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Cannabis excise tax: New overlapping regulations

A legal loophole in California's cannabis excise tax regulations was recently closed, which means cannabis distributors and retailers have zero room for error under Emergency Regulation 3701. Here are some important points for these cannabusiness types.

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Cannabis excise tax

Cannabis excise tax is one of the new cannabis taxes developed for cannabis businesses in California. This particular tax is collected by retailers, and is paid by consumers when they purchase cannabis or cannabis products (the rate is 15 percent of the average market price). Retailers are then required to forward this tax to their distributor, who is ultimately responsible for filing and paying cannabis excise taxes to the California Department of Tax and Fee Administration (CDTFA).

These taxes don't go into effect until January 1, 2018, which left what could have been a legal loophole — no business will be licensed to be a distributor before this date, and newly-licensed retailers will already have cannabis and cannabis products on hand before they open their doors. As such, these products will have not been purchased from a licensed distributor, so the question remained — would retailers who purchased cannabis inventory before the start date be subject to the cannabis excise taxes?

Emergency regulation to close the loophole

The answer to this question is, of course, yes. According to Emergency Regulation 3701, every sale under the new regulations is subject to the cannabis excise tax regardless of when the cannabis or cannabis products were placed into inventory. 

Distributors must provide a detailed receipt to the retailer that includes the following items:

  • Payment date
  • Distributor name
  • Retailer name
  • Amount of the cannabis excise tax
  • Retailer's seller permit number
  • Distributor's seller permit number (if no number is available, a distributor must identify its exempt status)

Regulatory compliance is key for your cannabis business

If you're worried you're not checking all the boxes when it comes to setting up your cannabusiness, fret not — we can help. 

CCA offers governmental advocacy with the state as well as cities and counties. We're different from other business advocates — we stay by your side through each step of the licensing and regulatory process.

Monica Beyer