team’s experience in their industry is important.  For example, a grower with experience and is known for specific strains in the industry leads credibility to your products.  As does a chief financial officer who has worked successfully with multiple Cannabis business.
 
4. Capital Needs: 

Having capital on hand is important in any business, especially in the Cannabis industry.  Some cities are requiring proof of liquid funds in excess of $500,000 to consider a license application.  Understanding your business’ capital needs and demonstrating your ability to cover those costs is critical to success in the licensing process.      

Compensation
Businesses should have a plan in place to offer competitive compensation for team members. Many startup companies may not have the capacity to pay top dollar, but business equity also can be an incentive for major talent depending on your business plan.

Cash Flow
Applications should show that the business has enough cash flow especially in the initial stages.  Cultivation and manufacturing can bring the greatest initial costs to the business and licensing bodies want to ensure that if a business comes to their community, the business will survive.

5. Follow Directions: 

​Government applications can be very convoluted.  Often times this is used as a qualifying process and other times it is simply a product of bureaucracy.  Whatever the reason, applicants must follow directions.  Some communities like the city of San Francisco require applicants to obtain referrals from the Fire Marshal, Planning Department and the Mayor’s Office as part of their application process.  Applicants may not understand the importance of these referrals; however, since the city requires them, it is important that applicant complete this process. Relationships with community stakeholders may shed some light on the application instructions. 

Remember that each community is different and will offer varying support in the application process.  Communities like Desert Hot Springs, encourages applicants to meet with a city official prior to submitting an application.  These meetings can offer insight on their application process and as well as clarity to confusing aspects of the application. 

There are communities that offer checklists like the City of Humboldt.  Checklists are a great way to keep track of the application requirements and activities.  In the event that a city does not provide an application checklist, applicants can create their own checklists based on the application and process outlined by the city.  Checklists are a way for businesses to ensure that they are following the directions.  They can also assist in creating a work plan to complete an application process.

​Currently the city of Coalinga, CA is accepting applications to obtain a permit for cultivation, processing, extraction, manufacturing, testing, and distribution activities with an approved Conditional Use Permit (CUP) and Regulatory Permit within areas of the City zoned Manufacturing and Business Light (MBL). 

Anyone interested in operating a Commercial Cannabis business within the City of Coalinga must obtain the following:

Step 1:  Attend Mandatory Pre-Application Meeting

Step 2:  Identify Property Zoned Location Suitable for Commercial Cannabis Activity

Step 3:  Submit Regulatory Permit Application Packet Requirements

Obtaining a Commercial Cannabis Permit is a dual submittal process. Application documents must be filed with both the Police Chief and Community Development Department.

Cannabis Permit Processing Matrix

Step 1:  Attend Mandatory Pre-Application Meeting

There is a prerequisite of scheduling a mandatory pre-application meeting prior to the submission of an official application package for a Commercial Cannabis Permit.  All prospective applicants must schedule a pre-application meeting with the City of Coalinga by contacting Amy Martinez, Community Development Secretary at 559-935-1533 x141. The purpose of the pre-application meeting is to provide a comprehensive review of the application process, the application content, and the expectations of the City as it relates to permitting requirements such as the security plan, floor plan, cannabis operational characteristics, employee permits, licensing fees and taxes, monitoring and compliance, legal documents, etc.

Step 2:  Identify Property Zoned Location Suitable for Commercial Cannabis Activity

According to the City of Coalinga’s Commercial Marijuana Operations Ordinance, all licensed Commercial Marijuana Operations are permitted within the Manufacturing and Business Light Zoning Designations (MBL). Also, in the ordinance is a restriction of 1,800 feet from any currently sited and future sited school (K-12). For more information regarding school siting you can view the attached map that identified locations in town outside that restriction.
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The following applications for land use will need to be submitted:

• Environmental Review Application
• Site Plan Review Application
• Conditional Use Permit Application

Additional information on fees and regulations can be found at the following links:
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• MBL Regulations
• Additional Use and Development Regulations
• Planning and Development Fees
• SMO Design Guidelines
• Coalinga Zoning Map

Lands Zoned for Cannabis Operations:

​Step 3:  Submit Regulatory Permit Application Packet Requirements

It is of utmost important to the City of Coalinga City Council to regulate the commercial cannabis industry in a manner which takes into consideration the needs of patients and their caregivers while promoting the health, safety and welfare of residents and businesses. It is the responsibility of the Community Development Department and the Police Department to implement the City’s Commercial Cannabis Ordinance (No. 797) and the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), which was signed into law on June 25, 2017 by the Governor which created a licensing and regulatory framework for both adult use and medicinal cannabis.

At this time, the City of Coalinga is accepting permit applications for commercial cannabis cultivation (indoor), manufacturing (volatile/non-volatile, testing, distribution and wholesale nurseries, in accordance with the standards of the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) and the City’s adopted Commercial Marijuana Operations (CMO) Regulations (Ordinance No. 797). The City’s ordinance does not allow for the licensing of retailers at this time. 

There is an application fee of $2,000.00 and an employee fee(s) of $400.00 per employee that is due when submitting an official application.

The Police Chief will review the entire application package once a completed package along with receipt of paid application fees have been received.  The Police Chief will issue a recommendation to the City Council to approve/deny the regulatory permit in accordance with Section 95.128.
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• The Police Chief may request such information he or she deems necessary to seek verification of the information contained within the application including but not limited to background checks.
• The applicant shall certify under penalty of perjury that all of the information contained in the application is true and correct.
• If the applicant has completed the application improperly, or if the application is incomplete, the Police Chief shall, within thirty (30) days of receipt of the original application, notify the applicant of such fact. 
• The fact that an applicant possesses other types of State or City permits or licenses does not exempt the applicant from the requirement of completing the City of Coalinga’s Commercial Cannabis Regulatory Permit Application.  

