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.


New Information – For the latest information with respect to cannabis taxes regulations, refer to the Status of Proposed Rules and Regulations.

On November 8, 2016, California voters approved Proposition 64, Control, Regulate and Tax Adult Use of Marijuana Act. In 2017, to align the requirements for licensing and regulation of medicinal and adult-use of commercial cannabis, Proposition 64 was 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 Among other changes, SB 94 repealed the Medical Cannabis Regulation and Safety Act (MCRSA) and included certain provisions of the MCRSA in the licensing provisions of Proposition 64.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. Additionally, cannabis distributors must collect the cannabis excise tax from retailers and the cultivation tax from cultivators or manufacturers and report and pay the taxes to the CDTFA.

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,
    • $2.75 per dry-weight ounce of cannabis leaves that enter the commercial market, and
    • $1.29 per ounce of fresh cannabis plant*.

    *To qualify for the "fresh" plant category, the unprocessed cannabis must be weighed within two hours of harvesting.

Additionally, in 2017, Assembly Bill 133 amended several provisions in the cannabis tax law as follows:

  • Relief from 50 percent penalty for failure to pay taxes may be granted for reasonable cause.
  • Immature plants (including clones) and seeds are excluded from the cultivation tax.
  • Retailers are not required to separately state the excise tax on the sales invoice, but are required to set forth the following statement: "The cannabis excise taxes are included in the total amount of this invoice."

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.

The Videos section contains videos with important information for cannabis retailers, distributors, cultivators, and manufacturers.

The Tax Facts section provides information on specific topics important to the cannabis industry.

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.


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, or microbusiness licensed to act as 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,
  • $2.75 per dry-weight ounce of cannabis leaves, and
  • $1.29 per ounce of fresh cannabis plant.*

*To qualify for the "fresh" plant category, the unprocessed cannabis must be weighed within two hours of harvesting.

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 review the Bureau of Cannabis Control's (BCC) Collectives and Cooperatives Fact Sheet and contact the BCC 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 receive approval to pay in cash, you must call your local office for an appointment to make your payment at least three days in advance. Please see our Cash Payment Instructions for more information.

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 may exclude you from the EFT requirement. However, if you believe you were assessed a penalty in error, 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.


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,
    • $2.75 per dry-weight ounce of cannabis leaves, and
    • $1.29 per ounce of fresh cannabis plant.*
  • A 15 percent excise tax is imposed upon all purchasers of cannabis and cannabis products, including medicinal cannabis and adult-use cannabis.

*To qualify for the "fresh" plant category, the unprocessed cannabis must be weighed within two hours of harvesting.

The cultivation tax applies to all harvested cannabis, medicinal or adult-use, that enters the commercial market. Cannabis "enters the commercial market" when the cannabis or cannabis product, except for immature cannabis plants, clones and seeds, have completed and comply with both the quality assurance review and testing as required in the Medicinal and Adult-Use Cannabis Regulation and Safety Act. The cultivation tax also applies to cannabis transferred or sold to a distributor if the licensing agency allows cannabis or cannabis products to enter the commercial market without being tested. If the cannabis or cannabis product does not pass testing, cannot be remediated and does not enter the commercial market, the cultivator is entitled to the return of the cultivation tax collected.

The cultivation tax does not apply to cannabis that was sold or transferred to you or a manufacturer prior to January 1, 2018. You should keep documentation to support that the purchase or transfer of the cannabis from a cultivator was made prior to January 1, 2018.

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

You must collect the cultivation tax from cultivators when the cannabis enters the commercial market based on weight and category of the cannabis. 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. The fresh cannabis plant category includes flowers, leaves, or a combination of adjoined flowers, leaves, stems, and stalk of the fresh cannabis plant that is weighed within two hours of being harvested, and the cannabis is invoiced as such. Cannabis "enters the commercial market" when the cannabis or cannabis products, except for immature cannabis plants, clones and seeds, have completed and comply with both the quality assurance review and testing as required in the Medicinal and Adult-Use Cannabis Regulation and Safety Act.

