Tax Guide for
Cannabis Businesses

Tax Guide for Cannabis Businesses

We will update this page as we receive information about the taxation requirements for the cannabis industry – please check back.

Please note: This guide is intended to provide general information regarding issues relating to the Sales and Use Tax Laws, Cannabis Tax Law, and other programs administered by the California Department of Tax and Fee Administration (CDTFA) (formerly BOE) which may affect cannabis businesses. It is not intended to provide advice or guidance related to other state and local statutes and regulations relating to the cannabis industry. Additionally, for the Federal Government's guidance regarding marijuana enforcement, refer to the U.S. Department of Justice website.

Overview

New Information –CDTFA has proposed adoption of cannabis taxes Regulation 3700, Cannabis Excise and Cultivation Taxes.

On November 8, 2016, California voters approved Proposition 64, Control, Regulate and Tax Adult Use of Marijuana Act. To align the requirements for licensing and regulation of medicinal and adult-use of commercial cannabis, Proposition 64 has been recently amended by Senate Bill (SB) 94. Among other changes, SB 94 repealed the Medical Cannabis Regulation and Safety Act (MCRSA) and included certain provisions of the MCRSA in the licensing provisions of Proposition 64. The consolidated provisions are now known as the Medicinal and Adult-Use of Cannabis Regulation and Safety Act (MAUCRSA), and the term marijuana was changed throughout the law to the term cannabis.

Effective November 9, 2016, certain sales of medicinal cannabis are exempt from sales and use tax. (See the Retailers section, under the heading, Proposition 64 Exempts Certain Medical Cannabis Sales from Sales and Use Tax)

Beginning January 1, 2018, two new cannabis taxes apply as follow:

  1. A 15 percent excise tax is imposed upon purchasers of cannabis and cannabis products. Retailers of cannabis and cannabis products are required to collect the 15 percent excise tax from the purchaser based on the average market price of any retail sale and pay it to their cannabis distributor.
  2. A cultivation tax is imposed upon cannabis cultivators on all harvested cannabis that enters the commercial market. Cannabis cultivators are required to pay the cultivation tax to either their distributor or their manufacturer. The rate of the cultivation tax is:
    • $9.25 per dry-weight ounce of cannabis flowers that enter the commercial market, and
    • $2.75 per dry-weight ounce of cannabis leaves that enter the commercial market.

Senate Bill (SB) 94, which was approved by the Governor on June 27, 2017, amended several provisions in the cannabis tax law as enacted by Proposition 64. SB 94 provides that:

  • Distributors must collect the cannabis excise tax from retailers and the cultivation tax from cultivators or manufacturers.
  • Distributors must report and pay the cannabis excise tax and the cultivation tax to the CDTFA.

Sign up for the CDTFA Cannabis Outreach email listserv to receive the latest news on cannabis tax compliance and related issues like CDTFA-issued special notices and news releases.

Helping your business succeed is important to the CDTFA. To help you better understand the tax obligations specific to your cannabis business, we have created this guide detailing the tax issues and important information relevant to your industry.

Medical Cannabis In a Jar

How to Use This Guide

Each section of this guide contains important information relevant to cannabis businesses. The Getting Started section provides key resources related to registration, filing returns, account maintenance, and other information cannabis business may need.

The Distributors section covers topics related to the general application of tax to purchases and sales by distributors.

The Retailers section covers topics related to the general application of tax to purchases and sales by retailers. It also has information on exemptions that retailers may qualify for and the exemption certificates required.

The Cultivators section covers topics related to the general application of tax to cultivators and processors, the available exemptions and the exemption certificates required.

The Manufacturers section covers topics related to the general application of tax to purchases and sales by manufacturers.

Lastly, the Resources section provides links to useful information, including special notices web-based seminars, publications, statutory and regulatory information, and access to assistance from our Customer Service Representatives.

Please note that the general information provided is not intended to replace any law or regulation. This website summarizes the law and applicable regulations in effect when it was published. However, changes in the law or regulations may have occurred. If there is a conflict between this document and the law, decisions will be based on the law.

Get it in Writing

Our tax and fee laws can be complex and difficult to understand. If you have specific questions about this exemption and who or what qualifies, we recommend that you get answers in writing from us. This will enable us to give you the best advice and will protect you from tax, penalties and interest in case we give you erroneous information.

Requests for written advice can be emailed to CDTFA or mailed directly to the CDTFA office nearest you.

For more details, please see publication 8,Get It in Writing!

If You Need Help

If you have questions, please feel free to contact us by telephone or email. Our contact information and hours of operation are available in the Resources section.

Free Educational Consultations

If you are starting a new business, or have tax-related questions, CDTFA staff is available to meet with you at your business location to provide a personal consultation to help you correctly report and pay your sales and use taxes.

Information regarding our free consultation program can be found in publication 176-1, Free Educational Consultation.

If you have suggestions for improving this guide, please contact us via email.

We will update this page as we receive information about the taxation requirements for the cannabis industry – please check back.

Please note: This guide is intended to provide general information regarding issues relating to the Sales and Use Tax Laws, Cannabis Tax Law, and other programs administered by the California Department of Tax and Fee Administration (CDTFA) (formerly BOE) which may affect the cannabis industry. It is not intended to provide advice or guidance in relation to other state and local statutes and regulations relating to the cannabis industry. Additionally, for the Federal Government's guidance regarding marijuana enforcement, see the U.S. Department of Justice website.

Getting Started

If you own a business in California that sells cannabis and/or cannabis products, you must register with the CDTFA for a seller's permit and regularly file sales and use tax returns. In addition to a seller's permit, if you are a distributor of cannabis and/or cannabis products, you must register with the CDTFA for a cannabis tax permit and regularly file cannabis tax returns.

Sales and Use Taxes

In California, all retail sales of tangible personal property are taxable unless the law provides a specific exemption. The law defines tangible personal property as an item that can be seen, weighed, measured, felt, or touched. Cannabis and cannabis products are generally considered tangible personal property and without a specific exemption, sales of such property are subject to sales and use tax.

Please note, on November 8, 2016, California voters approved Proposition 64, Control, Regulate and Tax Adult Use of Marijuana Act. Proposition 64, among other things, provides that effective November 9, 2016, certain sales of medicinal cannabis are exempt from sales and use tax. For more information on how Proposition 64 affects your medicinal cannabis sales, please see the Retailers tab, under the heading, Proposition 64 Exempts Certain Medicinal Cannabis Sales.

Use tax may be due when you purchase taxable items without payment of California tax from an out-of-state vendor for use in California. You may owe use tax on items that you remove from your inventory and use in California if you did not pay tax when you purchased the items.

To find out more about use tax, please visit our use tax webpage.

Cannabis Excise Tax and Cultivation Tax

Effective January 1, 2018, a 15 percent excise tax is imposed upon retail purchasers of cannabis and cannabis products. The 15 percent excise tax is calculated based on the average market price of the retail sale.

In addition, a cultivation tax on all harvested cannabis that enters the commercial market is imposed on cultivators at a rate of:

  • $9.25 per dry-weight ounce of cannabis flowers, and
  • $2.75 per dry-weight ounce of cannabis leaves.

Beginning January 1, 2020, the CDTFA is required to annually adjust the cultivation tax rates to account for inflation.

Registration

Online Registration — Register with us for your seller's permit and a cannabis tax permit if applicable to your type of business. Our registration system will prompt you when you select Register a business activity with CDTFA from Registration – Main Menu. If you currently hold a seller's permit previously issued by the Board of Equalization, you do not need to re-register for a seller's permit with the CDTFA.

In addition to registering with the CDTFA for the required tax permit(s), you will also need to obtain the appropriate cannabis license(s) for your business. The California Department of Food and Agriculture is responsible for licensing cannabis cultivators. The California Department of Public Health is responsible for licensing cannabis manufacturers. The Bureau of Cannabis Control within the California Department of Consumer Affairs is responsible for licensing cannabis distributors, testing facilities, and retailers.

You are also responsible for contacting your city and/or county government office for information on local licenses you may be required to obtain.

To help you determine your permit and licensing requirements, please see the chart below:

If you are a … CDTFA Permit(s) Required State Commercial Cannabis
License Required
Collective/Cooperative Seller's Permit Please refer to footnote
Cultivator of cannabis Seller's Permit Cultivator license issued by the California Department of Food and Agriculture
Distributor of cannabis and/or cannabis products Seller's Permit Cannabis Tax Permit Distributor license issued by the Bureau of Cannabis Control within the California Department of Consumer Affairs
Manufacturer of cannabis products Seller's Permit Manufacturer license
issued by the California Department of Public Health
Microbusiness (combined business engaged in cultivation, manufacturing, distribution and retail sales) Seller's Permit
Cannabis Tax Permit
Microbusiness license
issued by the Bureau of Cannabis Control within the California Department of Consumer Affairs
Nursery Seller's Permit Cultivator license
issued by the California Department of Food and Agriculture
Processor Seller's Permit Cultivator license
issued by the California Department of Food and Agriculture
Retailer or dispensary selling cannabis and/or cannabis products Seller's Permit Retail license
issued by the Bureau of Cannabis Control within the California Department of Consumer Affairs
Testing facility May need a seller's permit Testing laboratory license
issued by the Bureau of Cannabis Control within the California Department of Consumer Affairs

Notes

  1. Collectives and cooperatives are generally retailers and must collect and pay sales tax. Before you start operating as a collective or cooperative, please contact us. You should also review the general provisions and definitions found in Revenue and Taxation Code section 6011.1 and section 6012.1. Please refer to footnote 2 for additional information.
  2. The Cannabis Tax Law provides that any person required to be licensed as a cannabis retailer, cultivator, distributor, and/or manufacturer collect the excise or cultivation tax, and for a person required to be licensed as a distributor, to obtain a permit and pay the taxes to the CDTFA. Please contact the Bureau of Cannabis Control and/or the California Department of Food and Agriculture, and/or the California Department of Public Health to determine your cannabis licensing requirements.
  3. A seller's permit is only required if you make sales of tangible personal property, including cannabis and/or cannabis products.
  4. For more information, see the Processors section.
  5. Cannabis testing facilities are not allowed to sell cannabis or cannabis products. If you sell other tangible personal property, such as testing kits, you are required to register for a seller's permit.

