California’s cannabis market is seeing some big changes coming to the tax scene. California’s Governor, Gavin Newsom, signed Assembly Bill 195 on June 30, 2022. The new legislation was approved by both houses of the state legislature with bipartisan support in the days before.
The new state budget eliminates California’s cultivation tax totaling more than $161 per pound of cannabis flower. It also caps the excise tax at 15% for a minimum of three years. This change marks some of the most significant movement to California’s tax structure for the legal cannabis industry.
Breakdown of Cultivation Tax Cut
According to the California Department of Tax and Fee Administration, “beginning July 1, 2022, the cultivation tax no longer applies to harvested cannabis entering the commercial market.”
This means that both distributors and manufacturers will no longer be required to collect on the cultivation tax from cultivators. And, cultivators will no longer be required to pay a cultivation tax upon the sale of cannabis to another licensed operator.
These new rules went into effect as of July 1, 2022, therefore, any cultivation tax collected from cultivators on or after July 1st should be returned to the cultivator per the new regulations.
In addition, the excise tax markup fee is changing from an 80% to a 75% markup.
How do the tax changes impact my cannabis business?
If you’re a cultivator, then you’re going to see some drastic impacts! If you’re in another vertical, then it depends! Now, taxes have been one of the biggest complaints for operators trying to succeed in the industry.
We recommend reaching out to your tax experts now to make sure you have everything in order. In addition, now is a great time to do a financial analysis of your company. Check out our budgeting and forecasting video to help you decide what’s best for your business to do with the extra funds you’ll be saving in taxes. For information on how to get started, be sure to visit our website and schedule a free consultation with one of our cannabis experts.
Retailers and distributors are also facing some upcoming changes they need to be aware of. If this portion goes through, retailers will become responsible for collecting the cannabis excise tax instead of the distributors. Retailers should reach out to their trusted tax professionals and ensure they update internal operating procedures. If you need help, be sure to reach out to one of our knowledgeable cannabis tax experts.
What if I’m a social equity operator?
AR – 195 also includes a $10,000 tax credit for social equity cannabis companies. In addition, social equity retailers can keep 20% of the cannabis excise they collect for up to three years. Some operators think it doesn’t go far enough, though! They were hoping for a larger decrease in excise tax and more help for social equity businesses who are facing fierce competition in the California cannabis market.
Next Steps…
To learn more about impacts from the changing tax landscape in California, then contact our team of tax experts at GreenGrowth CPAs. We are here to help your cannabis venture through any level of the accounting, tax filing, or business cycle.
We employ several financial programs to assist the company with its fiscal responsibilities, including tax planning and compliance, outsourced CFO support, audit preparation, tax controversy support, and much more.
For recommendations and assistance with tax planning and accounting services, schedule a free consultation or contact us at 1-800-674-9050.