There are several Regulatory Permit Application Requirements:   Application Checklist
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• Cannabis Permit Application Form
• Employee Permit Application (New Facility)
• Employee permit Application (Existing Facility)
• Acknowledgement Form
• Indemnification Agreement
• Application Fees and Tax Overview
• Coalinga Business License Tax Worksheet
• Coalinga Business License Application
• Insurance Requirements
• Bond Form
• Live Scan Form (Example)
• Live Scan Form

Please contact Sean Brewer, Community Development Director with any questions at 559-935-1533 x 141 or sbrewer@coalinga.com.

Beginning January 1, 2018, the state of California’s marijuana tax laws will change for distributors, cultivators, manufacturers and retailers of marijuana and cannabis products.   

The information outlines the process for collecting, paying and filing taxes under the new laws:

Step 1: Secure Permits and Licenses

Step 2: Register with California Department of Tax and Fee Administration (CDTFA)

Step 3: Collect and/or Pay Taxes

Step 4:  File Taxes

Background:

On November 8, 2016 voters in California approved Proposition 64 (Prop 64), the “Control, Regulate and Tax Adult Use of Marijuana Act”.  This proposition was designed to reshape the use and taxation of marijuana in the state in a number of ways including designating specific agencies to regulate and licenses of the marijuana industry in California.  Prop 64 also impacts the collection and payment of taxes for the following marijuana business groups defined below:

• Distributors: produces, sells and/or transports marijuana between licensed marijuana businesses such as cultivators, manufacturers or retailers
• Cultivators:  engages in the business of planting, growing, harvesting, drying, curing, grading or trimming marijuana
• Manufacturers:  produces or prepares cannabis products at a fixed location that packages or repackages marijuana or cannabis products or labels or relabels its container
• Retailer (Dispensary):  sells marijuana or cannabis products directly to consumers

Step 1: Secure Permits and Licenses

• Local permits and/or licenses: All marijuana distributors, cultivators, manufacturers and retailers must contact the local jurisdiction in which they plan to operate their business and apply for the appropriate permits and/or licenses.  Each city and/or jurisdiction has their own process.  It is important for distributors to secure the local permit by following their process and paying any applicable fees.
• State Licenses:  All marijuana distributors, cultivators, manufacturers and retailers must contact the appropriate state agency (listed below) to secure the appropriate license/permit for their business.  

Under the new state law, marijuana businesses will be required to obtain licenses from the state agency listed above.  The Bureau of Cannabis Control (BCC) is the agency developing regulations for medicinal marijuana use and those regulations should be available November 2017.  Marijuana businesses are highly encouraged to apply for a temporary license from the BCC as soon as the regulations are available.  The BCC will also issue temporary licenses which be effective January 1, 2018.  In order to secure a temporary license through the BCC, a business must have authorization from a local government (city and/or county) to run a marijuana business in their local community.  Temporary licenses will be good for 120 days from the date of issuance.

This proposition imposes specific marijuana excise and cultivation taxes.  Prop 64 was later amended by Senate Bill 94 (SB 94) which repealed the Medical Cannabis Regulation and Marijuana Safety Act (MCRSA) while defining the payment and collection of taxes.  Below is the breakdown of tax collection and payment between distributors, cultivators, manufacturers and retailers:

Step 2: Register with California Department of Tax and Fee Administration (CDTFA):  All marijuana distributors, cultivators, manufacturers and retailers are required to register with the CDTFA for seller’s and tax permits.  Seller’s and tax permits are different and require that businesses apply for separate permits.  Below is information that will be required for businesses to provide when registering with the CDTFA:

• Business Information (name, contact information)
• Federal and state tax identification numbers
• North American Industry Classification Number (NAICS)

The NAICS number for most medicinal marijuana businesses is classified the same as pharmacies and drug stores therefore the code is 44610.  Manufacturers may fall under a different NAICS code, depending on their business activities.  The manufacturer section offers additional business code information on their NAICS classification.  

Distributor: Marijuana distributors must collect the following taxes: cultivation, excise and sales from the cultivators, manufacturers and retailers. 

• Cultivation Tax Collection:  Distributors must collect cultivation taxes from retailer, manufacturers and/or cultivators from which they receive any marijuana and/or cannabis products.  The process for the cultivation tax is different for the cultivator and manufacturer. They are applied the following ways:
  • Cultivator: The cultivation tax is collected when the product is “harvested” and “entering the commercial market” after it has met all quality assurance and testing standards
  • Manufacturer:  The cultivation tax is collected when the product is first “sold or transferred” to the distributor for quality assurance, inspection and testing
  • There are two cultivation tax rates: 
    • $9.25 per dry-weight once of cannabis flowers
    • $2.75 per dry-weight ounce of cannabis leaves  
  • Please note that cultivation tax rate may change. Beginning January 1, 2020, the CDTFA will be required to annually adjust the cultivation tax rate based on inflation.
• Documentation like a receipt or invoice with the following information must be provided for these transactions.  The information below should be included:
  • Licensee receiving the product
  • Cultivator where the product originates with the product identifier number
  • Amount of cultivation tax

 

