State Cultivation Tax starting January 1, 2018

Imposition of Cultivation Tax starting January 1, 2018

Revenue and Taxation Code § 34012 provides that effective January 1, 2018, a state cultivation tax will be imposed upon all Cultivators on all harvested cannabis that enters the commercial market upon all cultivators. The tax will be due after the cannabis is harvested and enters the commercial market.

(1) The tax for cannabis flowers shall be nine dollars and twenty-five cents ($9.25) per dry-weight ounce. “Cannabis flowers” mean the dried flowers of the cannabis plant.  “Cannabis leaves” mean all parts of the cannabis plant other than cannabis flowers that are sold or consumed.

(2) The tax for cannabis leaves shall be set at two dollars and seventy-five cents ($2.75) per dry-weight ounce.  “Cannabis leaves” mean all parts of the cannabis plant other than cannabis flowers that are sold or consumed.

The State Board of Equalization California renamed the Department of Tax and Fee Administration may adjust the tax rate for cannabis leaves annually to reflect fluctuations in the relative price of cannabis flowers to cannabis leaves.

Tax stamps or state-issued product bags will be issued that indicate that all required tax has been paid on the product to which the tax stamp is affixed or in which the cannabis is packaged.   The tax stamps and product bags are required to be read by a scanning or similar device to be traceable utilizing the track and trace system.  Cannabis shall not be sold unless the tax has been paid as provided in this part.

Collection of Cultivation Tax

The Distributor is required to collect the cultivation tax from a cultivator upon entry into the commercial market.  The Distributor is required to pay the tax collected to the taxing authority.

A Manufacturer is required to collect the cultivation tax from a cultivator on the first sale or transfer of unprocessed cannabis by a Cultivator to a Manufacturer. The Manufacturer shall remit the cultivation tax collected from the Cultivator on the cannabis product sold or transferred to the Distributor.

All cannabis removed from a cultivator’s premises, except for plant waste, shall be presumed to be sold and thereby taxable.

 

15% Excise Tax starting January 1, 2018, on all Cannabis and Cannabis Products Sold

15% Excise Tax under the “Medicinal and Adult-Use Cannabis Regulation and Safety Act” starting January 1, 2018.

Revenue and Taxation Code § 34011 provides that effective January 1, 2018, a statewide cannabis excise tax will be imposed upon all purchasers of cannabis or cannabis products sold in the State of California at the rate of 15 percent of the average market price of any retail sale by a cannabis retailer.

Excise taxes are taxes paid when purchases are made on a specific good, in this case cannabis and cannabis products. The 15% excise tax is in addition to the sales and use tax imposed by the state and any tax imposed by the local governments.

“Average market price” shall mean in an arm’s length transaction, the average market price means the average retail price determined by the wholesale cost of the cannabis or cannabis products sold or transferred to a cannabis retailer, plus a mark-up, as determined by the Department of Tax and Fee Administration on a biannual basis in six-month intervals.

An “Arm’s length transaction” means a sale entered into in good faith and for valuable consideration that reflects the fair market value in the open market between two informed and willing parties, neither under any compulsion to participate in the transaction.  In a nonarm’s length transaction, the average market price means the cannabis retailer’s gross receipts from the retail sale of the cannabis or cannabis products.

The Distributor in an arm’s length transaction shall collect the cannabis excise tax from the cannabis retailer on or before 90 days after the sale or transfer of cannabis or cannabis product to the cannabis retailer.

A Distributor in a nonarm’s length transaction shall collect the cannabis excise tax from the cannabis retailer on or before 90 days after the sale or transfer of cannabis or cannabis product to the cannabis retailer, or at the time of retail sale by the cannabis retailer, whichever is earlier.

A cannabis retailer shall be responsible for collecting the cannabis excise tax from the purchaser and remitting the cannabis.  Each cannabis retailer shall provide a purchaser with an invoice, receipt, or other document that displays the cannabis excise tax separately from the list price, the price advertised in the premises, the marked price, or other price and includes a statement that reads: “The cannabis cultivation and excise taxes are included in the total amount of this invoice.”

A Distributor shall report and remit the cannabis excise tax to the Department of Tax and Fee Administration on a quarterly basis on or before the last day of the month following each quarterly period of three months.

Sales and Use Taxes do not apply to retail sales of medicinal cannabis, medicinal cannabis concentrate, edible medicinal cannabis products, or topical cannabis when a qualified patient or primary caregiver for a qualified patient provides his or her County issued Medical Marijuana Patient Identification Card issued pursuant to Health and Safety Code Section 11362.71 along with a valid government-issued identification card.  This tax exception for county medical marijuana idenfication card holders does not apply to the Excise Tax.