No Seller's Permit Required – Obtain Certification Letter

If you do not sell tangible personal property in California, you are not required to hold a seller’s permit. However, to meet the commercial cannabis licensing application requirements, a certification letter must be provided to the licensing agency stating that a seller’s permit is not required. To receive a certification letter from the CDTFA, please email us with the following information:

  • Owner name,
  • DBA,
  • Business address,
  • Contact name,
  • Contact phone number, and a
  • Description of your business activities

Upon receipt of your email, the CDTFA will review your information and, if sufficient information is provided, a certification letter will be mailed to the address provided. You will be contacted if additional information is needed.

Filing and Payments

Sales & Use Tax Return

As a cannabis seller, you are required to file regular sales and use tax returns to report your sales. Whether you are new to operating a cannabis business or growing your existing business, you'll find these tools helpful in maintaining your account with us.

Cannabis Tax Return

As a distributor of cannabis and cannabis products, you are required to electronically file your cannabis tax return with the CDTFA. The cannabis tax return is due on the last day of the month following the reporting period. The cannabis tax account is separate from other accounts you may have with the CDTFA.

Cash Payments

If you are paying your sales and use tax or cannabis tax in cash, please contact one of our offices to make arrangements and explain that you need an exemption from the No Cash policy.

We may grant an exemption if paying in cash is necessary to avoid an undue hardship. Our staff will provide you with a No Cash Exemption Request form. On this form you will need to describe the nature of your business and why you are unable to establish a bank account or pay by cashier's check or money order. You will be notified in writing when your request has been approved or denied and you will be provided with additional information on how to proceed.

If you have an estimated monthly tax liability over $20,000 for cannabis tax accounts or $10,000 for sales and use tax accounts, you are required to pay any amounts due by electronic funds transfer (EFT). If you do not pay electronically, you will be subject to a 10 percent penalty. Receiving approval to pay in cash does not automatically waive this penalty. However, you can request relief of the mandatory EFT penalty online.

We will update this page as we receive information about the taxation requirements for the cannabis industry – please check back.

Please note: This guide is intended to provide general information regarding issues relating to the Sales and Use Tax Laws, Cannabis Tax Law, and other programs administered by the California Department of Tax and Fee Administration (CDTFA) (formerly BOE) which may affect the cannabis industry. It is not intended to provide advice or guidance in relation to other state and local statutes and regulations relating to the cannabis industry. Additionally, for the Federal Government's guidance regarding marijuana enforcement, see the U.S. Department of Justice website.

Distributor

A cannabis distributor is a person who procures, sells, and/or transports cannabis between licensed cannabis businesses, such as a cultivator, manufacturer, or retailer. A microbusiness licensed to act as a distributor must comply with all the same requirements as a distributor.
If you are a cannabis distributor, the CDTFA requires that you:

  • Register with the CDTFA for a seller's permit, if you make sales of cannabis, cannabis products, or tangible personal property in California.
  • Register with the CDTFA for a cannabis tax permit (this is separate from your seller's permit).
  • Collect the cannabis cultivation tax from cultivators and manufacturers from which you receive cannabis and/or cannabis products.
  • Collect the cannabis excise tax from cannabis retailers you supply (sell and/or transport) with cannabis and/or cannabis products.
  • Provide an invoice or receipt to the businesses from which you collect the cultivation tax and the cannabis excise tax.
  • Electronically file both your sales and use tax and cannabis tax returns and pay the amounts due to the CDTFA.

In addition, you must also:

  • Obtain a distributor license issued by the Bureau of Cannabis Control within the California Department of Consumer Affairs.
  • Contact your city and/or county government office for information on local licenses you may be required to obtain.

Cannabis Excise Tax and Cultivation Tax

Effective January 1, 2018, two new cannabis taxes apply as follows:

  • A tax on cultivation of cannabis is imposed on cultivators at a rate of:
    • $9.25 per dry-weight ounce of cannabis flowers, and
    • $2.75 per dry-weight ounce of cannabis leaves.
  • A 15 percent excise tax is imposed upon all purchasers of cannabis and cannabis products, including medicinal cannabis and adult-use cannabis.

The cultivation tax applies to all harvested cannabis that enters the commercial market. Cannabis has "entered the commercial market" when the cannabis or cannabis product, except for immature cannabis plants and seeds, have completed and comply with the Medicinal and Adult-Use Cannabis Regulation and Safety Act required quality assurance review and testing.

Beginning January 1, 2020, the CDTFA is required to annually adjust the cultivation tax rates to account for inflation. A special notice will be mailed to cannabis businesses informing them of the rates. The cultivation tax rates will be posted on the Special Taxes and Fees Rate Page.

The cannabis excise tax is based on the "average market price." Please refer to the heading, Average Market Price, below for more information.

Industry Topics

As a cannabis distributor, you are responsible for collecting the cannabis cultivation tax from cultivators and manufacturers from whom you receive cannabis and/or cannabis products.

You must collect the cannabis cultivation tax from cultivators when the cannabis has entered the commercial market based on the appropriate cannabis category. The flower category includes all dried flowers of the cannabis plant, whether trimmed or untrimmed. The leaves category includes all other parts of the cannabis plant other than flowers that are consumed or sold. Cannabis has "entered the commercial market" when the cannabis or cannabis products, except for immature cannabis plants and seeds, have completed and comply with the Medicinal and Adult-Use Cannabis Regulation and Safety Act required quality assurance review and testing.

You must also collect the cannabis cultivation tax from manufacturers when cannabis product is first sold or transferred to you for quality assurance, inspection, and testing.

You must provide an invoice, receipt, or other similar document to the cultivator or manufacturer that identifies:

  • The licensee receiving the product.
  • The cultivator from which the product originates, including the associated unique identifier.
  • The amount of cannabis cultivation tax.

The cultivation tax is based on the dry-weight ounce of cannabis that enters the commercial market. To properly calculate the cultivation tax due, it is important that you know the weight in ounces of each category of cannabis that is sold. The example below provides a sample scenario and guidance on how to compute the amount of cultivation tax due.

A cultivator sells five pounds of dried cannabis flowers and three pounds of dried cannabis leaves.

To calculate the cultivation tax, the weight must be converted from pounds to ounces. There are 16 ounces in a pound.

5 x 16 = 80 ounces of dried cannabis flowers

3 x 16 = 48 ounces of dried cannabis leaves

The cultivation tax rates of $9.25 per dry-weight ounce of cannabis flowers and $2.75 per dry-weight ounce of cannabis leaves can be applied to the number of ounces in each category.

Tax on flowers (80 x $9.25)
$740
Tax on leaves (48 x $2.75)
$132
Total cultivation tax due:
$872

Cannabis may be weighed using many different units of measurement. To properly calculate the cultivation tax due, it is important that you know the weight in ounces.

Weight Conversion Chart
1 Gram
=
0.035 Ounces
=
0.001 Kilograms
1 Ounce
=
28.35 Grams
=
0.0625 Pounds
1 Pound
=
453.6 Grams
=
16 Ounces

Effective January 1, 2018, a 15 percent cannabis excise tax applies to the average market price of the retail sale. The average market price is determined by the type of transaction (either "arm's length" or "nonarm's length") that occurred when the seller (cultivator, manufacturer or distributor) sold the product to the retailer.

An "arm's length transaction" is a sale that reflects the fair market price in the open market between two informed and willing parties.

In an arm's length transaction, the average market price is the wholesale cost of the cannabis or cannabis products sold or transferred by a cultivator, manufacturer or distributor to a cannabis retailer, plus a mark-up determined by the CDTFA. The wholesale cost is the amount paid by the retailer for the cannabis or cannabis products, including transportation charges and adding back in any discounts or trade allowances.

The CDTFA will determine the mark-up rate every six months starting January 1, 2018. A special notice will be mailed to all cannabis businesses notifying them of the mark-up rate. The mark-up rate will also be posted on the Special Taxes and Fees Rate Page.

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. Gross receipts include all charges related to your sales, such as labor, service, and shipping and handling charges. For more information on gross receipts, see Revenue and Taxation Code section 6012.

The example below provides a sample scenario and guidance on how to determine the average market price in an arm's length transaction:

Example – You are a distributor and you sell one pound of cannabis flowers for $1,200 (which reflects the fair market price in the open market) to a retailer and charge a $300 transportation fee. The wholesale cost paid by the retailer to you is $1,500 ($1,200 + $300).

To determine the average market price, take the wholesale cost and add the mark-up. This example assumes a 60 percent mark-up on cannabis flowers.