You must also collect the cultivation tax from manufacturers when cannabis product is sold or transferred to you for quality assurance review and testing. You will need to know information on the category and weight of the cannabis that was used to manufacture cannabis product to properly complete the cannabis tax return. The manufacturer will need to calculate the amount of cultivation tax associated to each individual product item or batch that is transferred or sold to you based on weight and category of the cannabis that was used to produce the cannabis product.

The cultivation tax does not apply to cannabis that was transferred or sold to you or a manufacturer prior to January 1, 2018.

If the cannabis or cannabis product is sold or transferred to one or more manufacturer(s) prior to being sold or transferred to the distributor who arranges for testing and performs the quality assurance review, the cultivation tax must be collected based on the category and weight of the cannabis used to make cannabis product and passed to the next manufacturer who takes possession of the cannabis or cannabis product until the tax is remitted to the distributor who is responsible for remitting the tax to the CDTFA.

The distributor who arranges for the testing and performs the quality assurance review is the distributor who is responsible for remitting the cultivation tax to the CDTFA.

When collecting the cultivation tax, you must provide an invoice, receipt, or other similar document to the cultivator or manufacturer that includes and identifies the following:

  • Your name, as the licensee receiving the product.
  • The cultivator from which the product originates.
  • The associated unique identifier for the cannabis or cannabis product.
  • The amount of cultivation tax.
  • The date of sale or transfer.

The cultivation tax is based on the category and weight 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 enters the commercial market. Partial ounces, rounded to the nearest hundredth, 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.

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 × 16 = 80 ounces of dried cannabis flowers

3 × 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 × $9.25)
$740
Tax on leaves (48 × $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 cannabis or cannabis 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, neither required to participate in the transaction.

In an arm's length transaction, the average market price is the retailer's 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 any transportation charges and adding back in any discounts or trade allowances. For more information on what is included in wholesale cost, see the heading Arm's Length Transaction below.

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, under Cannabis Taxes.

The mark-up rate that is determined by CDTFA is not intended to be used to determine the amount for which each party sells their products; it is only used to calculate the amount of excise tax due in an arm's length transaction. Each party in the supply chain can use any mark-up they would like to establish their selling price.

In an arm's length transaction, you are not required to reconcile your books and records to the retailers'.

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 the retailer's sales, such as labor, service, and shipping and handling charges. For more information on gross receipts, see Revenue and Taxation Code section 6012.

An "arm's length transaction" is a sale that reflects the fair market price in the open market between two informed and willing parties, neither required to participate in the transaction. In an arm's length transaction, the average market price means the average retail price determined by the retailer's wholesale cost of the cannabis or cannabis products sold or transferred to a cannabis retailer, plus a mark-up determined by the CDTFA.  As a distributor, you are required to calculate and collect the amount of excise tax due on the cannabis or cannabis products you supply to retailers in an arm's length transaction.

The wholesale cost is the amount paid by the retailer for the cannabis or cannabis products, including any transportation charges and adding back in any discounts or trade allowances. A discount or trade allowance is when there are price reductions, or allowances of any kind, whether stated or unstated. Examples include, but are not limited to, short-term promotional incentives, such as receiving a discount or allowance for early payment, placing a large order, or having preferred-customer status. Discounts or allowances of this nature must be included in the wholesale cost. If you reduce your selling price to all retailers, the amount of the reduction would not be considered a discount or trade allowance required to be added back in when calculating the retailer's wholesale cost.

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, 000 to a retailer, which includes a preferred customer discount of $200, and charge a $300 transportation fee.  The wholesale cost paid by the retailer to you is $1,500 ($1, 000 + $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 determined by the CDTFA.

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

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

A "nonarm's length transaction" is a sale that does not meet the definition of an "arm's length transaction." The sale does not reflect the fair market price in the open market or is not between two informed and willing parties, neither required to participate in the transaction. An example of a nonarm's length transaction would be a cannabis business that is both a distributor and retailer of cannabis or cannabis product, or a microbusiness engaging in those activities. 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 should be reported and paid based on 15 percent of the cannabis retailer's gross receipts from the retail sale. Gross receipts include all charges related to the retailer's 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 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 customers 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 × 15%) to the CDTFA on their cannabis tax return along with the cultivation tax that is due on one pound of cannabis flowers that entered the commercial market.