• Excise Tax Collection:  Distributors are required collect excise taxes from retailers that they supply (sell and/or transport) with marijuana or cannabis products.
  • The excise tax must be collected within 90 days of the sale or transfer of marijuana or cannabis products in an arm’s length transaction.  The state of California defines an arm’s length transaction as a sale “that reflects the fair market price in the open market between two informed and willing parties”.  If the sale is “no arm’s length” the taxes must be collected from the retailer on or before 90 days after the sale or transfer of marijuana or cannabis product to the retailer or at the time of the retail sale by the cannabis retailer, which ever is earlier.   from the retailer on or before 90 days after the sale or transfer of cannabis or cannabis product to the retailer, or at the time of the retail sale by the cannabis retailer, whichever is earlier.from the retailer on or before 90 days after the sale or transfer of cannabis or cannabis product to the retailer, or at the time of the retail sale by the cannabis retailer, whichever is earlier.from the retailer on or before 90 days after the sale or transfer of cannabis or cannabis product to the retailer, or at the time of the retail sale by the cannabis retailer, whichever is earlier.the retailer on or before 90 days after the sale or transfer of cannabis or cannabis product to the retailer, or at the time of the retail sale by the cannabis retailer, whichever is earlier.from the retailer on or before 90 days after the sale or transfer of cannabis or cannabis product to the retailer, or at the time of the retail sale by the cannabis retailer, whichever is earlier.
  • Like with the cultivation tax, distributors must provide documentation like a receipt or invoice with the following information must be provided:
    • Licensee receiving the product
    • Cultivator where the product originates with the product identifier number
    • Amount of cultivation tax

 

• Sales Tax Collection: Distributors are responsible for transporting marijuana and cannabis products between cannabis businesses and are responsible for filing returns and reports with the CDTFA. 
  • The customer (ex: retailer) must provide the marijuana distributor with a valid and “timely” resale certificate whether sales are subject to tax or not.  The resale document supports the sales for the resale.  If the resale document is not provided all sales are assumed to be taxable and will be taxed.  The California State Board of Equalization (BOE) offers additional information on “sales for resale” in Publication 103.
  • Distributors are not subject to sales tax when transporting marijuana or cannabis products from cultivators or manufacturers that the retailers contract with directly.
  • It is important that all marijuana or cannabis products sales or transportation by the distributor is recorded through invoice or receipt.  This will assist the distributor in filing their returns. 

 

• Additional Tax Collection Information: 
  • Any purchases of product that distributors make that will be resold are not subject to sales or use tax as long as they provide the seller with a “valid” and “timely” resale certificate.  Distributors essentially take on the role of retailers in this transaction. 

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All business equipment and supplies (computers, signage, etc.) are generally subject to sales tax.  Most retailers will collect the tax at the time of purchase.  If the distributor is not taxed but the seller of the equipment, they should include the purchase on the “Purchases Subject to Use” tax on the “sales and use tax return”.  Supplies like wrapping for marijuana and cannabis products (ex: bags) may fall under resale.  The Tax and Fees section of the BOE offers additional information on use tax.

Cultivator: The cultivator must pay the manufacturer and distributor a cultivation tax.    

• Sales:  Cannabis Cultivators are subject to the cannabis cultivation tax when they sell to a distributor, manufacturer or retailer.  There are two cultivation tax rates: 
  • $9.25 per dry-weight once of cannabis flowers
  • $2.75 per dry-weight ounce of cannabis leaves 

Please note that cultivation tax rate may change. Beginning January 1, 2020, the CDTFA will be required to annually adjust the cultivation tax rate based on inflation.

The cannabis distributor, manufacturer and retailer must provide the cannabis cultivator with a “timely” and “valid” resale certificate.  If a resale certificate is not provided a sales tax will be applied to the sale and the cannabis cultivator must report and pay tax to CDTFA.  The California State Board of Equalization (BOE) offers additional information on sale for resale in Publication 103. 

• Purchases:  Most purchases made by cannabis cultivators will be subject to a sale or use tax.  There some cases when some supplies and products may not be taxable or may qualify for a partial tax exemption.
  • Use or Sales Tax Items: General cannabis cultivation business items (ex: computers, gloves, pesticides) will be subject to a sale or use tax at the time of purchase.  Vendors are responsible for collecting the taxes on these items. Out-of-state vendors may not apply the California state tax. In this situation the cannabis cultivator is responsible for reporting and paying the sales or use tax when they file their return with the CDTFA. 
  • Partially Exempt Use or Sales Tax Items:
    • Farming Equipment and Machinery:  Cannabis cultivators may qualify for a partial exemption rate available through the state general fund.  The current rate is 5% meaning that if the tax is 7% the partial rate is subtracted from the tax so the taxes paid by the cultivator will be 2%.  To qualify for this partial exemption, the following requirements must be met: Sold to a qualified person.
      • Sold to a qualified person
      • Used exclusively or primarily (50 percent or more of the time) for producing or harvesting agricultural products
      • Defined as farm equipment or machinery including but not limited to appliance, device or apparatus used in agricultural operations

The following are examples of items considered cannabis cultivator farm equipment and machinery:
​

• Plant equipment
• Trimming tools
• Drying racks and trays
• Hydroponic equipment

Cannabis cultivators who qualify for partial farm equipment exemptions may also qualify for partial exemption on solar power equipment.  The state issued a special notice on solar power farm equipment offering additional details. 

• Buildings:  Facilities, like greenhouses, specifically designed for and exclusively use for commercially raising plants may qualify for a partial exemption. Vendors should provide the cannabis cultivator with a partial exemption certificate.
• Diesel Fuel:  Diesel fuel used to prepare land for planting, protecting, harvesting and/or growing crops may also qualify for a partial exemption.  According to the state of California, to qualify for this exemption the fuel must be used “in carrying on a trade or business of farming; on a farm in California; and for farming purposes, by the owner, tenant, or operator of the farm.”
• Exempt Items:  The following items are exempt from use and sales taxes:
  • Seeds, plants and clones:  Seeds, plants and clones grown to be resold as part of the cannabis business do not have an applicable sales and use tax
  • Fertilizers: Fertilizers used to produce cannabis products.
  • Liquid Petroleum Gas (LPG): LPG used for commercial cannabis crop production or harvest.  The seller should provide the cannabis cultivator with an LPG exemption certificate.  

Manufacturer: The manufacturer must collect taxes from the cultivator and must pay the distributor a cultivation tax. 