Wholesale cost of cannabis flowers
$1,500
Mark-up ($1,500 x 60%)
$900
Average market price
$2,400

The cannabis excise tax due from the retailer to the distributor on this transaction is $360 (15% x $2,400). See Excise Tax Computation topic below for more information.

The example below provides a sample scenario and guidance on how to determine the average market price in a nonarm's length transaction:

Example – A microbusiness (which is licensed to be a cultivator, distributor, manufacturer, and retailer) grows one pound of cannabis flowers and sells the flowers at retail to their customer for $2,500. The average market price is determined by the type of transaction (either arm's length or nonarm's length) that occurred when the seller (cultivator, manufacturer or distributor) sold the product to the retailer.

Since a microbusiness is both the cultivator and the retailer, there is no sale between two parties that reflects the fair market price in the open market. As such, this is a nonarm's length transaction and the average market price is the $2,500 representing the retailer's gross receipts from the retail sale of the cannabis flowers.

The microbusiness is responsible for reporting and paying the cannabis excise tax of $375 ($2,500 x 15%) to the CDTFA on their cannabis tax return.

As a cannabis distributor, you are responsible for collecting the cannabis excise tax from the cannabis retailers that you supply (sell and/or transport) with cannabis and/or cannabis products.

You must collect the cannabis excise tax from the retailer on or before 90 days after you sell or transfer the cannabis or cannabis product to the retailer in an arm's length transaction.

In a nonarm's length transaction, you must collect the cannabis excise tax from the retailer on or before 90 days after the sale or transfer of cannabis or cannabis product to the retailer, or at the time of the retail sale by the cannabis retailer, whichever is earlier.

You must provide an invoice, receipt, or other similar document to the cannabis retailer that identifies:

  • The licensee receiving the product.
  • The distributor from which the product originates, including the associated unique identifier.
  • The amount of cannabis excise tax.

The cannabis excise tax is 15 percent of the average market price of the retail sale. To properly calculate the cannabis excise tax due, it is important to know whether the retailer's purchase of the cannabis and/or cannabis product was at arm's length or not. For more information, see the heading Average Market Price above. The examples below provide sample scenarios and guidance on how to compute the amount of cannabis excise tax due.

Example #1 – The retailer purchased five pounds of cannabis flowers for $7,500 and 50 cannabis candy bars for $300 in an arm's length transaction. The average market price in the case of an arm's length transaction is the wholesale cost of the cannabis plus a mark-up. This example assumes a 60 percent mark-up.

Wholesale cost of flowers
$7,500
Mark-up for flowers ($7,500 x 60%)
$4,500
Average market price of flowers
$12,000

Wholesale cost of candy bars
$300
Mark-up for candy bars ($300 x 60%
$180
Average market price of candy bars
$480

Total average market price ($12,000 + $480)
$12,480
Total cannabis excise tax due ($12,480 x 15%)
$1,872

The distributor is responsible for reporting and paying the $1,872 cannabis excise tax to the CDTFA on his/her cannabis tax return. The distributor is not responsible for verifying the retail selling price of the cannabis. The cannabis excise tax is based on the average market price. In an arm's length transaction, the average market price is not based on the retailer's gross receipts from the retail sale.

Example #2 – The retailer, which is part of a microbusiness, sells four pounds of cannabis flowers for $9,600 and 25 cannabis candy bars for $500 to their customers (the consumer). This is considered a nonarm's length transaction because the microbusiness is both the distributor and the retailer. The average market price in the case of a nonarm's length transaction is the cannabis retailer's gross receipts from the retail sale.

Gross receipts from sale of flowers
$9,600
Gross receipts from sale of candy bars
$500
Total average market price ($9,600 + $500)
$10,100
Total cannabis excise tax due ($10,100 x 15%)
$1,515

The microbusiness is responsible for reporting and paying the $1,515 cannabis excise tax to the CDTFA on their cannabis tax return.

As a cannabis distributor, you are responsible for collecting the cannabis cultivation tax from cultivators and manufacturers from whom you receive cannabis and/or cannabis products.

You must collect the cannabis cultivation tax from cultivators when the cannabis has entered the commercial market. Cannabis has "entered the commercial market" when the cannabis or cannabis products have completed and comply with all quality assurance, inspection, and testing.

You must also collect the cannabis cultivation tax from manufacturers when cannabis product is first sold or transferred to you for quality assurance, inspection, and testing.

You must provide an invoice, receipt, or other similar document to the cultivator or manufacturer that identifies:

  • The licensee receiving the product.
  • The cultivator from which the product originates, including the associated unique identifier.
  • The amount of cannabis cultivation tax.

As a cannabis distributor, you are responsible for transporting cannabis and cannabis products between licensed cannabis businesses. Even if all your sales or transports of cannabis and cannabis products are not subject to sales tax, you are still required to file a return and report your activities to the CDTFA.

When you sell cannabis or cannabis products to a customer, such as a cannabis retailer, and the customer provides you with a valid and timely resale certificate, the sale is not subject to sales tax.

It is important that you obtain timely valid resale certificates to support your sales for resale. If no timely valid resale certificate is provided, it will be presumed that sales tax also applies to the sale and you must report and pay the sales tax to the CDTFA. Even if all your sales are not subject to sales tax and you collect the proper resale certificates, you are still required to file a return and report your activities to the CDTFA. Simply provide your total sales on line 1 of your sales and use tax return and your total nontaxable sales, which indicate that you made no taxable sales if this is the case.

See publication 103, Sales for Resale for more information regarding resale certificates for sales tax purposes.

When a cannabis retailer contracts directly with a cultivator or manufacturer to purchase cannabis and cannabis products which you transport, you are not making a sale of cannabis and your transport of the cannabis and cannabis products is not subject to sales tax.

Every sale or transport of cannabis or cannabis products from one licensee to another licensee must be recorded on a sales invoice or receipt.  Maintaining good books and records will help you keep track of your sales and purchases and assist you when preparing to file your sales and use tax return. See the Record Keeping heading below for more information.

When you purchase a product that will be resold, you can purchase it without paying sales or use tax by providing the seller a valid and timely resale certificate. Sales tax will apply if you sell the product at retail. However, when you purchase a product for resale without paying sales tax but, instead of selling it, you consume or use the product, then you owe use tax based on the purchase price.

For example, if you issue a resale certificate when purchasing a pipe but instead gift it to someone, you owe the use tax based on its purchase price.

The use tax rate is the same as the sales tax rate in effect at the location of use.

To pay the use tax, report the purchase price of the taxable products as "Purchases Subject to Use Tax" on line 2 of your sales and use tax return. Those purchases become part of the total amount that is subject to tax.

For more information about issuing resale certificates, see publication 103, Sales for Resale.

For more information on use tax, visit our use tax webpage.

Supplies, Equipment, and other Business Expenses

Products you purchase for use in your business (signs, fire extinguishers, display cases, weight and measure equipment, computers, etc.) are subject to sales tax at the time of purchase. Your supplier will normally collect and report the sales tax. However, if you purchase equipment or supplies for use in your business online or from an out-of-state seller, the sale may be subject to use tax.

If the out-of-state seller does not charge California use tax, you should report the purchase price on your sales and use tax return. To pay use tax, report the purchase price of the taxable products under Purchases Subject to Use Tax on your sales and use tax return. Those purchases become part of the total amount subject to tax.

Please note: In general, wrapping and packaging supplies, used to wrap merchandise or bags in which you place products sold to your customers, may be purchased for resale. All other purchases of supplies are generally subject to tax.

To find out more about use tax, please visit our use tax webpage.

You are required by law to keep business records so that we may verify the accuracy of your sales and use tax (if applicable) and cannabis tax returns and determine how much tax is due.

Additionally, maintaining good books and records will help you keep track of your sales and purchases and assist you when preparing to file your sales and use tax and cannabis tax returns. Records must be kept for at least four (4) years, unless otherwise directed by the CDTFA. If you do not maintain records, it may be considered evidence of negligence or intent to evade the tax and may result in penalties.

Examples of records you must keep include:

  • Sales Invoices
  • Cash Register Tapes
  • Sales Journals
  • Resale Certificates
  • Shipping Documents
  • Purchase Invoices
  • Bank Records
  • Purchase Orders
  • Purchase Journals
  • Tax Returns

For more detailed information on sales and use tax record keeping, please see our Keeping Records webpage.

Please note, the Medicinal and Adult-Use Cannabis Regulation and Safety Act requires a licensee to keep accurate records of commercial cannabis activity for a minimum of seven years. For example, every sale or transport of cannabis or cannabis products from one licensee to another must be recorded on a sales invoice or receipt. Sales invoices and receipts may be maintained electronically and must be available for review. Each sales invoice or receipt must include:

  • Name and address of the seller.
  • Name and address of the purchaser.
  • Date of sale and invoice number.
  • Kind, quantity, size, and capacity of packages of cannabis or cannabis products sold.
  • The cost to the purchaser, including any discount applied to the price shown on the invoice.
  • The location of transport of the cannabis or cannabis product unless the transport was from the licensee's location.
  • Any other information specified by the licensing authority.

If you have collected and remitted more cannabis tax than the amount due, you may be able to get a refund of the overpayment.

