California Marijuana Licensing >
California, with its over 28 million adults (persons aged 21 years and older), has the largest legal marijuana market in the world. The yearly report published by the CDTFA, providing sales, licensing, and tax revenue showed that the state's demand for marijuana has been increasing exponentially since recreational marijuana was legalized in 2016. In 2020, a new peak marijuana demand was attained in California, with licensed dispensaries processing marijuana orders of more than 400,000 consumers. This constituted an almost 50% increase from the previous year's totals ($2.8 billion) and represented 27% of the annual legal sales in the United States. Recreational cannabis sales in the state also increased from $2 billion in 2019 to almost $3.5 billion in 2020.
The legalization of recreational marijuana for adults older than 21 years in California is one of the main factors driving the demand for legal cannabis. The marijuana market has seen a dynamic change as revenues from the recreational use of marijuana exceeds that of medicinal use. This can be attributed to ease of access and ready availability. Still, it is important to note that the illicit cannabis market still accounts for about three-quarters of the total marijuana sales in the state.
California, through the California Department of Tax and Fee Administration (CDTFA), imposes different kinds of taxes on the production, distribution, and use of marijuana. These taxes are imposed on marijuana users as well as businesses. By law, cannabis growers, cultivators, and dispensaries must remit the taxable amounts to the CDTFA, when due, or face certain penalties.
For the sale and use of marijuana in California, the CDTFA charges a sales tax, and since January 1, 2018, a cultivation tax and an excise tax. All retail sales of tangible goods in California are subject to sales taxes unless specifically exempted by the law. Marijuana products are considered to be tangible goods and, without exception, are subject to sales and use tax. The statewide sales tax is 7.25% and most local jurisdictions add their own district taxes that directly increase the sales tax payable by sellers. These district taxes typically range between 0.1% and 1%. Notably, medical marijuana users with physicians' recommendations or MMJ cards are exempt from district taxes and other local taxes.
The CDTFA also imposed a cultivation tax on cultivators of marijuana for all harvested marijuana that enters the commercial market, based on weight and category. The rates on the categories are - $9.65 for flowers, $2.87 for leaves, and $1.35 for fresh plants. Fresh plants are the flowers, leaves, or combinations of adjoined flowers, leaves, stems, and stalks from the plants. These parts must have been cut off just above the roots or otherwise removed from the plants and must be weighed within two hours of harvesting.
An excise tax is also imposed on all marijuana and marijuana products sold at retail. This tax is 15% of the average market price, which is determined by the type of transaction that occurred when the sale was made. While licensed businesses and recreational users are required to pay excise taxes, patients with prescriptions are exempt.
Under the CDTFA regulations, the different taxable marijuana businesses in California are;
Distributors - persons who procure, sell, and transport cannabis between licensed cannabis businesses. A distributor must register with the CDTFA for a seller's permit and a cannabis tax permit. The distributors collect cultivation taxes from the cultivators they receive products from and excise taxes from the retailers they supply. They must provide invoices or receipts to the businesses for all the taxes they have collected. Distributors must electronically file all their sales and use tax and marijuana tax returns and pay the amounts due to the CDTFA. There are over 1,000 licensed distributors in California.
Retailers - persons who sell marijuana and marijuana products directly to end-users. A retailer must register with the CDTFA for a seller's permit. The retailer is required to charge and collect sales taxes on the retail of marijuana products and collect excise taxes from customers who purchase marijuana. The retailer is expected to provide the customer with a receipt or invoice that states that cannabis excise tax is included in the total amount. The retailer must pay the excise taxes due to their distributor and should not include these in their sales and use tax returns. The retailer's sales and use tax returns must be electronically filed and the amount paid to the CDTFA. There are about 720 licensed retailers in California.
Cultivators - persons engaged in the business of planting, growing, harvesting, and processing marijuana. A cultivator in California must register with the CDTFA for a seller's permit. The cultivator is required to pay their cultivation tax to their distributor. They are also expected to electronically file their sales and use tax returns and pay the amounts due to the CDTFA, if applicable. Currently, there are over 6,200 active cultivator licenses registered in California.
In California, the tax revenue derived from marijuana is, first and foremost, used to cover regulatory and research costs for the state. This includes research into the effects and efficacy of marijuana consumption and covering the regulatory costs associated with licensing marijuana. Afterward, 60% of the balance is used to fund youth anti-drug programs, 20% goes to environmental programs, and 20% is used for public safety programs.
The California Department of Tax and Fee Administration (CDTFA) is the state agency that administers taxes and fees in the state, including cannabis taxes. CDTFA-administered programs generate over $70 billion annually for the state's coffers. The CDTFA administers tax programs in two major areas including sales and use and special taxes and fees.
The state's tax administration also publishes tax trends and relevant insights about revenues generated. The office also provides tax-related educational materials important to business owners through its workshop and seminars.
The CDTFA has public counters in office locations throughout the state, as well as in New York, Chicago, and Houston. Mail correspondences should be sent to:
California Department of Tax and Fee Administration
P.O. Box 942879
Sacramento, CA 94279
For general tax questions, residents can call 1 (800) 400-7115 toll-free to speak with an operator. Persons with communication disabilities can dial 711 to reach the California Relay Service (CRS) for assistance.