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What is a cannabis cultivation tax?

On: December 6, 2019

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As a cannabis business owner, you are going to run into a lot of taxes that you’ll have to pay, one of them being a cultivation tax. A cultivation tax is imposed on those who cultivate cannabis that enters the commercial or medicinal market and is a big part of how California makes its tax money. Currently, in California, the going cultivation tax rate is $9.25 per dry-weight ounce of cannabis flowers, $2.75 per dry-weight ounce of cannabis leaves, and $1.29 per ounce of fresh cannabis plant. With 16 ounces in a pound, this tax can add up with 10 pounds of flower coming out to a $1,480 cultivation tax alone. This isn’t including the local sales and excise taxes that you will also run into. When would I apply a cultivation tax? For cannabis cultivators, they are responsible to pay the cultivation tax to the manufacturer or distributor and no cannabis can be sold unless the tax is paid. The cultivation tax applies to all cannabis, whether for recreational or medicinal purposes, that is going to enter the market and is not subject to local sales tax if the entity buying has a resale certificate. If they do not have the certificate, the cultivator is the one who must pay the local sales tax, which varies depending on where you are doing business. Regardless of if you have the certificate, you’ll need to take note of the sale and keep all the records to report them later on. To make sure that you have all the correct documents going forward, make sure that the invoice or receipt you receive from the manufacturer or distributor shows the amount of cultivation tax paid, which relieves you of the liability for the cultivation tax. The invoice or receipt should identify:
  • The distributor or manufacturer’s name, as the licensee receiving the product.
  • Your name, as the cultivator.
  • The associated unique identifier for the cannabis.
  • The amount of cultivation tax.
  • The date of sale or transfer.
Aside from the invoice, having a firm and solid record-keeping system that goes at least four years back is mandatory and crucial. Keeping records of documents, including Cash Register Tapes, Sales Journals, Resale Certificates, Shipping Documents, Purchase Invoices, Bank Records, Purchase Orders, Purchase Journals, and Tax Returns, are required by the California Department of Tax and Fee Administration, which can investigate or shut down a business otherwise.  What else should I know? If you are a processor and have a processor license, which is supplied by the California Department of Food and Agriculture and means that you trim, dry, cure, grade, or package cannabis, you are not subject to a cultivation tax.  While cannabis from a cultivator is assumed to be sold, cannabis removed from a cultivator’s premises for processing, however, is not subject to the cultivation tax at that time. A cultivation tax is only required when either the cultivator or processor sells to a distributor or manufacturer to be sold.  And always make sure to call Leading Tax Group and don’t attempt to do it yourself.
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