The Cannabis Cultivation Tax

As of January 1, 2018, a cannabis cultivation tax applies to all harvested cannabis intended for either medicinal or recreational use. The tax must be paid when you sell or transfer the cannabis to a distributor or manufacturer, in accordance with a fee schedule that is based on the category and weight of your product.

The fee schedule

Here are the California marijuana cultivation tax rates, by category:

  • Cannabis flowers. $9.25 per dry-weight ounce. Includes both trimmed and untrimmed dried flowers
  • Cannabis leaves. $2.75 per dry-weight ounce. Includes not only the leaves, but any other part of the dried plant (other than flowers) that are consumed or sold.
  • Fresh cannabis plant. $1.29 per ounce (must be weighed within two hours of harvesting). Includes flowers, leaves, stems, and stalks, or any combination of them. Make sure that your unprocessed fresh cannabis is listed as such on all invoices.

Partial ounces should be rounded to the nearest hundredth.

These rates will be adjusted annually to account for inflation, but only from January 1, 2020 onward. All cannabis businesses will receive advance notice of any change in the rates.

Timing of payment

The cultivation tax must be paid either to your distributor or manufacturer when the cannabis leaves your premises:

  • Pay cultivation tax to your distributor before quality assurance review and testing (if required by the Medicinal and Adult-Use Cannabis Regulation and Safety Act), or when delivered for direct sale (if testing is not required).
  • Pay cultivation tax to your manufacturer at first sale or delivery for manufacture –the cultivation tax will be then be transferred by the manufacturer to the distributor for payment to the CDTFA.

If the cultivation tax is not paid, the cannabis may not be sold.

If for any reason your cannabis does not pass testing or otherwise does not enter the commercial market, your distributor or manufacturer must return any cultivation tax that you transferred to them.

No sales tax due

Cultivators who sell to others for resale do not need to pay sales tax on their product. Make sure that your customer has a valid resale certificate or you will have to pay the cultivation tax AND sales tax on your product!

Also, keep in mind that use tax may apply to free samples that you distribute to your employees or to third parties.

Moskowitz, LLP Cannabis Practice Group

The tax lawyers and accountants at Moskowitz, LLP are ready to put their extensive knowledge and experience to work for you. Our Cannabis Practice Group helps marijuana cultivators, manufacturers and distributors maintain tax efficient marijuana operations, and also assist cannabusinesses that have been operating within the gray areas of the law (or outside it) to come into compliance. Contact our San Francisco offices today for a consultation.