For example, you remitted the cultivation tax on harvested cannabis that later failed testing and the cannabis did not actually enter the commercial market. In this case, you remitted cultivation tax that was not due, and you may file a claim for refund using CDTFA-101, Claim for Refund or Credit. Claims for refund must be in writing and state the specific reason(s) for the overpayment, specify the period for which you are making the claim, and the amount of the overpayment. CDTFA staff may request documentation to support your claim, including proof that the amount requested has been refunded to the cultivator or manufacturer who paid it to you, before the claim for refund is processed.

Be sure to file your claim for refund by the applicable deadline. If you don't file on time, the CDTFA cannot consider your claim even if you overpaid the tax. You must file a claim for refund by whichever of the following dates occurs last:

  • Three years after the due date of the return on the period for which you overpaid the tax.
  • Six months after you overpaid the tax.
  • Six months after the date a determination (billing) became final.
  • Three years after the CDTFA collected an involuntary payment, such as from a levy or lien.

If you have collected any amount of excise tax in excess of the amount due from a retailer, you may refund the excess tax directly to the retailer. This may occur if you used the incorrect wholesale cost or mark-up rate when calculating the amount of excise tax due from a retailer in an arm’s length transaction. You may claim a credit for that amount of excise tax that was collected in excess, remitted to CDTFA, and returned to the retailer on a future quarterly tax return (provided the credit is claimed on a return no later than three years from the date of the overpayment). CDTFA staff may request documentation to support the credit that is claimed on the return. Examples of documentation that are acceptable include, but are not limited to, a copy of the receipt or invoice listing the amount of excise tax collected and subsequently returned to the retailer, along with the retailer's acknowledgement that the excess tax collected was returned to him/her.

We will update this page as we receive information about the taxation requirements for the cannabis industry – please check back.

Please note: This guide is intended to provide general information regarding issues relating to the Sales and Use Tax Laws, Cannabis Tax Law, and other programs administered by the California Department of Tax and Fee Administration (CDTFA) (formerly BOE) which may affect the cannabis industry. It is not intended to provide advice or guidance in relation to other state and local statutes and regulations relating to the cannabis industry. Additionally, for the Federal Government's guidance regarding marijuana enforcement, see the U.S. Department of Justice website.

Retailer

A cannabis retailer is a person who sells cannabis and/or cannabis products directly to a consumer.

A microbusiness licensed as a retailer must comply with all the same requirements as a retailer.

If you are a cannabis retailer, the CDTFA requires that you:

  • Register with the CDTFA for a seller's permit.
  • Charge and collect sales tax on your taxable retail sales of cannabis and/or cannabis products, and other products.
  • Electronically file your sales and use tax returns and pay the sales and/or use tax to the CDTFA.
  • Charge and collect the cannabis excise tax from your customers who purchase cannabis and/or cannabis products.
  • Pay the cannabis excise tax that is due to your distributor. DO NOT remit cannabis excise tax on your sales and use tax return.
  • Provide your customer with an invoice, receipt, or other document which includes includes the statement "The cannabis excise taxes are included in the total amount of this invoice." (Your customers are liable for the cannabis excise tax until it has been paid to the state or you provide them with such an invoice or receipt.)

In addition, you must also:

  • Obtain a cannabis retail license issued by the Bureau of Cannabis Control within the Department of Consumer Affairs.
  • Contact your city and/or county government office for information on local licenses you may be required to obtain.

Cannabis Excise Tax

Effective January 1, 2018, a 15 percent excise tax is imposed upon retail purchasers of all cannabis and cannabis products, including medicinal cannabis. The 15 percent excise tax is calculated based on the average market price from the retail sale. Please refer to the heading, Average Market Price, below for more information. As a retailer, you are required to pay the cannabis excise tax to your distributor and collect the cannabis excise tax from your customers. No cannabis and/or cannabis products may be sold unless the cannabis excise tax is paid by the purchasers (consumers) at the time of sale.

Industry Topics

Your sales of cannabis and cannabis products are generally subject to sales tax, unless your customer provides you with a valid Medical Marijuana Identification Card indicating they are a qualified patient or the primary caregiver for a qualified patient, along with a valid government-issued identification card. Please refer to the heading, Proposition 64 Exempts Certain Medicinal Cannabis Sales from Sales and Use Tax, below for more information.

Beginning January 1, 2018, your sales of all cannabis and cannabis products, including medicinal cannabis, will also be subject to the 15 percent excise tax. The 15 percent excise tax amount should be included in the calculation of the total amount subject to sales tax.

Generally, the retail sales of the following cannabis and cannabis products are subject to both the sales tax and the 15 percent excise tax:

  • Balms
  • Buds and Flowers
  • Capsules
  • Edibles (cookies, butters, honey, chocolates, candies, sodas, bars)
  • Extracts
  • Gum
  • Hash
  • Infused feminine hygiene products
  • Lotions
  • Oils
  • Plants and Clones
  • Pre-rolls
  • Teas
  • Tinctures
  • Tonics
  • Topicals
  • Waxes

The retail sale of cannabis accessories, such as pipes, rolling machines, vape pens (without cannabis), rolling papers, shirts, hats, books, and magazines are subject to sales tax, but not the 15 percent excise tax.

The above list is not comprehensive. If you have questions about a product that is not included here, you may contact our Customer Service Center at 1-800-400-7115.

Delivery charges are generally taxable when retailers make deliveries with their own vehicles. For more information on shipping or delivery charges, see publication 100, Shipping and Delivery Charges.

Sales Tax Reimbursement

A retailer has the option to collect sales tax reimbursement from its customers. It is not mandatory. Regardless of whether or not you collected sales tax reimbursement from your customers, you as the retailer are liable for the sales tax on taxable sales, and you must report and pay the tax to the CDTFA on your sales and use tax return. If sales tax is included in the sales price, you must post a sign notifying your customers that the sales tax is included in the sales price. If signage is not posted on the premises visible to the customer, then sales tax will be based on the sales price and added to the receipt.

You may look up the current sales and use tax rate by visiting the Find a Sales and Use Tax Rate webpage.

Cannabis Excise Tax Collection

The cannabis excise tax is imposed on the purchaser of cannabis and/or cannabis products. As a retailer, you are required to collect the cannabis excise tax from your customers and pay the tax to your distributor. Cannabis and/or cannabis products may not be sold unless the cannabis excise tax is paid by the purchaser at the time of sale.

Effective January 1, 2018, a 15 percent cannabis excise tax applies to the average market price of the retail sale. The average market price is determined by the type of transaction (either "arm's length" or "nonarms' length") that occurred when the seller (cultivator, manufacturer or distributor) sold the product to you.

An "arm's length transaction" is a sale that reflects the fair market price in the open market between two informed and willing parties.

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. The wholesale cost is the amount paid by the retailer for the cannabis or cannabis products, including transportation charges and adding back in any discounts or trade allowances.

The mark-up will be determined by the CDTFA on a biannual basis in six month intervals. A special notice will be mailed to cannabis businesses informing them of the mark-up rate. The mark-up rate will also be posted on the Special Taxes and Fees Rate Page.

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 cannabis excise tax is 15 percent of the average market price of the retail sale and the sales tax is based on your gross receipts. The examples below provide sample scenarios and guidance on how the cannabis excise tax and sales tax due are computed.

The examples assume a mark-up rate of 60 percent (0.60). You must use the rate in effect at the time of sale. The current rate can be found on our website.

Example #1 – Cannabis – from purchase to resale

This example explains:

  1. How the distributor computes and charges you (the retailer) the cannabis excise tax due on cannabis that you purchase for resale,
  2. How to collect the cannabis excise tax due from your customer, and
  3. How to compute the sales tax due on your sales of cannabis.

1. How the distributor computes the cannabis excise tax due

You purchase one pound of cannabis flowers from your distributor for resale in your store. Your purchase from the distributor is an "arm's length" transaction, that is, your purchase price from your distributor reflects the fair market price in the open market.

Your distributor charges you $1,200 for the cannabis and an additional $300 as a transportation fee. The distributor is required to collect the cannabis excise tax from you, which is computed as 15 percent of the "average market price" of the retail sale. In an arm's length transaction, the distributor determines the average market price by adding the 60 percent mark-up to your wholesale cost as follows:

Cost of cannabis flowers
$1,200
Distributor transportation fee
$300
Total wholesale cost
$1,500

Total wholesale cost
$1,500
Mark-up ($1,500 x 60%)
$900
Average market price
$2,400

The distributor computes the cannabis excise tax due of $360 on the average market price as follows:

Average market price
$2,400
Excise tax rate
15%
Excise tax due ($2,400 x 15%)
$360

Total amount due to distributor ($1,500 + $360) $1,860

The distributor must provide you with an invoice, receipt or other similar document that identifies you (the licensee receiving the product), the distributor from which the product originates, the associated unique identifier, and the amount of cannabis excise tax paid.

2. How to collect the cannabis excise tax due on your retail sales of cannabis

When reselling the cannabis flowers purchased from your distributor in this transaction, you must collect the cannabis excise tax from your customer. You may not sell cannabis or cannabis products unless your customer pays the excise tax.

You are not required to itemize the cannabis excise tax on your receipt or invoice you provide to your customer, but you must include the following statement, "The cannabis excise taxes are included in the total amount of this invoice."

