At the polls earlier this month, voters across the US weighed in on a number of measures related to cannabis. For California voters, midterm results were overwhelmingly in favor of the new adult-use cannabis industry, a good sign for anyone hoping to grow their business venture.
There were about 50 tax measures across the California’s ballots, the majority of which were approved by voters. While more taxes may not necessarily seem like a positive thing to budding entrepreneurs, this is a sign that local governments intend to welcome the cannabis industry and help it grow. It’s to their benefit for businesses to do well, as a local municipality can benefit from the resulting tax revenue.
As we go into 2019, here are the new cannabis taxes that companies in California need to pay to stay compliant with state and local laws.
San Francisco: Proposition D
In San Francisco, voters approved Proposition D, the Marijuana Business Tax Increase. This measure will impose taxes on cannabis ventures that do business in the city, regardless of whether or not their physical site is located there. The tax rates are:
These taxes go into effect in January, 2021 and do not apply to the first $500,000 of recreational cannabis gross receipts. Medical cannabis retail sales are also exempt from this tax. Revenue from this particular tax is expected to reach $5 - $12 million, money which will go into the city’s general use fund.
Emeryville: Measure S
Emeryville, California voters passed Measure S, a Marijuana Business Tax similar to the one in San Francisco. The business tax measure levies a cannabis business tax of up to 6% of gross receipts. The goal is to generate $2 million in revenue for unrestricted governmental use. This is quite a big leap for Emeryville, as previously cannabis companies paid 0.10% of annual gross receipts, or $25, whichever was greater. The ballot measure does not say when this increased tax rate will go into effect.
Oakland: Measure V
Oakland, California went in a bit of a different direction when it came to voting on cannabis taxes this November. Voters decided to lower their existing cannabis business tax – though the municipality previously had one of the highest tax rates in the state. Recreational cannabis was taxed at 10%, while medical cannabis companies had a 5% tax rate. Small operators were having a hard time competing in the market with cities nearby charging lower taxes.
Measure V was approved by voters to give the Oakland City Council the authority to lower cannabis tax rates through a forthcoming ordinance. The measure also allows cannabis companies to deduct the cost of raw materials from their gross receipts. On the federal level the 280E regulation prevents cannabis companies from doing this on their tax returns.
Lastly, this ballot measure allows local cannabis businesses to pay their taxes on a quarterly basis, instead of one annual payment at the beginning of the year. From a tax perspective, Oakland is looking more attractive than ever to entrepreneurs looking to enter the cannabis industry.
Lake County: Measure K
Lake County’s Measure K Marijuana Business Tax was approved by a majority vote this November. This measure goes into effect January 1, 2021 and changes the following taxes:
Read the full text of the measure to determine where you call in the two tax brackets.
Mountain View: Measure Q
Mountain View’s Measure Q applies to the maximum of four cannabis businesses allowed to operate in Mountain View, per their permitting regulations. This approved ballot measure imposes up to 9% tax on gross receipts of cannabis businesses. The money will go into a fund for “general city purposes,” estimated to grow to $1 million in annual revenue.
Lompoc: Measure D
2018 Lompoc, California voters approved Measure D2018 with the following tax rates to cannabis companies:
Riverbank: Measure B
Last but not least, Riverbank voters approved Measure B. This is an interesting step for a municipality that does not currently permit cannabis businesses to operate within their jurisdiction. But, by passing this ballot measure, voters have indicated they are open to allowing adult-use cannabis businesses to operate in the future. Measure B permits Riverbank’s City Council to issue a tax of up to 10% of gross receipts on cannabis businesses operating in the future. Built into the tax are incentives which give the city a cut of any illegal cannabis business earnings. Despite this relatively high tax rate, keep an eye on Riverbank in the future for indications that they may be open to permitting recreational cannabis businesses to operate.
If you have any questions about these tax related measures, get in touch with our experts.