DISTRIBUTION UNDER MEDICINAL & ADULT-USE CANNABIS REGULATIONS

The distribution and transportation of cannabis goods in the state of California between cultivator, manufacturer and retainer is through a licensed Distributor.  A cultivator / manufacturer / retailer may self-distribute under a separate distribution license or use a Distributor licensee who acts as a distributor for multiple licensees.  A Distributor may purchase cannabis goods wholesale and sell directly to a manufacturer or retailer. A Distributor may take title to and possession of cannabis after harvest but prior to manufacturing. A distributor may sell the cannabis to a manufacturer or enter into a contract with a manufacturer for manufacturing the cannabis into medical cannabis products.  No consignment of cannabis goods is allowed.  Once cannabis goods are received by a dispensary, a distributor shall not maintain title after transfer of the cannabis goods to the dispensary.  A distributor licensee may also sell cannabis goods to another distributor licensee.

A licensee is not required to sell cannabis or cannabis products to a distributor and may directly contract for sale with a licensee authorized to sell cannabis and cannabis products to purchasers.  A Cultivator and/or a Manufacturer may directly contract with a Retailer or with each other for wholesale transactions of cannabis and cannabis products which must be exchanged / transported through a licensed Distributor.  A distributor performing services may collect a fee from the licensee for the services provided. The fee may include, but is not limited to, the costs incurred for laboratory testing.

The Distributor can repackage and relabel cannabis flower but not cannabis manufactured goods.  A distributor may package and label cannabis in the form of dried flower on behalf of a cultivator or another distributor or while holding title. A distributor may re-package and re-label cannabis in the form of dried flower on behalf of a cultivator or another distributor or while holding title.  A distributor may have another licensee or nonlicensee package and label on the distributor’s premises. A distributor shall not package, re-package, label, or re-label manufactured cannabis goods.

The Distributor is responsible for collecting the Cultivation tax from the Cultivator at the time possession of cannabis goods is taken.  The Distributor is responsible for working with the Testing Laboratory to obtain a certificate of clearance so that the cannabis goods can enter the retail marketplace.

The Distributor can also act waste the management destroyer of cannabis goods as required by the state regulations for other segments of the industry for compensation.  A distributor may destroy medical cannabis goods on the distributor’s licensed premises, in the manner required by the state regulations, for another licensee. The distributor is requried to enter the destruction occurrence into the track and trace system.

A distributor may provide cannabis goods storage only services to a cultivator, manufacturer, transporter, or other distributor, unrelated to the quality assurance and laboratory testing processes.

 

 

HISTORY OF STATE CANNABIS REGULATIONS

On November 6, 1996, Proposition 215, the “Compassionate Use Act of 1996” (“CUA”) became effective by popular vote at a general election.  This act acted as a criminal defense to prosecution for the cultivation and use of marijuana when necessary for medical purposes when the patient, over the age of 18, has the recommendation or approval of a physician to use marijuana; and the marijuana is cultivated and/or possessed for the “personal medical purposes of the patient in the treatment of cancer, anorexia, AIDS, chronic pain, spasticity, glaucoma, arthritis, migraine, or any other illness for which marijuana provides relief.

On January 1, 2004, Senate Bill 420, the “Medical Marijuana Program Act” was enacted by the California Legislature which fine-tuned and defined some of the provisions and terms of Proposition 215, and to clarify the scope of the application of the Compassionate Use Act for consistent application within the state.

On October 9, 2015, Assembly Bill 243, Assembly Bill 266, and Senate Bill 643, the “Medical Marijuana Regulation and Safety Act” were enacted by the California Legislature, effective January 1, 2016, regulating the cultivation, manufacturing, testing, distribution, transportation, and dispensing of medical cannabis in the State of California.  The state commercial cannabis medical license application process is set to start January 1, 2018.  A condition for a state license is having a license, permit, or other authorization from the local jurisdiction where the commercial cannabis activity will take place.   On June 27, 2016, Senate Bill 837, was enacted by the California Legislature, which amended and change the name of the “Medical Marijuana Regulation and Safety Act” to the “Medical Cannabis Regulation and Safety Act”.

On November 8, 2016, Proposition 64, the  became effective by popular vote at a general election, which permits adults, 21 years of age or older, to legally possess, transport, purchase, consume, or share up to one ounce (≤ 28.5g) of marijuana, and up to 8 grams of marijuana concentrates. The state commercial cannabis adult-use license application process is set to start January 1, 2018.