3. How to compute the sales tax due on your retail sales of cannabis

The sales tax due on your taxable cannabis sales at retail must be computed on your selling price of cannabis, plus the cannabis excise tax. This example assumes an 8.5 percent sales tax rate, but your actual rate may differ. You must use the rates in effect at the time of sale. Current rates can be found on our website. If you sell an eighth of an ounce of cannabis for $38.00, including the cannabis excise tax, assuming an 8.5 percent sales tax rate, you will be responsible for $3.23 in sales tax on your sale of an eighth of an ounce of cannabis:

Selling price of cannabis, including excise tax
$38.00
Sales tax due ($38 x 8.5%)
$3.23
Total due ($38 + $3.23)
$41.23

When you report this sale on your sales and use tax return, the measure of tax (that is, the amount that is subject to sales tax) is $38, the selling price plus the cannabis excise tax.

If you do not separately state an amount for sales tax on the invoice or receipt you provide to your customer, you must post on your premises, or include on the price tag, in an advertisement, or other printed material, a notice to the effect: "All prices of taxable items include sales tax reimbursement computed to the nearest mill."

Example 2 – Cannabis sold with a cannabis accessory

You sell an eighth of an ounce of cannabis for $38.00, which includes the cannabis excise tax, along with rolling papers. The selling price of the cannabis, including the cannabis excise tax, and the rolling papers are subject to sales tax.

Sales tax calculation:
Selling price of cannabis, including excise tax
$38.00
Rolling papers
$10.00
Subtotal
$48.00
Sales tax ($48 x 8.5%)
$4.08
Total due ($48 + $4.08)
$52.08

Example 3 – Medicinal cannabis sold to a qualified patient

You sell an eighth of an ounce of cannabis for $38.00, which includes the cannabis excise tax, to a customer who has a valid Medical Marijuana Identification Card (MMIC) issued by the California Department of Public Health and a valid government issued identification card (ID).

Since the customer has a valid MMIC and ID, the sale is exempt from sales tax. There is no exemption from the cannabis excise tax.

Sales tax calculation:
Selling price of cannabis, including excise tax
$38.00
Sales tax
$0.00
Subtotal
$38.00

Example 4 – Medicinal cannabis sold with a cannabis accessory

You sell an eighth of an ounce of cannabis for $38.00, which includes the cannabis excise tax, along with rolling papers to a customer who has a valid Medical Marijuana Identification Card (MMIC) issued by the California Department of Public Health and a valid government issued identification card (ID).

Since the customer has a valid MMIC and ID, the sale of cannabis is exempt from sales tax; however, sales tax does apply to the selling price of the rolling papers. There is no exemption from the cannabis excise tax.

Sales tax calculation:
Selling price of cannabis, including excise tax
$38.00
Rolling papers
$10.00
Subtotal
$48.00
Sales tax ($10.00 x 8.5%)
$0.85
Total due ($48 + $0.85)
$48.85

Example 5 – Medicinal cannabis sold to a customer with only a physician's note

You sell cannabis infused lotion for $40.00, which includes the cannabis excise tax, to a customer that provides you with a physician's note prescribing the product for medicinal use. The sales tax applies to the selling price of the lotion, including the cannabis excise tax. In order for the exemption from sales and use tax to apply, the customer must provide you with a valid Medical Marijuana Identification Card (MMIC) issued by the California Department of Public Health and a valid government issued identification card (ID). A physician's note is not sufficient to support the exemption from sales tax. For more information, see the below heading Prop 64 Exempts Certain Sales of Medicinal Cannabis from Sales and Use Taxes.

Sales tax calculation:
Selling price of cannabis lotion, including excise tax
$40.00
Sales tax ($40.00 x 8.5%)
$3.40
Total due ($40 + $3.40)
$43.40

Some cities have enacted measures requiring that cannabis businesses located in their jurisdictions pay a cannabis business tax. If you add a separate amount to your customers' invoices or receipts to cover your cannabis business tax, sales tax applies to the business tax amount.

Generally, whenever an expense of the retailer is separately added to any taxable sale, the expense is also subject to sales tax.

In the example below, the computation of sales tax on a taxable sale includes a cannabis business tax. Sales tax is applied to the total selling price including the cannabis excise tax and business tax. This example assumes an 8.5 percent sales tax rate and a 10 percent business tax, but your actual rates may differ. You must use the rates in effect at the time of sale. Current sales tax rates can be found on our website.

Sales tax calculation:
Selling price of cannabis, including excise tax
$35.00
Cannabis business tax
$3.50
Subtotal ($35.00 + $3.50)
$38.50
Sales tax ($38.50 x 8.5%)
$3.27
Total due ($38.50 + $3.27)
$41.77

Distributors use a mark-up rate to compute the average market price of cannabis and cannabis products sold or transferred in an arm's length transaction. The mark-up rate is not intended to be used to determine the amount for which you sell your cannabis and cannabis products. You may use any mark-up you would like to establish your selling price.

The mark-up will be determined by the CDTFA on a biannual basis in six month intervals. A special notice will be mailed to cannabis businesses informing them of the mark-up rate. The mark-up rate will also be posted on the Special Taxes and Fees Rate Page.

Effective November 9, 2016, certain sales of medicinal cannabis are exempt from sales and use tax.

The sales and use tax exemption applies to the retail sales of medicinal cannabis, medicinal cannabis concentrate, edible medicinal cannabis products, or topical cannabis as those terms are defined in the Business and Professions code section 26001. To obtain the exemption, qualified patients or their primary caregiver must furnish their valid Medical Marijuana Identification Card (MMIC) issued by the California Department of Public Health and a valid government issued identification card (ID) at the time of purchase.

To properly claim the sales and use tax exemption, you should not collect sales tax reimbursement on the qualifying exempt sales of medicinal cannabis. In addition, you should claim a deduction on your sales and use tax return for the qualifying exempt medicinal cannabis sales. To claim the exempt sales, you must verify that purchasers have the proper identification (a valid MMIC and a valid government issued ID) and maintain specific information for your records as explained below under the Record Keeping section.

Record Keeping

Medicinal cannabis retailers that make qualifying exempt sales and claim the deduction on their sales and use tax return, should maintain the following records (either physical or electronic) for each transaction:

  • The purchaser's nine-digit ID number and expiration date, as shown on the qualified patient's or primary caregiver's unexpired Medical Marijuana Identification Card (MMIC) (see below for example of a patient MMIC); and
  • The related sales invoice or other original record of sale.

A valid MMIC is issued by the California Department of Public Health (CDPH).  The card (sample pictured below) includes the following:

Sample Patient Medical Marijuana Identification Card
  • Issued by the "State of California" with the state seal
  • States either "Patient" or "Caregiver"
  • Patient's or primary caregiver's photo
  • Nine-digit ID number
  • CDPH website to verify ID number
  • Expiration date
  • County that issued card with phone number

Retailers may verify the validity of the nine-digit ID number on the CDPH website.

You are responsible for obtaining a seller's permit and reporting and paying the sales tax on the retail selling price of consignment sales.

When you have possession or control of the item you are selling, and can transfer ownership or use of the item to the buyer without further action on the part of the owner, you are considered the retailer of the item.

For example, your store accepts pipes and accessories to sell on consignment. You agree to sell the products, but will not pay for the product unless it sells. Your agreement authorizes you to sell the products and transfer ownership to the buyer. You are considered the retailer of the accessories you sell in this way and must pay sales tax based on your retail selling price.

For more information, please see publication 114, Consignment Sales.

When you purchase a product that will be resold, you can purchase it without paying sales or use tax by providing the seller a valid and timely resale certificate. Sales tax will apply when you sell the product at retail. However, when you purchase a product for resale without paying sales tax but, instead of selling it, you consume or use the product, then you owe the use tax based upon the amount of the purchase price.

For example, if you issue a resale certificate when purchasing a pipe but instead gift it to someone, you owe use tax based upon its purchase price.

The use tax rate is the same as the sales tax rate in effect at the location of use.

To pay use tax, report the purchase price of the taxable items as "Purchases Subject to Use Tax" on your sales and use tax return. Those purchases become part of the total amount that is subject to tax.

For more information about issuing resale certificates, see publication 103, Sales for Resale.

For more information on use tax, visit our use tax webpage.

Supplies, Equipment, and other Business Expenses

Products you purchase for use in your business (signs, fire extinguishers, display cases, weight and measure equipment, computers, etc.) are subject to sales tax at the time of purchase. Your supplier will normally collect and report the sales tax. However, if you purchase equipment or supplies for use in your business online or from an out-of-state seller, the sale may be subject to use tax.

If the out-of-state seller does not charge California use tax, you should report the purchase price on your sales and use tax return. To pay the use tax, report the purchase price of the taxable products under Purchases Subject to Use Tax on your sales and use tax return. Those purchases become part of the total amount subject to tax.

Please note: In general, wrapping and packaging supplies, used to wrap merchandise or bags in which you place products sold to your customers, may be purchased for resale (see Regulation 1589 for more details). All other purchases of supplies are generally subject to tax.

To find out more about use tax, please visit our use tax webpage.

You are required by law to keep business records so that we may verify the accuracy of your sales and use tax return and determine how much tax is due, when a return has not been filed.

Additionally, maintaining good books and records will help you keep track of your sales and purchases and assist you when preparing your sales and use tax return. Records must be kept for at least four (4) years, unless otherwise directed by the CDTFA. If you do not maintain records, it may be considered evidence of negligence or intent to evade the tax and may result in penalties.

