All About SB 1074 Improvements
The California cannabis tax situation continues. But there might be a light at the end of this long, long tunnel.
According to Harris Bricken from Canna Law Blog, things are about to change with the advent of SB 1074.
At this point, California cannabis taxes have been in effect since January 2018 following the Medicinal and Adult-Use Cannabis Regulation and Safety Act. Through this act, a “cultivation tax” has been applied to all “harvested cannabis that enters the commercial market upon all cultivators.” This does not even take into account the additional 15% excise tax applied to all retail operation sales.
Looking back at 2018, the tax for cannabis flower was at just nine dollars and twenty-five cents for every dry-weight ounce. For cannabis leaves, the tax was just two dollars and seventy-five cents for each dry-weight ounce.
However, cultivation taxes on “fresh cannabis plant” by weight came to the spotlight. Then, there was a mandatory mark-up for cannabis sales depending on whether they were at arm’s length or not. This rate is put in place by the California Department of Tax and Fee Administration on a biannual basis every six months. At this point, the mark-up is 80%.
However, the CDTFA can adjust cultivation taxes each year for cannabis leaves to reflect flower price fluctuations. Furthermore, since January 1, 2020, the CDTFA needs to adjust these tax rates for inflation, as well. In 2022, the cultivation tax rates rose to $10.08 for each dry-weight ounce of flower, $3.00 for each dry-weight ounce of leaves, and $1.41 for each ounce of fresh cannabis plant.
Even though the Assembly offered some tax relief for licensees over the pandemic, the latest adjustment for this year is a serious problem for licensees.
Through SB 1074, there might be some tax relief in the future. This will primarily impact cultivation and manufacturing licensees. The bill proposes to adjust upwards the applicable retail excise tax based on Department of Finance calculations connected to estimates on weight-based cultivation taxes. This bill will completely eliminate the current cultivation tax starting on July 1, 2022, if passed.