You will use a mark-up rate to compute the average market price of cannabis and cannabis products sold or transferred to the retailer in an arm's length transaction. The mark-up rate that is determined by CDTFA is not intended to be used to determine the amount for which each party sells their products, only to calculate the amount of excise tax due in an arm's length transaction. Each party in the supply chain can use any mark-up they would like to establish their 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, under Cannabis Taxes.

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

  • The retailer's name, as the licensee receiving the product.
  • Your name.
  • The associated unique identifier for the cannabis or cannabis product.
  • The amount of cannabis excise tax.
  • The date of sale or transfer.

Retailers are required to pay the excise tax due on the sale of cannabis or cannabis products they purchased prior to January 1, 2018, and sold at retail on or after January 1, 2018, to a licensed distributor by the fifteenth of the following month in which they collected the excise tax.

You must document the amount of excise tax collected from cannabis retailers for cannabis or cannabis products the retailer acquired for sale prior to January 1, 2018. You must provide an invoice, receipt, or other similar document to the cannabis retailer that identifies:

  • The date you collected the excise tax.
  • Your name and seller's permit number (if you are not required to hold a seller's permit because you do not make sales, you must include a statement to that effect on the receipt).
  • The name of the cannabis retailer and the retailer's seller's permit number.
  • The amount of cannabis excise tax collected.

The amount of cannabis excise tax that you as a licensed distributor collected from the retailer on inventory that was acquired prior to January 1, 2018, must be reported during the reporting period that the cannabis excise tax was collected and is reported as excess excise tax on the cannabis tax return.

You may sell or transfer cannabis or cannabis products to another licensed distributor instead of to a cannabis retailer. In these instances, it is the distributor that sells or transfers the cannabis or cannabis products to the retailer who is responsible for collecting the cannabis excise tax from the retailer and reporting and paying it to the CDTFA.

If you sell or transfer cannabis or cannabis products to another distributor, you should document the transaction with an invoice or other documentation, to show that:

  • The sale or transfer is from one licensed distributor to another
  • No cannabis excise tax was collected

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 × 60%)
$4,500
Average market price of flowers
$12,000

Wholesale cost of candy bars
$300
Mark-up for candy bars ($300 × 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 × 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 × 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 distributor (or microbusiness operating as a distributor), you must report the cultivation tax and cannabis excise tax on your cannabis tax return and pay the amount due.

You must report the cultivation tax due for any cannabis or cannabis product that entered the commercial market during your reporting period and pay the amount due. You must separately report the total weight in ounces of medicinal and adult-use harvested cannabis that entered the commercial market by category (i.e. flowers, leaves, or fresh cannabis plant) on your cannabis tax return.

Additionally, you must report the cannabis excise tax due for any cannabis or cannabis products sold or transferred to a cannabis retailer during your reporting period and pay the amount due. This is required whether or not the retailer has already sold the cannabis or cannabis products, or whether or not you have collected full payment from the retailer. You must separately report the total average market price of medicinal and adult-use sales or transfers of cannabis to a retailer on your cannabis tax return.

The cannabis excise tax that you collected from retailers for the inventory the retailers purchased prior to January 1, 2018, and sold at retail on or after January 1, 2018, should be reported on your electronic cannabis tax return in the box available to report any excess excise tax collected and the amount due paid to the CDTFA. For these types of transactions, retailers will collect the excise tax from their customers based on the average market price. The average market price will not be available to you and it is not required to be stated on the invoice you provide to the retailer. For the specific invoice requirements related to these types of transactions, see the heading above, Cannabis Excise Tax on Inventory Retailer Acquired Prior to, and Sold at Retail After, January 1, 2018.

As a distributor, you may sell samples or promotional items to a retailer. How cannabis excise tax and the sales and use tax applies depends on whether the samples are sold to the retailer for marketing purposes; that is, the retailer will consume and not resell the items, or whether the samples are sold to the retailer for resale to the retailer's customers.