Examples of records you must keep include:

  • Sales Invoices
  • Cash Register Tapes
  • Sales Journals
  • Resale Certificates
  • Shipping Documents
  • Purchase Invoices
  • Bank Records
  • Purchase Orders
  • Purchase Journals
  • Tax Returns

For more detailed information on sales and use tax recordkeeping, please see our Keeping Records webpage.

Please note, the Medicinal and Adult-Use Cannabis Regulation and Safety Act requires a licensee to keep accurate records of commercial cannabis activity for a minimum of seven years. For example, every sale or transport of cannabis or cannabis products from one licensee to another must be recorded on a sales invoice or receipt. Sales invoices and receipts may be maintained electronically and must be available for review. Each sales invoice or receipt must include:

  • Name and address of the seller.
  • Name and address of the purchaser.
  • Date of sale and invoice number.
  • Kind, quantity, size, and capacity of packages of cannabis or cannabis products sold.
  • The cost to the purchaser, including any discount applied to the price shown on the invoice.
  • The location of transport of the cannabis or cannabis product unless the transport was from the licensee's location.
  • Any other information specified by the licensing authority.

We will update this page as we receive information about the taxation requirements for the cannabis industry – please check back.

Please note: This guide is intended to provide general information regarding issues relating to the Sales and Use Tax Laws, Cannabis Tax Law, and other programs administered by the California Department of Tax and Fee Administration (CDTFA) (formerly BOE) which may affect the cannabis industry. It is not intended to provide advice or guidance in relation to other state and local statutes and regulations relating to the cannabis industry. Additionally, for the Federal Government's guidance regarding marijuana enforcement, see the U.S. Department of Justice website.

Cultivator

A cannabis cultivator is a person who is in engaged in the business of planting, growing, harvesting, drying, curing, grading or trimming cannabis. A microbusiness licensed to act as a cultivator, must comply with all of the same requirements as a cultivator.

If you are a cannabis cultivator, the CDTFA requires that you:

  • Register with the CDTFA for a seller's permit.
  • Pay the cultivation tax to your distributor or manufacturer.
  • Electronically file your sales and use tax returns and pay the tax due, if any, to the CDTFA. Even if you do not make taxable sales of cannabis, you are still required to file a return indicating your total sales with your claimed nontaxable or exempt sales during that particular reporting period.

In addition, you must also:

Cannabis Cultivation Tax

Effective January 1, 2018, a tax on cultivation of cannabis (including medicinal cannabis and adult-use cannabis) is imposed on cultivators at a rate of:

  • $9.25 per dry-weight ounce of cannabis flowers, and
  • $2.75 per dry-weight ounce of cannabis leaves.

The cultivation tax applies to all harvested cannabis that enters the commercial market. Cannabis has "entered the commercial market" when the cannabis or cannabis products, except for immature cannabis plants and seeds, have completed and comply with the Medicinal and Adult-Use Cannabis Regulation and Safety Act required quality assurance review and testing.

Distributors are required to collect the cultivation tax from you, as the cultivator, on all harvested cannabis that enters the commercial market based on the appropriate cannabis category. The flower category includes all dried flowers of the cannabis plant, whether trimmed or untrimmed. The leaves category includes all other parts of the cannabis plant other than flowers that are consumed or sold.

However, as a cultivator, if the first transfer or sale of unprocessed cannabis is to a manufacturer, and not a distributor, the manufacturer is required to collect the cultivation tax from you at the time of the first sale or transfer of the unprocessed cannabis. The cultivation tax you pay to a manufacturer will be passed on to a distributor for payment to the CDTFA.

Beginning January 1, 2020, the CDTFA is required to annually adjust the cultivation tax rates to account for inflation. A special notice will be mailed to cannabis businesses informing them of the rates. The cultivation tax rates will also be posted on the Special Taxes and Fees Rate Page

Cannabis Cultivation Tax Imposition

The cannabis cultivation tax is imposed on the cultivator. As a cannabis cultivator, you are responsible for the payment of the cannabis cultivation tax to your distributor or manufacturer. The tax is due on all harvested cannabis that enters the commercial market. No cannabis may be sold unless the cannabis cultivation tax has first been paid.

You should obtain an invoice, receipt, or other similar document from the distributor or manufacturer to which you pay the cultivation tax. The invoice should identify:

  • The licensee receiving the product.
  • Your name and associated unique identifier.
  • The amount of cannabis cultivation tax.

You are liable for the cultivation tax until it has been paid to the state or you are provided such an invoice or receipt from a distributor or manufacturer.

Industry Topics

The cultivation tax is based on the dry-weight ounce of cannabis. To properly calculate the cultivation tax due, it is important that you know the weight in ounces of each category of cannabis that is sold. Partial ounces must be included in the calculation of the cultivation tax due. The example below provides a sample scenario and guidance on how to compute the amount of cultivation tax due.

Example: You sell five pounds of dried cannabis flowers and three pounds of dried cannabis leaves.

To calculate the cultivation tax, the weight must be converted from pounds to ounces. There are 16 ounces in a pound.

5 x 16 = 80 ounces of dried cannabis flowers

3 x 16 = 48 ounces of dried cannabis leaves

The cultivation tax rates of $9.25 per dry-weight ounce of cannabis flowers and $2.75 per dry-weight ounce of cannabis leaves can be applied to the number of ounces in each category.

Tax on flowers (80 x $9.25)
$740
Tax on leaves (48 x $2.75)
$132
Total cultivation tax due:
$872

Cannabis may be weighed using many different units of measurement. To properly calculate the cultivation tax due, it is important that you know the weight in ounces.

Weight Conversion Chart
1 Gram
=
0.035 Ounces
=
0.001 Kilograms
1 Ounce
=
28.35 Grams
=
0.0625 Pounds
1 Pound
=
453.6 Grams
=
16 Ounces

When you sell cannabis to a customer, such as a distributor, manufacturer, or retailer who provides you with a valid and timely resale certificate, the sale is not subject to sales tax; however it is subject to the cannabis cultivation tax.

It is important that you obtain timely valid resale certificates to support your sales for resale. If no timely valid resale certificate is provided, it will be presumed that sales tax also applies to the sale and you must report and pay the tax to the CDTFA. Even if all your sales are not subject to sales tax and you collect the proper resale certificates, you are still required to file a return and report your activities to the CDTFA. Simply indicate on the return that you made no taxable sales if this is the case.

See publication 103, Sales for Resale for more information regarding resale certificates for sales tax purposes.

Generally, most of the products you purchase for use in your business are subject to sales or use tax. However, purchases of certain supplies may not be taxable, whereas purchases of other products may qualify for a partial exemption.

Supplies, Equipment, and other Business Expenses

Purchases of products for use in your business (computers, pesticides, work gloves, etc.) are subject to sales or use tax at the time of purchase.

Normally, your vendor is responsible for collection of sales tax on taxable sales. However, if you purchase from an out-of-state seller that does not collect  the California sales tax, the sale is generally subject to use tax and you must report the purchase price on your sales and use tax return (under "Purchases Subject to Use Tax") and pay the use tax due when you file your return.

To find out more about use tax, please visit our use tax webpage.

Seeds, Plants, and Clones

Purchases of seeds and ornamental flower and landscaping plants are generally subject to sales and use tax.

However, sales and use tax does not apply to your purchases of seeds, plants, and clones when the products grown from them will be resold as part of your regular business activities.

For more information, see Regulation 1588, Seeds, Plants and Fertilizer.

Fertilizers

Sales tax does not apply to the sale of specified fertilizer to be applied to land or in foliar applications, provided the fertilizer is used to produce products for sale. All other sales of fertilizer are taxable.

For more information, see Regulation 1588,Seeds, Plants and Fertilizer and publication 66, Agricultural Industry.

A processor conducts trimming, drying, curing, grading, or packaging of cannabis and non-manufactured cannabis products. These activities are fabrication labor and are subject to sales tax.

A cultivator may provide the processor with a valid and timely resale certificate to support that the fabrication labor is being performed in order to allow the cannabis to be sold for resale. If no timely valid resale certificate is provided, it will be presumed that sales tax applies to the fabrication labor charges and the processor must report and pay the tax to the CDTFA. Even if all the processor's sales are not subject to sales tax and proper resale certificates are collected, the processor is still required to file a return and report his/her activities to the CDTFA. The processor should indicate on the return that no taxable sales were made if this is the case. See Pub 108, Labor Charges, for more information.

In general, the sale of farm equipment and machinery is subject to sales and use tax. However, certain sales and purchases of farm equipment and machinery are partially exempt from sales and use tax. As a cultivator, you may be able to take advantage of this partial exemption.

The partial exemption applies only to the state general fund portion of the sales tax, currently 5.00 percent.

To calculate the sales tax rate for qualifying transactions, subtract 5.00 percent from the sales tax rate that would normally apply at the location where the purchase is made. For example, if the current sales tax rate in your area is 9.00 percent, the sales tax rate for a qualifying transaction would be 4.00 percent.

Note: The rate for the state general and fiscal recovery funds portion of the sales tax is subject to change. The rates used in this example are for demonstrative purposes only. You must use the rate in effect at the time of the sale. Current sales tax rates can be found on our website.

Three requirements must be met for the partial exemption from sales and use tax to apply. The item must be:

  1. Sold to a qualified person.
  2. Used exclusively or primarily (depending on the type of item) in producing and harvesting agricultural products. Primarily means 50 percent or more of the time.
  3. Defined as farm equipment and machinery which includes, but is not limited to, any tool, machine, equipment, appliance, device or apparatus used in the conduct of agricultural operations.

