Four years ago, California legalized recreational marijuana use and began collecting state tax on cannabis transactions. As we’ve previously explained, the Golden State laid out the following requirements for taxing marijuana:
- Standard state sales and use tax
- A 15 percent excise tax on retail purchasers of cannabis and cannabis products
- A tax on all harvested cannabis that enters the commercial market with rates ranging from $1.29 to $9.25 per ounce (depending if the harvest is flowers, leaves or a fresh plant)
- Local business taxes in some cities, sometimes as high as 15 percent
How Is California Using The Revenue Generated From This State Tax?
Leafly reports $635 million paid to California in state and local cannabis tax revenue in 2019: about $538 million to the state and $100 million to local sales tax coffers. Most of the funds went towards:
- Youth anti-drug programs (60 percent)
- The environment (20 percent)
- Public safety grants (20 percent)
Within these categories, programs receiving the revenue include (from most to least amount of funds received):
- Low-income children in child care
- Police and fire departments in cities with dispensaries
- Combatting illegal grows/encouraging wild land restoration
- At-risk youth
- Community reinvestment grants for social workers
- Safer roads
- Licensing and regulation for the cannabis industry
- Cannabis science and policy research
- Parks, etc.
What’s On The Horizon For California’s Cannabis State Taxes?
Despite the state’s ability to increase the revenue to these types of programs, annual cannabis sales are much lower than anticipated. Some believe it’s due to the complicated taxes and others cite California’s stringent regulations.
In an effort to increase the revenue from the state tax, Governor Newsom announced multiple provisions in the Golden State’s annual budget that would simplify the industry’s tax structure:
- Combine the current three licensing entities (the Bureau of Cannabis Control, the Department of Public Health, and the Department of Food and Agriculture) into one agency: the Department of Cannabis Control
- Shift the state tax collection responsibility to different parties along the supply chain; this would reduce how often the California Department of Tax and Fee Administration would need to adjust the markup rate (it’s currently every six months)
- Instead of the final distributor collecting and remitting the cultivation excise tax, the first distributor would be responsible for the state tax
- Make the retail excise tax the retailer’s responsibility rather than the distributor
- Lowering existing state taxes to encourage residents to purchase recreational cannabis legally
It will be interesting to see if Newsom’s proposals are passed and, if so, how they affect revenue collected from the cannabis industry’s state taxes.
Contact Us To Learn More!
Do want to learn more about the cannabis industry and how it may affect your business? Contact us today to find out how we might be able to help with this or any other multi-state tax issues your company may be facing.