• Cultivation Tax Collection and Payment:   Cannabis manufacturers are required to collect the cannabis cultivation tax from cultivators when the “unprocessed cannabis is first sold or transferred” to the manufacturer.  Manufacturers are then required to pay the cultivation tax collected from the cultivator to the distributor when products are transported for distribution.  There are two cultivation tax rates: 
  • $9.25 per dry-weight once of cannabis flowers
  • $2.75 per dry-weight ounce of cannabis leaves 

Please note that cultivation tax rate may change. Beginning January 1, 2020, the CDTFA will be required to annually adjust the cultivation tax rate based on inflation.
Documentation like a receipt or invoice with the following information must be provided for these transactions.  The information below should be included:

• Licensee receiving the product
• Cultivator where the product originates with the product identifier number
• Amount of cultivation tax

 

• Purchases:
  • When manufacturers purchase a product that will be resold they can purchase it without paying sales and use tax by providing seller with a valid resale certificate.  Sales tax apply if the product is sold at retail. Products consumed or used by the manufacturer will be taxed based upon the amount of the purchase price.  According to the CDTFA, “use tax rate is the same as the sales tax rate in effect at the location of use”.  They can be reported as a “purchase subject to use” when the tax return is filed.
  • Products (signs, display cards, scales, computers) for your business are subject to sales tax at time of purchase.  Out of state purchases, not taxed must be included on “Purchases Subject to Use Tax” and are subject to tax.  Wrapping and packing supplies may be purchased for resale and therefore may not be subject use tax.
  • Manufacturing and Research and Development Partial Exemption:  Manufacturers may qualify for partial exemption of sales and use tax on certain manufacturing and research development equipment purchases and leases.  The state outlined the following requirements:
    • Be engaged in certain types of businesses, “qualified person”.  A qualified person is primarily engaged (50% or more of their time) in business activities that fall under NAICS codes “3111 to 3399, inclusive 54711, or 541712”.
    • Purchase “qualified tangible personal property” as outlined below:
      • Machinery and equipment, including component parts and contrivances such as belts, shafts, moving parts, and operating structures
      • Equipment or devices used or required to operate, control, regulate, or maintain the machinery, including, but not limited to, computers, data-processing equipment, and computer software, together with all repair and replacement parts with a useful life of one or more years, whether purchased separately or in conjunction with a complete machine and regardless of whether the machine or component parts are assembled by the qualified person or another party.
      • Tangible personal property used in pollution control that meets standards established by this state or any local or regional governmental agency within this state.
      • Special purpose buildings and foundations used as an integral part of the manufacturing, processing, refining, fabricating, or recycling process, or that constitute a research or storage facility used during those processes. Buildings used solely for warehousing purposes after completion of those processes are not included.
    • Use the property in a qualified manner which includes the following 50% or more of the time:
      • Any stage of the manufacturing, processing, refining, fabricating, or recycling process
      • Research and development
      • To maintain, repair, measure, or test any qualified tangible personal property described by the above, or
      • For use by a contractor purchasing that property for use in the performance of a construction contract for a qualified person, provided that the qualified person will use the resulting improvement to real property as an integral part of the manufacturing, processing, refining, fabricating, or recycling process or as a research or storage facility for use in connection with those processes.

Retailer: The retailer charges and collects sales tax on “taxable retail sales” marijuana and cannabis products as well as other products.  They are also required to collect cannabis excise tax from customers and pay this tax to the distributor.

Sales: 

• Beginning January 1, 2018 all marijuana and cannabis products (including medicinal) will be subject to an excise tax of 15 percent.  The excise tax is collected from customers and paid to distributors.  Retailer must collect the excise tax at the time of purchase.  Below is a list of products included in the excise tax:
  • Balms
  • Buds and flowers
  • Capsules
  • Edibles (cookies, butters, honey, chocolates, candies, soda, bars)
  • Extracts
  • Gum
  • Hash
  • Infused feminine hygiene products
  • Lotions
  • Oils
  • Plants and clones
  • Pre-rolls
  • Teas
  • Tinctures
  • Tonics
  • Topicals
  • Waxes
• Cannabis accessories are not subject to the excise tax
• The excise tax applies to the average market price which is determined by the type of transaction between the retailer and seller (cultivator, manufacturer or distributor).  Those transactions are:
  • Arm’s length, when the “average retail price is determined by the wholesale cost of the cannabis or cannabis product sold or transferred to the cannabis retailer, plus mark-up”.  Marijuana businesses will be notified when the mark-up rate is set.  The set rate will be posted on the BOE’s Special Taxes and Fees Rate Page. 
  • Non-arm’s length, the average market price means the “cannabis retailer’s gross receipts from retail sale of the cannabis or cannabis products.    
• Customers with valid Medical Marijuana Identification cards (MMI) and government issued identification (ID) are exempt from sales tax
• Retailers are not required to collect sales taxes from their customers but they must report and pay sales taxes to CDTFA.  If retailers choose to include sales tax in their product price, they must post visible signage explaining this to the customer. Otherwise, the sales tax will be on the sale’s price and added to the receipt.  

Exemptions: Effective November 9, 2016 certain sales of medicinal marijuana are exempt from sales and use tax as defined by the Business and Professions code. Some items included are: medical cannabis, medicinal cannabis concentrate, edible medicinal cannabis products or topical cannabis.

Customer must provide their MMI and ID at the time of purchase.  Retailers must keep an electronic or paper record of the following information for exempt transactions:

• A valid nine-digit MMI number with expiration date (visit the CDPH website to validate MMI numbers)
• Sales invoice or other original record of sale

Retailers should not collect sales tax on these purchases and should claim a deduction on sales and use tax return for exempt medicinal marijuana and cannabis products sales. 

Purchases:  Purchases made on products that will be resold can be made without paying sales or use tax.  Retailers must provide the seller a “valid” and “timely” resale certificate. Out-of-state vendors may not apply the California state tax. In this situation the cannabis retailer is responsible for reporting and paying the sales or use tax when they file their return with the CDTFA. 