On June 15, 2017, Senate Bill 94, the “Medicinal and Adult-Use Cannabis Regulation and Safety Act”, was enacted by the California Legislature, which repealed and replaced the “Medical Cannabis Regulation and Safety Act” and amended the “Control, Regulate and Tax Adult Use of Marijuana Act”.  The purpose and intent of “Medicinal and Adult-Use Cannabis Regulation and Safety Act” is to establish a comprehensive system to control and regulate the cultivation, distribution, transport, storage, manufacturing, processing, and sale of both of the following: (1) Medicinal cannabis and medicinal cannabis products for patients with valid physician’s recommendations; and (2) Adult-use cannabis and adult-use cannabis products for adults 21 years of age and over.

The “Medicinal and Adult-Use Cannabis Regulation and Safety Act” allows for state licensed commercial cannabis activity in twenty (20) different license classifications covering the cultivation, possession, manufacture, distribution, processing, storing, laboratory testing, packaging, labeling, transportation, delivery or sale of cannabis and cannabis products.

ELECTRONIC SHIPPING MANIFEST TO FACILITATE TRACK AND TRACE PROGRAM

The “Medicinal and Adult-Use Cannabis Regulation and Safety Act” sets forth electronic shipping manifest requirements under the Unique Identifiers and Track and Trace Program.

The Bureau of Cannabis Control a state agency within Department of Consumer Affairs, in consultation with the State Board of Equalization, willl create an electronic database for an electronic shipping manifest to facilitate the administration of the track and trace program.  The database will be designed to flag irregularities for all licensing authorities to investigate.  The contents of the electronic shipping manifest will include, but not be limited to, the following information:

(A) The variety and quantity or weight of products shipped.

(B) The estimated times of departure and arrival.

(C) The variety and quantity or weight of products received.

(D) The actual time of departure and arrival.

(E) A categorization of the product.

(F) The license number and the unique identifier issued by the licensing authority for all licensees involved in the shipping process, including, but not limited to, cultivators, manufacturers, distributors, and dispensaries.

 

NO MISLEADING OR UNTRUE HEALTH RELATED STATEMENTS

No Health Related Statements on any Label, Advertising or Marketing that are Untrue or Misleading.

SB94, the Budget Trailer Bill, which enacted the “Medicinal and Adult-Use Cannabis Regulation and Safety Act” amended Business and Professions Code Section 26154 to provide that a Commercial Cannabis Activity Licensee shall not include on the label of any cannabis or cannabis product or publish or disseminate advertising or marketing containing any health-related statement that is untrue in any particular manner or tends to create a misleading impression as to the effects on health of cannabis consumption.

MANDATORY EDIBLE CANNABIS PRODUCTS STANDARDS

SB 94, the Trailer Bill attached to the Budget enacted the “Medicinal and Adult-Use Cannabis Regulation and Safety Act”, which amends Business and Professions Code 26130 (c) and provides that Edible cannabis products shall be:

(1)          Not designed to be appealing to children or easily confused with commercially sold candy or foods that do not contain cannabis.

(2)          Produced and sold with a standardized concentration of cannabinoids not to exceed ten (10) milligrams tetrahydrocannabinol (THC) per serving.

(3)          Delineated or scored into standardized serving sizes if the cannabis product contains more than one serving and is an edible cannabis product in solid form.

(4)          Homogenized to ensure uniform disbursement of cannabinoids throughout the product.

(5)          Manufactured and sold under sanitation standards established by the State Department of Public Health, in consultation with the bureau, that are similar to the standards  for preparation, storage, handling,  and sale of food products.

(6)          Provided to customers with sufficient information to enable the informed consumption of the product, including the potential effects of the cannabis  product and directions as to how to consume the cannabis  product, as necessary.

(7)          Marked with a universal symbol, as determined by the State Department of Public Health through regulation.

PRIORITY LICENSING UNDER MAUCRSA

Priority Commercial Cannabis Activity Licensing under Business and Professions Code § 26054.2 of the “Medicinal and Adult-use Cannabis Regulation and Safety Act” (MAUCRSA).

 (a) A licensing authority shall give priority in issuing licenses under this division to applicants that can demonstrate to the authority’s satisfaction that the applicant operated in compliance with the Compassionate Use Act of 1996 (Section 11362.5 of the Health and Safety Code) and  its implementing laws before September 1, 2016.

(b) The licensing authorities  shall request that local jurisdictions identify for the Licensing authorities  potential applicants for licensure based on the applicants’ prior operation in the local jurisdiction in compliance with state law, including the Compassionate Use Act of 1996 (Section 11362.5 of the Health and Safety Code) and  its implementing laws, and any applicable local laws.

