There are some exciting cannabis tax bills currently pending in the California legislature that, if passed, will affect your businesses. Below is a summary of key changes proposed by these important tax bills.
AB 2792 – Cannabis; Excise Tax; Cultivation Tax
Author: Blanca Rubio and Cristina Garcia
This bill, if passed, would:
- Eliminate mark-up amount in the average market price in an arm’s length transaction for the purposes of cannabis excise tax from July 1, 2022 – July 1, 2025 (the Mark-Up Rate for arm’s length transactions is currently 80%); and
- Reduce the cannabis excise tax imposed on non-arm’s length transaction to 8% (from the current 15%) from July 1, 2022 and until July 1, 2025; and
- Suspend excise tax entirely between July 1, 2022 – July 1, 2025, inclusive, upon purchasers of cannabis and cannabis products sold by a social equity licensee; and
- Any tax owed by a cultivator or cannabis retailer that has not been collected by a distributor shall be deemed a debt owed to the State of California by the cultivator or cannabis retailer (which could lead to enforcement and seizure proceedings by the CDTFA).
SB 1074 – Cannabis; Excise Tax; Cultivation Tax
Author: McGuire
This bill, if passed, would:
- Beginning July 1, 2022, eliminate the imposition of cultivation tax on commercial cultivators;
- Effective July 1, 2025 and until July 1, 2026 increase excise tax by an additional percentage that the Department of Finance determines will generate ½ of the amount of revenue that would have been collected pursuant to the cultivation tax; and
- Beginning July 1, 2026, increase the excise tax by an additional percentage determined by the Department to generate the full amount of revenue that would have been collected pursuant to the cultivation tax.
SB 1281 – Cannabis Taxes
Author: Bradford
This bill is focused on combatting the illicit cannabis market and making it viable to operate in a the licensed legal cannabis market. This bill, if passed, would:
- Beginning January 1, 2023, eliminate the cultivation tax;
- Reduce excise tax to 5% and remove the mark-up definition of average market price in the arm’s length transaction;
- Remove the requirement that distributors collect the excise tax from retailers and would instead require cannabis retailers (storefront and non-storefront) to remit the excise taxes.
AB 2506 – Cannabis: Excise Tax: Cultivation Tax
Author: Quirk and Lackey
This bill, if passed, would:
- Suspend the imposition of cultivation tax from July 1, 2023 to July 1 2028;
- Discontinue the requirement that the CDTFA adjust the cultivation tax rate for inflation for the 2023 calendar year and during the suspension;
- Increase, from July 1, 2023 to July 1, 2028, the excise tax by an additional percentage of the average market price of any retail sale that the Department of Finance estimates will generate the amount of revenue that would have been collected pursuant to the cultivation tax.
We will keep you posted on the progress of these cannabis tax bills as they make their way through the legislative process. Please feel free to contact us if you have any questions.
Blog by Tatyana Brenner, May 6, 2022