Items for use in a retail business like signage, scales, and computers are subject to sales tax at the time of purchase. Packaging and other supplies may be purchased for resale without paying sales tax.  

Step 4:  File Taxes:  All marijuana business owners must register for a seller’s permit and file sales and use tax returns.  Distributors of marijuana and cannabis products must register for a cannabis tax permit and file tax returns regularly. 

• Registration:  Marijuana businesses can create an online profile to file and manage their taxes and update any business information.  Electronic payments can be made through the online system as well.  Businesses paying with cash can file for an exemption to the “No Cash” policy.  This exemption requires business owners to explain their financial situation and their lack of a bank account and access to other payment options.
• Documentation:  Record keeping is an extremely important component of the tax process.  All marijuana businesses are required by law to keep accurate business records which helps determine the amount taxes due.  Records should be kept on all purchases and sales transactions to assist in preparation of tax filing.  The state requires that distributors retain all records for at least four years.  The state suggests the following as options for record keeping:
  • Sales invoices
  • Cash register tapes
  • Sales journals
  • Resale certificates
  • Shipping documents
  • Purchase invoices
  • Bank records
  • Purchase orders
  • Purchase journals
  • Tax returns
• Sales invoices and receipts should include the following information:
  • Location of transportation
  • Cost to purchaser (include any discounts)
  • Kind, quantity, size and capacity of package of marijuana and/or cannabis products sold
  • Name and address of purchaser
  • Name and address of seller

As of November 9, 2016, certain retail transactions will be exempt from the sales and use tax.  The BOE lists examples and the process for recording tax exempt transactions in a “Special Notice”.

Currently, the City of Arcata, CA is accepting applications to obtain a permit for Commercial Cannabis Activity permit (CCAP).  This application process began April 1, 2016.

Anyone interested in a medical cannabis business within the City must go through the process outlined below:

Step 1: Identify Permit Type

Step 2: Gather Application Information

Step 3: Write Operational and Logistical Plans

Step 4: Submit Application to Initiate the Approval Process

Step 1: Identify Permit Type: 

There are eight types of permits under the City’s CCAP process defined by the type of medical cannabis business.  The following are the permit types: Cultivation (the chart below outlines the cultivation standards), Manufacturer 1 (nonvolatile solvents), Manufacturer 2 (volatile solvents), Testing Laboratory, Dispensary, Distributer, Transporter and Delivery.  

Cultivation Activities Defined by the Medical Cannabis Regulation and Safety Act 

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​(Note: Permits are for specific locations where the business operates, more than one location for the same business will require separate permits)

Step 2: Application information:  Full Arcata City Applications are available on the city website. The applications must include the following information:

• Applicant information: Applicant’s name, address, and business ownership type (ex: sole proprietor, partnership)
• Electronic Fingerprinting:  All business owners and any employees responsible for operational and/or management decisions for the business must submit fingerprints and other necessary information for a criminal background check required by the City of Arcata Police Department.  The City offers Live Scan fingerprinting services for the CCAP in their offices at a cost of $79 ($30 for City of Arcata, $17 FBI and $32 DOJ).  You can pick up a CCAP live scan form at the police department.  The hours of operation are 9-11:30am and 1-4pm Monday-Friday-you can also make appointments.  For additional information you can contact the police department at (707) 822-2428. 
• Location and Zoning Information:  All businesses must be in the City’s Medical Cannabis Innovation Zone (MCIZ).  MCIZ is comprised of Area 1 and 2.  Area 2 is limited to 20 permits.  You can find additional information on MCIZ in land use code 9.28.130.  The physical address, the contact information for the property owner, and assessor’s parcel number (please note, the minimum lot area on Assessor’s Parcel Number’s 507-081-043, 507-121-013, and 507081-050 shall be reduced to 10,000 square feet)

• Site information:  Applications must include distinguishable differences between existing and proposed improvements including floor, plumbing, mechanical, and electrical plans. to the interior and exterior of the building.  For example, building exterior information like signage height, color, and design should be included in your plans.  According to the City of Arcata’s Building and Planning division, the minimum the plans must include: 
  • (1) Show all fixtures, equipment and building improvements to be utilized for the cultivation, production and processing of medical cannabis;
  • (2) Meet California Code of Regulations Title 24 requirements; 
  • (3) Be reviewed and stamped by an engineer with the appropriate trades (mechanical, plumbing, electrical, etc) as required by the Building Official;
  •  (4) Provide an odor control system that will contain or eliminate associated odors.

Parking compliant with city regulations should be addressed in the site plan as well. 
​

• The City has specific land use standards on cultivation outlined below:   
  • Cultivation area shall be limited to no more than 25 percent of the total building floor area per parcel.
  •  Cultivation area shall be no more than 4,000 square feet per lease area or business.
  • Limitations on cultivation area in section a. and b. above may be exceeded through the issuance of a Use Permit.
  • Each parcel shall have at least one independently accessible, occupancy ready, commercial space designed and designated for allowable uses in the base zone or :MMIZ combining zone that is 600 square feet or greater in size, and is not used for cannabis cultivation.  This space must be provided prior to receiving a Certificate of Occupancy for cultivation on a parcel. 

Step 3: Write Operational and logistical plans:  All applications are required to include a full outline regarding how your marijuana business will operate. The following items must be included in your plans:

• State license compliance plan: Starting January 2018, a license to operate a commercial cannabis business will be required. Once a state license is required, Commercial Medical Cannabis Permits will not be approved or renewed without evidence of required a state license.  For information regarding State Licensing, please visit the frequently asked questions on the State of California website: http://www.bmcr.ca.gov/about_us/faq.shtml. The City requires applicants to document the specific license type and the plan to meet the requirements for the state license before the state licensing is in effect.
• Daily operations:  A full description of the following information:
  • Proposed hours of operation (generally 8am-7pm, see permit for exceptions)
  • Odor control such as carbon filtration and ventilation systems (The city can revoke CCAP permits for multiple odor complaints)
  • Ensuring that the interior of your business is not visible to the general public
  • Labeling explaining the contents of your product (tip:  include dosage, THC content and that it is for medical purposes)

Other information including proposed activities, average amount of production and source of cannabis must be included in the operations plan. 