(c) In addition to or in lieu of the information described in subdivision (b), an applicant may furnish other evidence as deemed appropriate by the licensing authority  to demonstrate operation in compliance with the Compassionate Use Act of 1996 (Section 11362.5 of the Health and Safety Code). The licensing authorities may accept such evidence to demonstrate eligibility for the priority provided for in subdivision (a).

(d) This section shall cease to be operative on December 31, 2019, unless otherwise provided by law.

TEMPORARY LICENSING UNDER MAUCRSA STARTING JANUARY 1, 2018

Temporary Licensing under Business and Professions Code § 26050.1. as enacted by the
“Medicinal and Adult-use Cannabis Regulation and Safety Act” (MAUCRSA).

SB 94, the Trailer Bill attached to the California Budget, passed with a Super Majority Vote on June 15, 2017, which enacted the “Medicinal and Adult-Use Regulation and Safety Act”.  Statewide commercial cannabis activity license application filings are anticipated to commence on January 1, 2018.  At that time, Temporary Statewide Licensing is available under the MAUCRSA in that notwithstanding subdivision (c) of Section 26050, which provides that a licenseshall be valid for 12 months from the date of issuance, until January 1, 2019, a licensing authority may, in its sole discretion, issue a temporary license if the applicant submits all of the following:

(1) A written request to the licensing authority in a manner prescribed by the licensing authority.

(2) A copy of a valid license, permit, or other authorization, issued by a local jurisdiction, that enables the applicant to conduct commercial cannabis activity at the location requested for the temporary license.

(3) The temporary license application fee, if any, required by the licensing authority.

(b) Temporary licenses issued pursuant to this section are subject to the following conditions:

(1) Except as provided for in paragraph (4) below, the temporary license shall be valid for a period of 120 days and may be extended for additional 90-day periods at the discretion of the licensing authority. Temporary licenses shall only be eligible for an extension of the expiration date if the applicant has submitted a complete application for licensure pursuant to regulations adopted under this division.

(2) A temporary license is a conditional license and authorizes the holder thereof to engage in commercial cannabis activity as would be permitted under the privileges of the license for which the applicant has submitted an application to the licensing authority.

(3) Refusal by the licensing authority to issue or extend a temporary license shall not entitle the applicant to a hearing or appeal of the decision. Chapter 2 (commencing with Section 480) of Division 1.5 and Chapter 4 (commencing with Section 26040) of this division shall not apply to temporary licenses.

(4) A temporary license does not obligate the licensing authority to issue a nontemporary license nor does the temporary license create a vested right in the holder to either an extension of the temporary license or to the granting of a subsequent nontemporary license.

(c) This section shall remain in effect only until January 1, 2019, and as of that date is repealed.

LICENSE TYPES UNDER MEDICINAL AND ADULT-USE CANNABIS REGULATION AND SAFETY ACT

“MEDICINAL AND ADULT-USE CANNABIS REGULATION AND SAFETY ACT” 

(MAUCRSA)

LICENSE TYPES


Type 1       Cultivation Specialty Outdoor              Small               5,000 ft.²/50 plants

Type 1A    Cultivation Specialty Indoor                  Small               5,000 ft.² 

Type IB     Cultivation Specialty Mixed-Light        Small               5,000 ft.² 

Type 1C    Cultivation Specialty Cottage               Small               2,500 ft.²/25 plants/500 ft.² 

Type 2       Cultivation Outdoor                              Small               10,000 ft.² 

Type 2A    Cultivation Indoor                                  Small               10,000 ft.² 

Type 2B    Cultivation Mixed-Light                        Small               10,000 ft.² 

Type 3       Cultivation Outdoor                              Medium           1 Acre (43,560 ft.²)

Type 3A    Cultivation Indoor                                 Medium            22,000 ft.²

Type 3B    Cultivation Mixed-Light                       Medium            22,000 ft.² 

Type 4       Cultivation Nursery               

Type 5       Cultivation Outdoor                               Large              +1 Acre

Type 5A    Cultivation Indoor                                  Large              + 22,000 ft.²  

Type 5B    Cultivation Mixed-Light                         Large              + 22,000 ft.² 

Type 6       Manufacturer                                         Level 1            Non-Solvent       

Type 7       Manufacturer                                         Level 2            Solvent                

Type 8       Testing Laboratory                        

Type 10     Dispensary

Type 11     Distributor                                              w/Transportation

Type 12     Microbusiness                                       Dispensary, Cultivation 10,000 ft.² MfgLevel 1