California Unveils New Tax Cuts for the Cannabis Industry
By Marc Armstrong, Director, Tax & Business
California has enacted several new tax reforms to provide relief to the state’s struggling cannabis industry.
Beginning in 2018, two excise taxes were created when California legalized the sale of marijuana under Proposition 64. The first tax was a cultivation tax on all harvested cannabis that enters the commencual market based on the weight and category of the cannabis. The second was a 15 percent tax imposed on the retail price of marijuana. Both taxes were adjusted for inflation beginning in 2020, and local governments were also authorized to levy their own taxes on the sale of marijuana as well.
The two taxes were intended to support a wide range of drug research, treatment, and enforcement programs, which were going to rely on the state’s burgeoning legal cannabis industry for funding.
Unfortunately, the sustained growth of the legal cannabis industry in California failed to materialize as the wholesale price of marijuana has dropped precipitously over the past few years.
New Tax Cuts
Assembly Bill 195, a budget “trailer bill,” was enacted on June 30, 2022, to provide tax relief to the state’s struggling legal cannabis industry. The bill contains several tax provisions including the following:
- Eliminating the cultivation tax;
- Freezing the cannabis excise tax rate at 15% for the next three fiscal years (Note that the bill includes language to incrementally increase the excise tax (not to exceed 19 percent) after the three-year window expires);
- Allowing certain cannabis retailers to reinvest 20% of the excise taxes they collect into their own businesses;
- Shifting the collection of the cannabis excise tax to the cannabis retailer beginning on January 1, 2023; and
- Earmarking $40 million in tax credits for qualified cannabis retailers and equity operators.
Additional information regarding the tax incentives available to the California cannabis industry can be found here.
Please contact your Marcum State & Local tax professional with any questions.