• Waste disposal plan: Waste disposal plan including reduced solid and green waste as well as light bulb recycling policy.
• Sustainability plan:  Calculate the expected electricity use and greenhouse emissions gas with a plan for best practices for energy efficiency.   
• Water infrastructure plan: Identify the expected water source and the level of water use in gallons per day. 
• Security plan: On-site 24 hours/7 days security measures including the proper disposal of cannabis to prevent unlawful use. Below are some tips to secure your CCAP business:
  • Hire a security company with experience and knowledge of the cannabis space. If you cannot find a firm that has experience in the cannabis space use a firm with experience in the banking industry.  The security needs of cannabis and banking businesses are similar.  Just be sure they understand any local, state and federal regulations to maintain compliance.
  • Protect your product as a bank would protect cash and other valuables.  Vaults, safes and alarm systems are excellent ways of protecting your product from theft.  In the case of alarms, it is important to change the codes frequently to reduce the opportunity for an “inside job”.  
  • Purchase the best monitoring system that can adapt as local, state and federal laws change. Cameras should be visible and located in areas covering the whole facility.  This includes the exterior, specifically any doors or windows.    
  • Limit opportunities for employee theft by creating an environment of trust and honesty. Employee training and clearly defining expectations and policies in the beginning is very important to deter theft.  Cash and product policies and procedures should allow you to detect loss and identify the responsible part early. A clearly defined whistle-blower policy can be an effective theft deterrent.  Be sure that the policy includes a confidential way of notifying managing to theft concerns. 
  • Hire security guards as an additional tool to monitor your business. When hiring a guard consider if you they will be armed.   
  • Go beyond the minimum requirement.  It is important that you ensure that maintain a secure environment for your staff and assets.  Implementing systems that go beyond the minimum security requirements can save you headaches in the long run and deter theft.   

Security breaches required to addressed as part of the security plan.  The Arcata Police Department must be notified within 24 hours of noticing a security breach.  In section 6.f of Exhibit A Resolution 167-29, the City defines the following as security breaches:
​

1. Diversion, theft, loss, or any criminal activity involving the cannabis or any agent or employee of the permittee. 
2. The loss or unauthorized alteration of records related to Cannabis, registered qualifying patients, primary caregivers, or employees or agents. 
3. Significant discrepancies identified during inventory. 
4. Any other breach of security.

• Inventory tracking plan:  All permit holders must be trained and use BioTrackTHC, the city approved inventory tracking company, to maintain records.  Applications must include names of the system administrator and account users.  The system administrator must stay current on the software.  Ongoing training of the software is recommended for all users as well as the system administrator.

Step 4: Submit Application to Initiate the Approval Process:

• All applications must be signed by the business and property owners. 
• Hard and electronic (ex: CD or flash drive) copies of the application must be hand delivered to the front counter of the Building Division and Planning Division. 
• All applicable application fees must be paid. The cost of a CCAP application is $6,500 ($2,500 for the application and $4,000 for operations).  Costs can increase to include additional fees like zoning clearance and building permits. These additional fees are determined by your project. Please see the chart below for all fees. 
• All applications are reviewed by the following departments or divisions: Building, Engineering, Environmental Services, Finance, Planning, and Police.  Each department will focus on specific portions of the application.  For example, the Environmental Services department will be interested in the waste diversion plan, while Police Department will be interested in security plan.
• The process requires the additional information:
  • A state of California’s Certificate of Good Standing for the business owner
  • List of the business owners including the percentage of ownership
  • City if Arcata License
  • State Seller’s Permit for dispensaries
• Please contact Edie Rosen at (707) 825-2137 should you have any questions about the status of your application.

The City of Grover Beach, CA is accepting applications for Commercial Medical Cannabis Business based on city ordinances Ordinance No. 17-05 and Ordinance No. 17-06 as of June 14, 2017.  The application deadline for dispensaries has expired however the City is taking applications for Cultivation, Manufacturing, and Testing Laboratories.  At this time Grover Beach does NOT allow Recreational Cannabis uses. 

Contact Information for all Commercial Medical Cannabis Business Related Questions:

​All Commercial Medical Cannabis Businesses will be required to complete the following steps:

Step 1:  Determine an Acceptable Location for a Commercial Medical Cannabis Business.

Step 2:  Complete the application process for a Cannabis Use Permit in the City of Grover Beach, CA.

Step 3:  Complete the application process for a Commercial Cannabis Permit in the City of Grover Beach, CA.

Prior to applying:

• Review the information and learn about the application process and which documents you will need. 
• Taking a good look at the entire application and ensure all the of required information is available. 

Step 1:  Determine an Acceptable Location for a Commercial Medical Cannabis Business
 
 Grover Beach allows Commercial Medical Cannabis Business in all three industrial zones:

• Industrial (I) Zone;
• Coastal Industrial (CI) Zone, and
• Coastal Industrial Commercial (CIC) Zone 

Grover Beach, CA Zoning Map:  http://www.grover.org/DocumentCenter/View/2749

All cultivation with storefronts shall be located a minimum of 600 feet from public and private schools grades kindergarten through 12th grade consistent with State law. All commercial cannabis uses shall be located a minimum of 100 feet from the CR2 Zone on the north side of Atlantic City Avenue as measured from the residential lot boundary to the industrial lot boundary.
 
Step 2:  Complete the application process for a Cannabis Use Permit in the City of Grover Beach, CA.