Samples not for resale by a retailer:

Excise Tax
If the sample or promotional items are sold to the retailer for marketing purposes, that is, the retailer does not resell the samples to their customers, the retailer is the consumer of the items. Samples or promotional items not sold for resale should be labeled accordingly; for example, "not for resale." The cannabis excise tax only applies to retail sales from a retailer to the retail purchaser. Therefore, you are not required to collect the cannabis excise tax on sales of samples to a cannabis retailer when the retailer is the consumer.

Sales and Use Tax
Generally, you owe sales tax on the sale of samples or promotional items sold to cannabis retailers when the retailer is not purchasing these for resale, and the sales tax is calculated based on the sales price. However, if the sample or promotional items are sold for less than 50 percent of your cost when the value of the merchandise is not obsolete or about to expire, you do not owe sales tax but you do owe use tax based on your cost of the product sold.

For example, you sell a cannabis sample to a retailer for $1.00, which you originally purchased from the cultivator or manufacturer for $10.00. Since your selling price is less than 50 percent of your cost to purchase the item, you owe use tax based on your purchase price of $10.00. If your sales and use tax rate is 9.5 percent, you owe use tax of $0.95 ($10.00 x 9.5 percent).

To pay use tax, report your cost (which is generally your purchase price) of the cannabis 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 on use tax, visit our use tax webpage.

Samples for resale by a retailer:

Excise Tax
If the sample or promotional items are sold to the retailer and the retailer will be selling the samples to consumers in a retail sale, the cannabis excise tax applies and you are required to collect the excise tax from the retailer based on the average market price of the cannabis or cannabis products.

In an arm's length transaction, you will calculate the average market price by applying the CDTFA's predetermined mark-up to the retailer's wholesale cost. The wholesale cost is the amount paid by the retailer for the cannabis or cannabis products, including any transportation charges. In addition, if you give any price reductions (stated or unstated), such as discounts or trade allowances off your supplier’s list price, you must add these reductions back when determining the retailer's wholesale cost.

Therefore, if you sell or promote regular, full-sized products at a discounted price, you must calculate the average market price using the regular wholesale price, before the discount or price reduction is given. However, when you sell samples or promotional items that are single-serve, or low cost, or formerly free samples, and the wholesale cost represents your supplier's list price, no discount is given. The amount the retailer paid for the cannabis or cannabis products is the amount you should use as the retailer's wholesale cost when calculating the average market price to determine the amount of excise tax that is due, even if the wholesale cost is very low or nominal. In a nonarm's length transaction, the average market price of the cannabis or cannabis products is equal to the retail selling price of the cannabis or cannabis products. As the distributor, you will apply the 15 percent cannabis excise tax to the retail selling price of the samples or promotional items, even when the retail selling price is very low or nominal.

Sales and Use Tax
When you sell cannabis samples or promotional items to a cannabis retailer for resale and the retailer provides you with a valid and timely resale certificate, the sale is not subject to sales tax. For more information on resale certificates, see publication 103, Sales for Resale.

The cannabis tax law imposes a mandatory 50 percent penalty for failure to pay the cultivation tax or cannabis excise tax when due. If you fail to pay the cannabis taxes by your due date, you may be relieved of the 50 percent penalty if the CDTFA finds that your failure to timely pay was due to reasonable cause and circumstances beyond your control, and occurred notwithstanding the exercise of ordinary care and absence of willful neglect.

In order to request relief of the mandatory 50 percent penalty, you must file a statement with the CDTFA, signed under penalty of perjury, which states the facts upon which the request for penalty relief is based. You may request relief of penalty by visiting our Online Services page, and following the directions under the Request Relief tab.

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 sales tax 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 who paid it, 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 cannabis 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.

Additionally, retailers you supply may request from you a refund of the excise tax you collected if the cannabis or cannabis products were never sold (e.g., product is destroyed or given away for free to a qualified medicinal cannabis patient), or the retailer's product was returned by their customers and a refund of the sale was given. To obtain a refund, you may file a CDTFA-101, Claim for Refund or Credit with the CDTFA. You will be required to submit documentation to support that you refunded to the retailer the amount being claimed and, if applicable, the retailer refunded the excise tax to the purchaser.

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.