If any of these three requirements is not met, the partial exemption from sales and use tax will not apply.
Examples of equipment and machinery that may qualify:

  • Planting equipment
  • Trimming tools
  • Drying racks and trays
  • Grow tents and lights
  • Environmental controls
  • Greenhouses
  • Hydroponic equipment
  • Solar equipment (see below for more information)
  • Irrigation equipment

If you lease, rather than purchase, you may still qualify for the partial sales and use tax exemption. For more information about leases, please see publication 46, Leasing Tangible Personal Property.

Mobile transportation equipment generally does not qualify for the partial exemption from sales and use tax.

For more detailed information about equipment and machinery used in farming, see Regulation 1533.1, Farm Equipment and Machinery and publication 66, Agricultural Industry.

Certain buildings may meet the definition of farm equipment for purposes of qualifying for the partial exemption from sales and use tax for farm equipment. The building must be a single-purpose building to house plants, such as a greenhouse.

To be considered farm equipment, a horticulture building must meet these two requirements:

  • Specifically designed for commercially raising plants.
  • Used exclusively for that purpose.

You should issue a farm equipment and machinery partial farm exemption certificate to your vendor when you purchase qualifying items.

For more detailed information on this partial exemption from sales and use tax, see Regulation 1533.1, Farm Equipment and Machinery.

If you qualify for the partial exemption from sales and use tax for farm equipment, your purchase of a solar power facility may also qualify.

How does a system qualify?

  • Solar Power Facility Directly Attached to Farm Equipment and Machinery
    When a solar power facility is directly attached to, and primarily provides power to qualifying farm equipment and machinery, the solar power facility generally qualifies as farm equipment and machinery. As such, the purchase of this type of solar power facility generally qualifies for the partial exemption as long as the other requirements for the partial exemption are met.
  • Solar Power Facility Not Directly Attached to Farm Equipment and Machinery
    A solar power facility may also qualify as farm equipment and machinery when the solar power facility is not directly attached to qualifying farm equipment and machinery but is instead tied to the regional power grid and subject to a net metering agreement between the taxpayer and the electric cooperative. In such cases, you need to demonstrate that the solar facility is specifically purchased to provide power primarily to qualifying farm equipment and machinery.

For more information, see our November 2012 Special Notice, Solar Power Facilities May Qualify as Farm Equipment.

Most sales and/or purchases of diesel fuel are subject to sales and use tax and diesel fuel tax. However, a partial sales and use tax exemption exists for certain sales and purchases of diesel fuel used in farming activities.

The partial exemption from sales and use tax applies to the sale or purchase of diesel fuel only if the diesel meets these two requirements:

  • Be a type of diesel that qualifies for the exemption, and
  • Be used in qualifying farming activities or related contract hauling.

Your purchases of diesel from fuel suppliers will qualify for the partial sales and use tax exemption when you use the fuel to:

  • Prepare land for planting.
  • Plant, protect, or grow crops.
  • Harvest crops.

The sale of diesel fuel to a cultivator may qualify for the partial exemption from sales and use tax in the following situations:

  1. A grower uses diesel in their tractor to cultivate the land in preparation for planting the cannabis.

Diesel used to move the cannabis after processing is completed does not qualify for the exemption.

For more detailed information about diesel fuel used in farming, see Regulation 1533.2 , Diesel Fuel Used in Farming Activities or Food Processing.

For diesel fuel tax purposes, a farmer may purchase diesel fuel without paying the diesel fuel tax by issuing an exemption certificate to his/her vendor, or by purchasing dyed diesel fuel.

Dyed diesel fuel may not be used to operate a vehicle on any public highway in this state.  There are severe penalties for using dyed diesel fuel on the highway, (Either $10 for every gallon of diesel involved or $1,000, whichever is greater.)

To claim the exemption for the diesel fuel tax, the diesel fuel must be used:

  • In carrying on a trade or business of farming,
  • On a farm in California, and
  • For farming purposes, by the owner, tenant, or operator of the farm.

Please note that only the diesel fuel used on a farm for farming purposes is exempt. Diesel fuel used in your on-road vehicles on public highways, for example when transporting/hauling agriculture products from the farm/ranch to buyers, is subject to tax. You must pay the tax when you purchase diesel fuel for on-road use.

Your diesel fuel vendor may provide you with a BOE-608, Certificate of Farming Use, that you must complete to purchase diesel fuel for farming activities without paying the excise tax. The farmer exemption certificate meets criteria established by the Internal Revenue Service. To be valid, all requested information on the certificate must be provided. You will need to note on the certificate if it covers a particular purchase, all purchases, or a percentage of your purchases. You must annually renew your exemption certificate.

For further information, see Diesel Fuel Tax Regulation 1431, Diesel Fuel Used on a Farm for Farming Purposes.

Types of diesel fuel

For purposes of the exemptions, "diesel fuel" means:

  • Any liquid that is commonly or commercially known or sold as a fuel that is suitable for use in a diesel-powered highway vehicle. A liquid meets this requirement if, without further processing or blending, the liquid has practical and commercial fitness for use in the engine of a diesel-powered highway vehicle.

A liquid does not possess this practical and commercial fitness solely by reason of its possible or rare use as a fuel in the engine of a diesel-powered vehicle.

As a cultivator, you should provide a timely exemption certificate(s) to your fuel supplier when you purchase diesel for a qualifying use.

Sales of LPG for agricultural use are not subject to sales and use tax or use fuel tax when purchased by a qualified buyer.

The exemption from sales and use tax applies to the sale or purchase of LPG only if it is used in commercial crop production or harvesting.

You should provide a timely LPG exemption certificate to your vendor.

Nonagricultural use does not qualify for the exemption, even if it is used on a ranch or farm.

The exemption from use fuel tax applies to the sale or purchase of use fuels when it is used in agricultural equipment. For more information, see Use Fuel Tax Regulation 1316, Exempt Uses of Fuel in a Motor Vehicle.

For further information, see Regulation 1533, Liquefied Petroleum Gas.

When you make a purchase that qualifies for an exemption, you must provide an exemption certificate to your supplier.

In order for the certificate to be valid, you must:

  • Furnish the certificate timely to the seller.
  • Provide all relevant information:
    Your name and address.
    The type of property being purchased.
    You or your company's name, title, telephone number, address, and the seller's permit number.
  • Sign and date the document.

An exemption certificate will be considered timely if it is given at any time before the seller bills the purchaser for the property, or any time within the seller's normal billing and payment cycle, or any time at or prior to delivery of the property to the purchaser.

Listed below are the types of exemption certificates you may need:

You are required by law to keep business records so that we may verify the accuracy of your sales and use tax and cannabis tax returns and determine how much tax is due, if any.

Additionally, maintaining good books and records will help you keep track of your sales and purchases and assist you when preparing your sales and use tax and cannabis tax returns. Records must be kept for at least four (4) years, unless otherwise directed by the CDTFA. If you do not maintain records, it may be considered evidence of negligence or intent to evade the tax and may result in penalties.

Examples of records you must keep include:

  • Sales Invoices
  • Cash Register Tapes
  • Sales Journals
  • Resale Certificates
  • Shipping Documents
  • Purchase Invoices
  • Bank Records
  • Purchase Orders
  • Purchase Journals
  • Tax Returns

For more detailed information on sales and use tax record keeping, please see our Keeping Records webpage.

Please note, the Medicinal and Adult-Use Cannabis Regulation and Safety Act requires a licensee to keep accurate records of commercial cannabis activity for a minimum of seven years. For example, every sale or transport of cannabis or cannabis products from one licensee to another must be recorded on a sales invoice or receipt. Sales invoices and receipts may be maintained electronically and must be available for review. Each sales invoice must include:

  • Name and address of the seller.
  • Name and address of the purchaser.
  • Date of sale and invoice number.
  • Kind, quantity, size, and capacity of packages of cannabis or cannabis products sold.
  • The cost to the purchaser, including any discount applied to the price shown on the invoice.
  • The location of transport of the cannabis or cannabis product unless the transport was from the licensee's location.
  • Any other information specified by the licensing authority.

We will update this page as we receive information about the taxation requirements for the cannabis industry – please check back.

Please note: This guide is intended to provide general information regarding issues relating to the Sales and Use Tax Laws, Cannabis Tax Law, and other programs administered by the California Department of Tax and Fee Administration (CDTFA) (formerly BOE) which may affect the cannabis industry. It is not intended to provide advice or guidance in relation to other state and local statutes and regulations relating to the cannabis industry. Additionally, for the Federal Government's guidance regarding marijuana enforcement, see the U.S. Department of Justice website.

Manufacturer

A cannabis manufacturer is a person who produces or prepares cannabis or cannabis products at a fixed location, that packages or repackages cannabis or cannabis products, or labels or relabels its container. A microbusiness licensed to act as a manufacturer must comply with all of the same requirements as a manufacturer.

If you are a cannabis manufacturer, the CDTFA requires that you:

  • Register with the CDTFA for a seller's permit.
  • Collect the cannabis cultivation tax from cultivators from which you receive unprocessed cannabis and provide the cultivator with a receipt.
  • Pay the cultivation tax collected from cultivators to your distributor.
  • Electronically file your sales and use tax returns and pay any sales and/or use tax owed to the CDTFA. Even if you do not make taxable sales of cannabis, you are still required to file a return indicating your total sales with your claimed nontaxable or exempt sales during that particular reporting period.