All Applicants will be required to pay an application deposit that covers the costs acquired by the city when reviewing the Cannabis Use Permit application.   The deposit amount will range from $6,000 - $10,000.

• Completed Development Application and all the information required on the Development/Use Permit Submittal Checklist or Use Permit Submittal Checklist – No New Construction form.
• Completed Commercial Cannabis Employee/Owner Background Application form for all applicants.
• Provide six (6) copies of a description of the Commercial Cannabis Business organizational status and provide proof of status, such as articles of incorporation, by-laws, partnership agreements, and other documentation as may be necessary.  Include a list of all owners/entities that have an interest of 5% or greater in the business.
• Payment of application fee deposit.
• Setback Verification Exhibit that illustrates the following information:
  • A vicinity map including the site plan indicating the property boundary and setbacks from adjacent residential zones and private and public schools (K-12) as required wet stamped by a licensed surveyor or civil engineer attesting to the setback measurements.

• Preliminary Odor Mitigation Plan with the following information:
  • Provide six (6) copies of a detailed description and manufacturer specification sheets of proposed mechanical systems.

• Preliminary Security Plan with the following information:
  • Provide six (6) copies of a detailed description of all proposed security measures This will require a preliminary site plan and floor plan indicating proposed security camera locations and other security measures.
• Preliminary Operations Plan with the following information:
  • Provide six (6) copies of a detailed description of all operations. 

• Preliminary Water Recycling Management Plan for cultivation uses with the following information:
  • Provide six (6) copies of a detailed description of the type of cultivation, irrigation system, projected water use, water recycling techniques and constituents of wastewater discharge into the sewer/septic system. 

 
If the Cannabis Use permit is approved applicant may submit the application for the Commercial Medical Cannabis Permit

Step 3:  Complete the application process for a Commercial Cannabis Permit in the City of Grover Beach, CA.

Commercial Cannabis Permit Application Checklist

Commercial Cannabis Permit Application

Fire and Life Safety Requirements
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The applicant must complete and submit the following:

• Completed Commercial Cannabis Permit Application form for each license required by the State.
• Completed Commercial Cannabis Employee/Owner Background Application form for all applicants.
• Provide a description of the Commercial Cannabis Business organizational status and provide proof of status, such as articles of incorporation, by-laws, partnership agreements, and other documentation as may be necessary. This shall include a list of all owners/entities that have an interest of 5% or greater in the business.
• Payment of application fee deposit as established by the Master Fee Schedule. If applying for a
• Use Permit concurrently with the Commercial Cannabis Permit, the fee is part of the Use Permit deposit.
• A Live Scan and background check will be performed by the Grover Beach Police Department once your application has been submitted.  Applicants will be contacted by the Police Department to schedule a meeting to complete the application.
  
• Background Check -  City authorities have the ability to access state and local summary criminal history information for employment, licensing, or certification purposes; and authorizes access to federal level criminal history information by transmitting fingerprint images and related information to the Department of Justice to be transmitted to the Federal Bureau of Investigation, every Person listed as an owner, manager, supervisor, employee or volunteer, of the Commercial Cannabis Business must submit fingerprints and other information deemed necessary by the Chief of Police or his/her designee(s) for a background check by the Grover Beach Police Department.  Without first clearing a background check no permit to operate a Commercial Cannabis Business will be issued. 

The application process has officially started in City of Blythe, CA to obtain a Commercial Cannabis Business Permit as of September 18, 2017.  Final applications must be received by 4:00 PM on November 17, 2017. The application process has been put in place pursuant to Resolution No. 2017-033. 

For questions regarding the application process call or visit:

• Administration Office in City Hall

235 North Broadway, Blythe, CA, 92225

• (760) 922-6161
• www.cityofblythe.ca.gov

• Cannabis Ordinance 883-17

Follow these steps to apply for a City of Blythe, CA Commercial Cannabis Business Permit: 

Step 1:  Determine an Acceptable Location for a Commercial Cannabis Business (CCB)

Step 2:  Complete Criminal History Check (Live Scan)

Step 3:  Complete and Review the Application Process for a Commercial Cannabis Business (CCB) in the City of Blythe, CA.

Prior to applying:

• Review the information and learn about the application process and which documents you will need. 
• Taking a good look at the entire application and ensure all the of required information is available.  

​Step 1:  Determine an Acceptable Location for a Commercial Cannabis Business (CCB)
 
The application must include the address and a detailed description of the proposed Commercial Cannabis Business location (Note that proof of ownership, or a notarized letter of the owner’s willingness to lease will not be given any additional consideration until Phase 3). The applicant must also describe all sensitive uses described within six hundred (600) feet of the proposed location from the property line of a K-12 school, child daycare center, youth center, parks, places of worship and within 1000 feet of adult day care centers. The CCB must be in the appropriate zoning or have a proposed zone change and meet all the locational requirements as described in BMC Chapter 17.63E and BMC 5.10.290 (o) and BMC 883-17.

​Blythe Zoning Map:

Locations of Commercial Cannabis Business Dispensaries will be permitted as follows:

• In the C-C, Commercial Community Business, C-G General Commercial, and in I-G, General Industry Zone.
• The dispensary must not be located on a parcel located within a six hundred (600) feet radius of a school (whether public, private, or charter, including pre-school, transitional kindergarten, and K-12). If any part of a parcel falls within the 600 feet, then the entire parcel shall meet the requirements of this paragraph.
• No closer than six hundred (600) feet from any portion of any parcel in the City limits containing any of the following:
  • A youth facility;
  • A daycare facility serving nine or more children and is licensed by the county or city;
  • Parks and places of worship at the discretion of the City Council;
  • An adult day care facility serving nine or more adults and licenses by the State, County or City. 