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

A microbusiness licensed to act 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 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 and distributors are required to calculate and collect the amount of excise tax due on the cannabis or cannabis products they supply to you. 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 and cannabis products, are also subject to the 15 percent excise tax. The 15 percent excise tax amount must 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.

If you sell items which contain both a cannabis and cannabis accessory, such as a vape pen preassembled with cannabis cartridge and battery, only the cost of the cannabis is subject to the excise tax. For purposes of applying or calculating the proper amount of excise tax and record keeping, the cost of the individual items (for example, the cannabis cartridge, vape pen and battery) in the preassembled unit should be listed separately, otherwise it may appear from the invoice or sales receipt that the proper taxable amount is the entire cost of the preassembled unit.

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 subject to sales tax when retailers make deliveries with their own vehicles. For more information on shipping or delivery charges, see publication 100, Shipping and Delivery Charges.

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.

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.

Cannabis distributors are required to calculate and collect the cannabis excise tax from you on cannabis or cannabis products that they sell or transfer to you.  When you sell cannabis or cannabis products, you are required to collect the cannabis excise tax from your customer.  The easiest way is to include the cannabis excise tax that you paid to your distributor in the selling price to your customer.  You are not required to itemize the amount of cannabis excise tax collected from your customer on the receipt; however, you must include the following statement on the invoice or receipt:

Beginning January 1, 2018, distributors who supply you with cannabis or cannabis products are required to calculate and collect the 15 percent cannabis excise tax from you. When you sell those items at retail you are required to collect the cannabis excise tax from your customer. If you had cannabis or cannabis products in your inventory on January 1, 2018, you are required to collect the 15 percent cannabis excise tax from your customer when you sell those items on or after January 1, 2018, and then pay that amount to a licensed distributor with whom you have established a business relationship.

To collect the excise tax from your customers, apply the 15 percent excise tax to the "average market price."  The average market price can be calculated as either:

  • Your gross receipts, which is the retail selling price to your customer, or
  • Your wholesale cost plus a markup predetermined by the California Department of Tax and Fee Administration (CDTFA).

For examples of how to calculate the average market price, see the Tax Facts section, under the heading, Information for Cannabis Retailers - How to calculate and pay the cannabis excise tax on cannabis products acquired prior to, and sold at retail after, January 1, 2018.

When invoicing your customer, you are required to add the following statement on the invoice or receipt to your customer, "The cannabis excise taxes are included in the total amount of this invoice."

Regardless of which method you choose, you must pay the excise tax you collect to a cannabis distributor by the fifteenth of the month following the date you collected the excise tax from your customer.  Make sure you receive a receipt from the licensed distributor showing the amount of excise tax you collected and paid to the licensed distributor. 

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, neither required to participate in the transaction.

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 you, the retailer paid 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, under Cannabis Taxes.

The mark-up rate that is determined by CDTFA is not intended to be used to determine the amount for which each party sells their products, only to calculate the amount of excise tax due in an arm's length transaction. Each party in the supply chain can use any mark-up they would like to establish their selling price. Your actual selling price may be different than the average market price.

In an arm's length transaction, you are not required to reconcile the average market price the distributor calculates for determining the excise tax with your retail selling price of cannabis or cannabis products.

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.

An "arm's length transaction" is a sale that reflects the fair market price in the open market between two informed and willing parties, neither required to participate in the transaction. 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 you, plus a mark-up.

The wholesale cost is the amount you paid for the cannabis or cannabis products, including transportation charges and adding back in any discounts or trade allowances. A discount or trade allowance is when there are price reductions, or allowances of any kind, whether stated or unstated. Examples include, but are not limited to, short-term promotional incentives, such as receiving a discount or allowance for early payment, placing a large order, or having preferred-customer status. Discounts or allowances of this nature must be included in the wholesale cost. If distributors reduce their selling price to all retailers, the amount of the reduction would not be considered a discount or trade allowance required to be added back in when calculating your wholesale cost.

Distributors are required to calculate and collect the amount of excise tax due on the cannabis or cannabis products they supply to you. For more information on how the cannabis excise tax is calculated in an arm's length transaction, see the heading Cannabis Excise Tax and Sales Tax Computation below.