In addition, you must also:

  • Obtain a manufacturer license issued by the California Department of Public Health.
  • Contact your city and/or county government office for information on local licenses you may be required to obtain.

Cannabis Cultivation Tax

As a cannabis manufacturer, you are required to collect the cannabis cultivation tax from cultivators when the unprocessed cannabis is first sold or transferred to you. You must then pay the cultivation tax collected to your distributor when the cannabis products are sold or transferred to the distributor for quality assurance, inspection, and testing.

You must provide an invoice, receipt, or other similar document to the cultivator that identifies:

  • The licensee receiving the product.
  • The cultivator from which the product originates, including the associated unique identifier.
  • The amount of cannabis cultivation tax.

Effective January 1, 2018, a cultivation tax on all harvested-cannabis (including medicinal cannabis and adult-use cannabis) that enters the commercial market is imposed on cultivators at a rate of:

  • $9.25 per dry-weight ounce of cannabis flowers, and
  • $2.75 per dry-weight ounce of cannabis leaves.

Beginning January 1, 2020, the CDTFA is required to annually adjust the cultivation tax rates to account for inflation. A special notice will be mailed to cannabis businesses informing them of the rates. The cultivation tax rates will also be posted on the Special Taxes and Fees Rate Page.

Industry Topics

The cultivation tax is based on the dry-weight ounce of cannabis. To properly calculate the cultivation tax due, it is important that you know the weight in ounces of each category of cannabis that is sold. Partial ounces must be included in the calculation of the cultivation tax due. The example below provides a sample scenario and guidance on how to compute the amount of cultivation tax due.

Example: A cultivator sells five pounds of dried cannabis flowers and three pounds of dried cannabis leaves.

To calculate the cultivation tax, the weight must be converted from pounds to ounces. There are 16 ounces in a pound.

5 x 16 = 80 ounces of dried cannabis flowers

3 x 16 = 48 ounces of dried cannabis leaves

The cultivation tax rates of $9.25 per dry-weight ounce of cannabis flowers and $2.75 per dry-weight ounce of cannabis leaves can be applied to the number of ounces in each category.

Tax on flowers (80 x $9.25)
$740
Tax on leaves (48 x $2.75)
$132
Total cultivation tax due:
$872

Cannabis may be weighed using many different units of measurement. To properly calculate the cultivation tax due, it is important that you know the weight in ounces.

Weight Conversion Chart
1 Gram
=
0.035 Ounces
=
0.001 Kilograms
1 Ounce
=
28.35 Grams
=
0.0625 Pounds
1 Pound
=
453.6 Grams
=
16 Ounces

When you sell your product to a customer, such as a distributor or retailer, and the customer provides you with a valid and timely resale certificate, the sale is not subject to sales tax.

It is important that you obtain timely valid resale certificates to support your sales for resale. If no timely valid resale certificate is provided, it will be presumed that sales tax also applies to the sale and you must report and pay the sales tax to the CDTFA. Even if all your sales are not subject to sales tax and you collect the proper resale certificates, you are still required to file a return and report your activities to the CDTFA. Simply indicate on the return that you made no taxable sales if this is the case.

See publication 103, Sales for Resale for more information regarding resale certificates for sales tax purposes.

When you purchase a product that will be resold, you can purchase it without paying sales and use tax by timely providing the seller with a valid resale certificate. Sales tax will apply if you sell the product at retail. However, when you purchase a product for resale without paying sales tax but, instead of selling it, you consume or use the product, then you owe the use tax based upon the amount of the purchase price.

For example, if you issue a resale certificate when purchasing a pipe but instead gift it to someone, you owe use tax based upon its purchase price.

The use tax rate is the same as the sales tax rate in effect at the location of use.

To pay use tax, report the purchase price of the taxable product as "Purchases Subject to Use Tax" on your sales and use tax return. Those purchases become part of the total amount that is subject to tax.

For more information about issuing resale certificates, see publication 103, Sales for Resale.

For more information on use tax, visit our use tax webpage.

Supplies, Equipment, and other Business Expenses

Products you purchase for use in your business (signs, fire extinguishers, display cases, weight and measure equipment, computers, etc.) are subject to sales tax at the time of purchase. Your supplier will normally collect and report the sales tax. However, if you purchase equipment or supplies for use in your business online or from an out-of-state seller, the sale may be subject to use tax.

If the out-of-state seller does not charge California use tax, you should report the purchase price on your sales and use tax return. To pay use tax, report the purchase price of the taxable products under Purchases Subject to Use Tax on your sales and use tax return. Those purchases become part of the total amount subject to tax.

In general, wrapping and packaging supplies, used to wrap merchandise or bags in which you place products sold to your customers, may be purchased for resale (see Regulation 1589 for more details). All other purchases of supplies are generally subject to tax.

To find out more about use tax, please visit our use tax webpage.

You are required by law to keep business records so that we may verify the accuracy of your sales and use tax return and determine how much tax is due, if any.

Additionally, maintaining good books and records will help you keep track of your sales and purchases and assist you when preparing your sales and use tax return. Records must be kept for at least four (4) years, unless otherwise directed by the CDTFA. If you do not maintain records, it may be considered evidence of negligence or intent to evade the tax and may result in penalties.

Examples of records you must keep include:

  • Sales Invoices
  • Cash Register Tapes
  • Sales Journals
  • Resale Certificates
  • Shipping Documents
  • Purchase Invoices
  • Bank Records
  • Purchase Orders
  • Purchase Journals
  • Tax Returns

For more detailed information on sales and use tax record keeping, please see our Keeping Records webpage.

Please note, the Medicinal and Adult-Use Cannabis Regulation and Safety Act requires a licensee to keep accurate records of commercial cannabis activity for a minimum of seven years. For example, every sale or transport of cannabis or cannabis products from one licensee to another must be recorded on a sales invoice or receipt. Sales invoices and receipts may be maintained electronically and must be available for review. Each sales invoice or receipt must include:

  • Name and address of the seller.
  • Name and address of the purchaser.
  • Date of sale and invoice number.
  • Kind, quantity, size, and capacity of packages of cannabis or cannabis products sold.
  • The cost to the purchaser, including any discount applied to the price shown on the invoice.
  • The location of transport of the cannabis or cannabis product unless the transport was from the licensee's location.
  • Any other information specified by the licensing authority.

Manufacturers and certain research and developers may qualify for a partial exemption of sales and use tax on certain manufacturing and research and development equipment purchases and leases. To be eligible for this partial exemption of sales and use tax, you must meet certain specified conditions.

You must:

  • Be engaged in certain types of business, also known as a "qualified person,"
  • Purchase "qualified tangible personal property," and
  • Use the property in a qualified manner.

A "qualified person" generally means a person who is primarily engaged (50 percent or more of the time) in those lines of business described in the North American Industry Classification System (NAICS) Codes 3111 to 3399, inclusive, 541711, or 541712. These lines of business generally include manufacturing business activities, and research and development business activities. A qualified person may be primarily engaged either as a legal entity or as an establishment within a legal entity in a qualifying line of business.

Qualified tangible personal property generally includes:

  • Machinery and equipment, including component parts and contrivances such as belts, shafts, moving parts, and operating structures, used in manufacturing or research and development, and treated as having a useful life of one or more years for state income or franchise tax purposes.
  • Equipment or devices used or required to operate, control, regulate, or maintain the machinery, including, but not limited to, computers, data-processing equipment, and computer software, together with all repair and replacement parts, with a useful life of one or more years, whether purchased separately or in conjunction with a complete machine, and regardless of whether the machine or component parts are assembled by the qualified person or another party.
  • Tangible personal property used in pollution control that meets or exceeds standards established by this state or any local or regional governmental agency within this state at the time the qualified tangible personal property is purchased.
  • Special purpose buildings and foundations used as an integral part of the manufacturing, processing, refining, fabricating, or recycling process, or that constitute a research or storage facility used during those processes. Buildings used solely for warehousing purposes after completion of those processes are not included.

The tangible personal property must generally be used 50 percent or more of the time in qualifying manner. The following activities are generally considered qualifying uses of the property:

  • Primarily used in any stage of the manufacturing, processing, refining, fabricating, or recycling of tangible personal property;
  • Primarily used in research and development;
  • Primarily used to maintain or repair any qualified tangible personal property described above;
  • Property used by a construction contractor purchasing that property for use in the construction of special purpose buildings and foundations used as an integral part of the manufacturing, processing, refining, fabricating, or recycling process, or that constitute a research or storage facility used during those processes. Buildings used solely for warehousing purposes after completion of those processes are not included.

For more specific information on the partial manufacturing exemption, please visit our Manufacturing and Research & Development Exemption guide.

We will update this page as we receive information about the taxation requirements for the cannabis industry – please check back.

Please note: This guide is intended to provide general guidance regarding issues relating to the Sales and Use Tax Laws, Cannabis Tax Law, and other programs administered by the CDTFA which may affect the cannabis industry. It is not intended to provide advice or guidance in relation to other state and local statutes and regulations relating to the cannabis industry. Additionally, for the Federal Government's guidance regarding marijuana enforcement, see the U.S. Department of Justice website.

The links below have more information about the topics covered in this guide, and other information you might find helpful:

Special Notices

Guides

Publications

Regulations

Other Helpful Resources