Last week, on Friday, September 18th, California Governor Gavin Newsom signed Assembly Bill 1872 which put STATE cannabis business taxes into a holding pattern.
The cannabis cultivation tax and cannabis excise tax will not increase through 2021 which is great for cannabis operators.
It helps bring a bit more predictability to California cannabis taxes. Note that this does not stop the city from increasing taxes for your cannabis business.
If you need help with taxes for your cannabis business or cannabis accounting, then please reach out to us today via our website https://greengrowthcpas.com/get-started/ or call 800-674-9050.
Cannabis Taxes in California are in a little bit of a holding pattern. So we’ll give a few moments here for the room to fill up and then we’ll hop into, again, our topic is going to be California cannabis taxes and how this is working out with a new assembly bill that was signed by the governor. So I’ll give you five seconds here, let more people jump in and see the numbers jumping. All right, cool. So let’s go ahead and just hop right in. So, uh, governor Newsome actually signed assembly bill 1872 (AB1872), which pretty much means no state tax increases for the cannabis industry during 2021. Right? So we’re going to be in a holding pattern for taxes. And again, this bill assembly, bill 1872 is going to guarantee that there’ll be no state state, okay. State level cannabis tax increases throughout 2021. So beginning, January, 2021, the California department of tax and fee administration, the CDTFA, they can not raise the cultivation tax and they can not change the wholesale markup rate for the excise tax.
So if you saw some of our videos from prior in the beginning of this year industry around June, when they redid this, is that the, um, how would you say the excise tax? The markup went from 60 to 80%, so let’s say 33% increase in tax revenues. So it’s a big, big jump in the base in the more States and more cities are coming online in California. So this is great, you know, holding pattern, no state level increases on your taxes. And you know, the state has seen record record amounts of taxes being collected this year from the legal cannabis market. And as demand goes up, the tax revenues going up as we spoke with Fiona ma previously was what may two, three, four weeks ago, during our August update of the month, we talked about a lot of the ideas that Hey, it’s being overtaxed.
Cannabis is being overtaxed, is pushing consumers, either away from the legal market or not allowing them the space to jump in and their money doesn’t go as far, right? The most important people in cannabis are the consumers, right? If there is no consumers, there’s no industry for this. So how do we bring more consumers to come into the industry? Now don’t forget, and this is only state taxes, okay? This is all the state taxes. And this does not stop your city from raising taxes on you or adding additional taxes onto your canvas business. So just be thoughtful. This is only one aspect of it. Now, a few tips on taxes while we’re talking about taxes, make sure that you’re allocating cash from every single transaction, whether you’re a retailer manufacturer cultivator or whatever, it’s going to be, make sure every transaction, if it’s taxable, to some extent in whatever way, you’re allocating that cash what’s on bank account or to its own safe or to a, you know, a bank bag or something you do not want to use your tax money as operating capital.
It’s a big, big unknown. It’s very, very easy. Especially as a distributor collecting, you know, 35% or what, you know, big amount of excise tax here. It was like 27%, I guess, pretty much of the, of the wholesale price. That’s a lot of money. You can seem like you’re cash rich, and you’re going to go ahead and make all these decisions and pop here and out that that’s not the way to do it. Make sure you’re looking at cash somewhere else. Okay. Also second here for deliveries. If you are not calculating your sales tax properly, especially in the state of California, if it was California, they have destination and origin, um, calculate calculation rates for your, your sales tax. So make sure you’re calculating that properly. We’re getting to the three year, uh, threshold where now that the government and the state of California understand there’s a lot of potential liability.
They might go on fishing expeditions and really see how hard they can press on this sales tax issue. So if you’re not prepared, you don’t have records. It can be a big, big mess. And your 2021 is going to be pretty, pretty tough. So be thoughtful on, are you calculating these properly? And if you’re not in California, are you still calculating your sales tax properly and earmarking it in paying it quarterly or biannually or annually whenever your schedule is going to be. And the last one I want to put out here is that document, document document. We’re coming to the point now where regulators at all levels know that there is a good amount of tax liability. That’s not being calculated and remitted by the cannabis industry, right? There was the inspector general report that came out this year. They were talking about how there’s hundreds of thousands, if not millions of dollars being left on the table by the IRS for a few reasons, not giving proper guidance, but also not enforcing strong enough.
Right. They know. And they said this in the inspector general report, I’m not breaking any big news here, aside from what we did prior. But you know, they know where you’re located. You know, how much businesses around you are earning, right? So if your dispensary’s and the market’s five years old, right? And they’ve been collecting data on dispensary’s in a hundred mile radius for five years, you pop up as a new one and you’re 75% below, or you’re 40% below. We’ll say let’s do 40 at 30 or 40% below everybody else. You kind of stick out like a sore thumb. So they’re going to see, Hey, maybe you’re just a terrible operator or maybe you’re diverting cash and not paying taxes on it. So would you really want to do, is you want to document, document, document your business of all the transactions, all the cash transactions, you have proper cash logs, you know, make sure that you have invoices, pictures, receipts, notes, anything, and keep this in a digital storage locker, you know, on Dropbox, Google drive, anywhere, you can keep this, you don’t want your place burning down.
And we have no documents to reconstruct our financial records when it comes to an audit, right? These are the types of things that you have to think about. And if you don’t want to think about them, you know, then hire a professional light, green gross CPAs, or any other firm that you trust to help you with these processes to help you with these standard operating procedures so that you can actually make sure that, Hey, when a potentially treacherous time comes with regulators, you’re prepared, right? Audits are not a problem. If you’re prepared, it just kind of becomes a headache and a pain in your side. But having the records is very, very helpful. And you know, you work very, very hard for your money and it’s hard to be in the cannabis industry, being a pioneer, especially in places where they don’t want you to be right.
Two thirds of the California municipalities prohibit cannabis. So you may not be able to really take advantage and be part of the community. So make sure that you working hard, documenting your processes and having a tech strategy and planning for it, right? It’s very easy to let things get away from you. And then by the end of the year, you owe $470,000 in taxes with some proper planning, you could potentially reduce that by a hundred grand or 200 grand, depending on what you’re doing throughout the year and how you allocate your money, how you’re allocating your indirect expenses to cogs. There’s a lot of cool ways and proven methods to mitigate the impact of two 80 while optimizing and priming up those margins, right? Everybody loves more margins, but you don’t love giving those gross margins away to taxes, right? You really want to do the best we can to preserve that capital for the owners of the business.
Now, if you have any questions about cannabis business taxes, and please reach out to us, go to our website, greengrowthcpas.com, click on the, get started button on the top, right corner, see how we can help you out chat with our team, but you don’t know until, you know, and there are things you don’t know that you don’t know. And I can explain a lot of things on the channel here and on these videos, but sometimes it just takes it 20 minutes of sitting down, chatting with our team, opening your eyes to what’s really possible for your cannabis business, taking you from a good position to a great tax position. So hopefully we can help you out with that. So again, visit our website, greengrowthcpas.com or give us a call at (800) 674-9050. We can walk you through this process. So hopefully this has been helpful. If you have any comments or thoughts around the taxes for cannabis, I know they’re crazy, they’re high, but anything else you want to discuss, drop those in the comments below. We’d love to see, uh, your discussion and what we can help you out with and help you to better understand. So again, thank you. Have a great day and we’ll talk to you soon.
Podcast: Play in new window | Download