A "nonarm's length transaction" is a sale that does not meet the definition of an "arm's length transaction." The sale does not reflect the fair market price in the open market or is not between two informed and willing parties, neither required to participate in the transaction. An example of a nonarm's length transaction would be a business that is both a distributor and retailer of their cannabis product or a microbusiness engaging in those activities. 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 should be reported and paid based on 15 percent of the cannabis retailer's gross receipts. 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.

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.

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 × 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 × 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 × 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 × 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 × 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 × 8.5%)
$3.40
Total due ($40 + $3.40)
$43.40

CBD products that contain cannabis are subject to the cannabis excise tax. CBD products which are derived from industrial hemp plants and do not contain cannabis are not subject to the cannabis excise tax, even if the CBD product contains trace amounts of Tetrahydrocannabinol (THC)

The Cannabis Tax Law and the Health and Safety Code define cannabis and cannabis products. "Cannabis" is defined as all parts of the Cannabis sativa L. plant and it excludes industrial hemp. "Cannabis products" is defined as cannabis that has undergone a process that transforms the cannabis plant material into a concentrate, edible, topical, or among other things that contain cannabis.

The California Department of Food and Agriculture (CDFA) regulates the industrial hemp industry. Please contact CDFA for specific information on industrial hemp.

As a cannabis retailer, you are prohibited from giving away any amount of cannabis or cannabis products unless authorized to do so by the Bureau of Cannabis Control (BCC), the agency that administer the cannabis licensing and activities for retailers.

The BCC provides that free cannabis or cannabis products can be provided to medicinal cannabis patients or primary caregivers in possession of valid Medical Marijuana Identification Cards issued by the California Department of Public Health. The cannabis excise tax does not apply to medicinal cannabis provided for free (i.e., without consideration of any kind) to qualified patients. If you already paid the excise tax to a cannabis distributor, you may request a return of the excise tax from the distributor who supplied you with the cannabis or cannabis product. For additional information on what can and cannot be given away for free, please contact the BCC.

You owe use tax based on your purchase price of the cannabis or cannabis products you provide to medicinal cannabis patients or primary caregivers free of charge. Or, if you are also a manufacturer, you owe tax on the cost of the taxable items used to manufacture the cannabis products. To pay use tax, report your purchase price of the cannabis or cannabis 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 on use tax, visit our use tax webpage.

There may be times when you run a promotion which discounts the selling price of a cannabis or cannabis product, including, but not limited to, deep discounts or two for the price of one discounts. The cannabis excise tax and sales and use tax still apply to sales of discounted cannabis or cannabis product.

Excise Tax:
In an arm's length transaction, the distributor who supplies you with the cannabis or cannabis product will calculate the amount of cannabis excise tax due based on your wholesale cost plus the mark-up. You are not required to reconcile the average market price the distributor calculates for determining the excise tax due with your retail selling price. For example, if your average market price is $10.00 (wholesale cost + mark-up) and you sell the cannabis for $1.00, the cannabis excise tax due is $1.50 ($10.00 average market price × 15 percent). As a retailer, you are required to collect the excise tax due from your customer. You are not required to separately state the excise tax on the receipt you provide to your customer, but the receipts must state, "The cannabis excise taxes are included in the total amount of this invoice."

In a nonarm's length transaction, the cannabis excise tax due is based on your gross receipts. Therefore, if you sell cannabis product for $1.00, even if your wholesale cost is much more, the cannabis excise tax due is $0.15 ($1.00 x 15 percent).

Sales and Use Tax:
Sales made for less than 50 percent of cost
Generally, if a sale is made for less than 50 percent of your cost when the value of the merchandise is not obsolete or about to expire, you do not owe sales tax but you do owe use tax on your cost of the product sold.

For example, you sell a cannabis product that is not obsolete or about to expire for $1.00; you originally purchased this product from your supplier for $10.00. Since your selling price is less than 50 percent of your cost to purchase the cannabis product, you owe use tax based on your purchase price of $10.00. If the sales and use tax rate at your retail store location is 9.5 percent, you owe use tax of $0.95 ($10.00 x 9.5 percent) on this transaction.

