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California cannabis cultivation tax for cultivators

All cannabis cultivators in California are required to pay a special cultivation tax, but the amount varies depending on which part of the plant you're selling. Our team breaks down how to determine which tax bracket your product falls in according to taxing guidelines.

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Cannabis Cultivation Tax Basics

Cannabis cultivators are those whose businesses involve planting, growing, harvesting, drying, curing, grading or trimming cannabis. As a cannabis cultivator, your business is responsible for paying cultivation tax.

Cultivation tax must be paid to your distributor or manufacturer, depending on the point where the first transfer or sale takes place. While this is often a distributor, sometimes the first transfer or sale goes to a manufacturer. In that case, the manufacturer will pass on the cultivation tax to a distributor. The distributor is the business who will ultimately pay the tax to the California Department of Tax and Fee Administration (CDTFA). 

Cannabis Cultivation Tax Differences

Not all cannabis cultivation tax is the same. Effective January 1, 2018, tax on both medicinal and adult-use cannabis will fall into one of the following two categories:

  • Cannabis flowers, which is taxed at the rate of $9.25 per dry-weight ounce
  • Cannabis leaves, which is taxed at the rate of $2.75 per dry-weight ounce

This means that cultivators must know the weight, in ounces, of everything that sells, and also know which category sales falls into. The CDTFA outlines an example where a cultivator sells five pounds of dried cannabis flowers, and three pounds of dried cannabis leaves. Converting each pound to ounces (remember, there are 16 ounces per pound), you'll have 80 ounces of flowers, and 48 ounces of leaves. The total tax for flowers is $740, and for leaves, it adds up to $132, for a total of $872 that must be paid to the business at the next step. 

Resale Certificate and Sales Tax

It is also important to make sure you obtain a valid resale certificate from the distributor or manufacturer. Without this, your sales will be subject to sales tax. Additionally, you are required to file a return to the CDTFA whether you collected sales tax or not — if no tax was collected, you'll indicate on your tax return that you made no taxable sales.

TAXING GUIDELINES ARE HERE TO HELP YOU, BUT IT'S BEST TO MAKE SURE YOU'RE COMPLIANT WITH THE HELP OF CCA. CONTACT US SO WE CAN HELP MAKE SURE YOUR BUSINESS STAYS COMPLIANT WHEN THESE TAX GUIDELINES GO INTO EFFECT ON JANUARY 1, 2018. 

Sources

  • http://www.cdtfa.ca.gov/industry/cannabis.htm#Cultivators 
  • https://www.cdtfa.ca.gov/ 
Monica Beyer