All other Commercial Cannabis Businesses (other than dispensaries), including those permitted to engage in cultivation, manufacturing, testing, distribution of cannabis and cannabis products will only be permitted if all the following requirements are met: 

• The commercial cannabis business other than a dispensary must be located on property zoned C-C, Community Commercial Business, C-G, General Commercial, I-G General Industrial; and
• The property on which the commercial cannabis business is located must also meet all of the following distance requirements: 
  • It shall be no closer than six hundred (600) feet from any portion of any parcel containing any of the following:
    • A school (whether public, private, or charter, including pre-school, transitional kindergarten, and K-12);
    • A daycare facility serving nine or more children and is licensed by the county; and City;
    • Any park or place of worship at the discretion of the City Council;
    • A youth facility; and
    • An adult day care facility serving nine or more adults and licenses by the State, County or City.  

Applicants will be required to obtain a “Zoning Verification Letter” from the Planner in the Planning Division in City Hall,  to ensure that the location proposal the applicant is applying for meets locational requirements prior to submitting their CCB application. Sites with proposed zone changes to an allowed zone will be eligible for an approved zoning verification letter.  The review process typically takes approximately ten (10) working days and will cost $122.33 The “Zoning Verification Letter” will need to be included with the application package. Please note the issuance of a “Zoning Verification Letter” does not mean the written evidence of permission given by the City of Blythe or any of its officials to operate a CCB, nor does it not mean “permit” within the meaning of the Permit Streamlining Act, nor does it constitute an entitlement under the Zoning or Building Code. A regulatory permit for regulating a CCB does not constitute a permit that runs with the land on which the CCB is established. Request for Zoning Verification Letters require a written request from the Planning Division and will not be completed over the counter since it may require additional research and review. 

Step 2:  Complete Criminal History Check (Live Scan)

City of Blythe Commercial Cannabis Employee/Owner Background Application

• Each principal/owner must undergo a criminal background check demonstrating that they do not provide “good cause” for denial per BMC Section 5.10.290 (m).
• The Live Scan Fee will be $101.26 and the background check fee shall be $300. The application for the Live Scan will be available on the City website or at the Administration Office in City Hall.
• Please provide proof of completing your background form and/or Live Scan form by providing proof of a receipt with your application on or before November 17, 2017.
• This process will be required to meet the minimum threshold qualifications pursuant to BMC Section 5.10.290 (m). Principals who do not meet criminal history eligibility requirements will be disqualified. 

 
Step 3:  Complete and Review the Application Process for a Commercial Cannabis Business (CCB) in the City of Blythe, CA.

Blythe Commercial Cannabis Application Form

Application Procedure

Applicants must hand deliver a complete comprehensive and signed copy of the Blythe Commercial Cannabis Business Form, and all attachments along with a flash drive which contains one comprehensive and signed copy of the application in a pdf format, and payment of $3,680 starting on September 18, 2017, the initial application and fee must be received by November 17, 2017. Payment must be made by a certified check, cashier’s check or money order made payable to the City of Blythe. Application Fees are non-refundable. A complete application will consist of the following information:

• The Blythe Commercial Cannabis Business Form;
• Background Authorization Form and/or Proof of Live Scan payment for each of the Principals;
• Zoning Verification Letter;
• All of the information about the CCB that will be evaluated as described in the approval Phase 1- 4 below; and
• LATE AND INCOMPLETE APPLICATIONS WILL NOT BE CONSIDERED.

The City Manager or designee shall administer the following three stage process for the screening and evaluation of Commercial Cannabis Business applications. The process for obtaining approval of a license to operate a Commercial Cannabis Business within Blythe, CA consists of the following three stages:

Phase 1:  Determination of Eligibility and Application:

• Each Principal must undergo a criminal history check demonstrating compliance with the eligibility requirements of BMC Section 5.10.070 (d) and 5.10.290(m).
• Applications must be complete to be considered. Applications will be considered complete only if they include all information required for Phases 1, 2 and 3.
• Proposed location of business.
• Execute an agreement indemnifying the City from liability.

All eligible applications will move onto Phase 2.

Phase 2:  Initial Ranking (1,500 Points)

Applicants who scored a minimum of 80% in Phase 2 will move to Phase 3.  Applications will be given a score based on the following criteria:

• Proposed Location of business (300 Points);
• Business Plan (400 Points);
• Neighborhood Compatibility Plan (300 Points);
• Safety and Security Plan (300 Points); and
• Labor and Employment Plan (200 Points).

Phase 3:  Second Ranking (2,500 Points)

Prior to the scheduling of the interviews in Phase 3 each of the applicants will be required to have their proposed site inspected by the assigned City designee to ascertain current conditions of the facility. 

The second ranking will be scored based on the following criteria:  

After all the applicants from Phase 3 scores have been tabulated they will be combined with Phase 2 to establish a new ranking of the top applicants. The top applicants for each category as determined by the procedures shall move onto Phase 4 of the selection process for further consideration.
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Phase 4:  City Manager’s Recommendations and City Council’s Final Approval

This phase will consist of the following:

• Selection Committee’s final review and evaluation;
• City Manager presents final rankings and recommendation report to City Council; and
• City Council Approves Final recommendations.

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Please note:  After the completion of the application interviews in Phase 3 and prior to the Selection Committees final review and evaluation, the City reserves the right to request and obtain additional information from any candidate who submitted a proposal. Upon the completion of the final review process, the Selection Committee will tabulate its final scores of the all applicants who were interviewed in Phase 3. The City Manager will present to the City Council the final ranking along with his/her recommendation in which the City Council may award up to the amount permitted by the Ordinance or Council Resolution pursuant to BMC Section 5.10.80 The City Council reserves the right to award a lesser number of permits, or to award no permits at all.  Only those applicants on the final list will be eligible to be issued a permit from the initial permit process. The top Applicants which are being recommended by the City Manager for consideration to the City Council should be prepared to attend a City Council meeting in Blythe to provide a public presentation before the Mayor and City Council introducing their team and providing an overview of their proposal if requested by the City Manager.