To pay use tax, you should report your cost (which is generally your purchase price) of the cannabis 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.

However, if the cannabis or cannabis product is obsolete or about to expire, you owe sales tax based on the gross receipts (including the excise tax amount) of the retail sale. This applies to all merchandise regardless of whether you acquired it in an arm's length or nonarm's length transaction for cannabis excise tax purposes.

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

Buy One Get One Promotions
If you run a promotion where your customer buys an amount of cannabis or a particular cannabis product at the full selling price and then receives additional cannabis or cannabis product for a reduced price, you owe sales based on the amount you receive from your customer.

For example, you run a promotion that allows new customers who purchase an eighth of an ounce of cannabis for $35.00 to purchase another eighth of an ounce for $1.00. You owe sales tax based on your total selling price of $36 for this promotion, plus the excise tax. If the sales and use tax rate at your store location is 9.5 percent and the excise tax amount is $4.00, the sales tax due is $3.80 ($36.00 + $4.00 x 9.5 percent).

The Cannabis Tax Law provides that any person required to be licensed as a cannabis retailer, cultivator, distributor, and/or manufacturer collect the excise tax 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. Existing collectives and cooperatives are not required to be licensed until January 9, 2019, and may continue to operate if the legal requirements for operating a cannabis collective or cooperative are observed. Collectives and cooperatives may not be responsible for collecting and paying the cannabis excise tax or cultivation tax; however, collectives and cooperatives selling cannabis or cannabis products at retail must pay sales tax.

Cannabis Taxes:
For more information on the legal requirements that must be satisfied to continue operating a cannabis collective or cooperative, please review the Bureau of Cannabis Control's (BCC) Collectives and Cooperatives Fact Sheet and contact the BCC and/or the California Department of Food and Agriculture, and/or the California Department of Public Health to determine your cannabis licensing requirements. If you are not required to obtain a license, you are not responsible for the excise tax or cultivation tax.

Sales and Use Tax:
For sales and use tax purposes, a cannabis collective or cooperative generally means a group of people organized for the mutual benefit of its members who equitably share ownership in the cannabis or cannabis products produced and the costs and expenses incurred in producing the cannabis or cannabis products.

Generally a cannabis collective or cooperative charges a membership fee and/or requires a certain amount of labor be performed. Paying the fee and/or performing the labor entitle each member to a proportionate share of the cannabis or cannabis products produced. Sales or use tax does not apply to the transfer of cannabis or cannabis products to members of the collective or cooperative assuming each member of the collective or cooperative has an ownership interest in the cannabis, prior to its harvest, proportionate to his or her contribution, and no amount is charged above and beyond the equitable contribution of a member.

Sales tax does apply to any retail sales of cannabis or cannabis products if sales are made to individuals that are not members of the collective or cooperative, or if a member is charged an amount above and beyond his or her equitable share of the costs and expenses, or the member has no ownership interest in the cannabis or cannabis product prior to transfer.

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.

The Bureau of Cannabis Control (BCC) provides that only licensed retailers or microbusinesses authorized to sell cannabis to retail customers may sell cannabis or cannabis products at a special event. The cannabis excise tax and generally the sales and use tax apply to any retail sales of cannabis or cannabis product.

For more information on what tax applies to your sales, see the heading, Sales above. You will pay the cannabis excise tax due to a cannabis distributor and you will pay the sales and use tax due to the CDTFA on your sales and use tax return.

It is important to make sure that you appropriately register for a seller's permit for each location you make sales. Generally, if you will be selling items at a location for less than 90 days, you are considered a temporary seller and are required to hold a temporary seller's permit. You will need to register each temporary sales location. On the other hand, if you already hold a seller's permit for a permanent place of business but also make sales at a temporary location, you will not need to register for a separate temporary seller's permit. Instead, you must register for a sub-permit for each of your temporary locations.

The BCC is the agency that issues state licenses for special cannabis events. For more information on special events, please see the BCC website.

Sales Made on State-Designated Fairgrounds

Effective July 1, 2018, if you are a retailer who makes sales of tangible personal property that take place on the real property of a California state-designated fair ("state-designated fairground"), you must separately state the amount of those sales on your Sales and Use Tax return. Sales that take place on state-designated fairgrounds include over-the-counter sales on the fairgrounds and also may include sales in which the property is shipped or delivered to or from the fairground.

The separately reported amount will be used for funding allocation purposes only. There is no additional tax or fee due on these sales. For more information on the new reporting requirement, please see Tax Guide for Reporting Requirements on State-Designated Fairgrounds.

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.

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 × 8.5%)
$3.27
Total due ($38.50 + $3.27)
$41.77

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.

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

Cannabis Excise Tax

As a retailer, you must request refunds of the cannabis excise tax returned to a purchaser from the distributor you paid the excise tax to, which is the distributor who supplied you with the cannabis or cannabis product that was returned. You will need to provide documentation to the distributor showing the amount of cannabis excise tax that was refunded to the purchaser.

You must also request a refund of the cannabis excise tax paid to a distributor on cannabis and cannabis product that you later provided to qualified medicinal patients or primary caregivers for free from the distributor who supplied you with the cannabis or cannabis product. You will need to provide documentation to the distributor showing that the cannabis was provided for free to qualified patients.

Sales or Use Tax

If you believe you have paid more sales or use tax than you owe, 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. For more information, see our publication 117, Filing a Claim for Refund.

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.


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,
  • $2.75 per dry-weight ounce of cannabis leaves, and
  • $1.29 per ounce of fresh cannabis plant*.

The flower category includes all dried flowers of the cannabis plant, whether trimmed or untrimmed. The leaves category includes all other parts of the dried cannabis plant other than flowers that are consumed or sold. The fresh category includes flowers, leaves, or a combination of adjoined flowers, leaves, stems, and stalks of the unprocessed fresh cannabis plant that is invoiced as such.

*To qualify for the "fresh" plant category, the unprocessed cannabis must be weighed within two hours of harvesting.

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, under Cannabis Taxes.

Application of the Cultivation Tax

The cultivation tax applies to all harvested cannabis, medicinal or adult-use, that enters the commercial market. Cannabis "enters the commercial market" when the cannabis or cannabis products, except for immature cannabis plants, clones and seeds, have completed and comply with both the quality assurance review and testing as required in the Medicinal and Adult-Use Cannabis Regulation and Safety Act. The cultivation tax also applies to cannabis transferred or sold to a distributor if the licensing agency allows cannabis or cannabis products to enter the commercial market without being tested. If the cannabis or cannabis product does not pass testing, cannot be remediated, and does not enter the commercial market, you are entitled to the return of the cultivation tax collected from you. The distributor is responsible for returning to you the cultivation tax collected from you.

Sales to a Distributor

Distributors are required to collect the cultivation tax from you, as the cultivator, on all harvested cannabis based on weight and category of the cannabis that enters the commercial market.

Sales to a Manufacturer

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 based on the weight and category of the cannabis sold or transferred. The cultivation tax you pay to a manufacturer will be passed on to a distributor for payment to the CDTFA.

Invoicing Requirements

The invoice or receipt you receive from the manufacturer or distributor showing the amount of cultivation tax paid relieves you of the liability for the cultivation tax. The invoice or receipt should identify:

  • The distributor or manufacturer's name, as the licensee receiving the product.
  • Your name, as the cultivator.
  • The associated unique identifier for the cannabis.
  • The amount of cultivation tax.
  • The date of sale or transfer.

Industry Topics

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

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

  • The distributor or manufacturer's name, as the licensee receiving the product.
  • Your name, as the cultivator.
  • The associated unique identifier for the cannabis.
  • The amount of cultivation tax.
  • The date of sale or transfer.

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

The cultivation tax does not apply to harvested cannabis that you transferred or sold to a manufacturer or distributor prior to January 1, 2018.

However, the cultivation tax does apply if you harvested cannabis prior to January 1, 2018, and then sell or transfer the harvested cannabis to a distributor or manufacturer on or after January 1, 2018. You should keep documentation to support when the cannabis was harvested, when the cannabis was sold or transferred to a distributor or manufacturers, and, if the cultivation tax was not collected from you, the reason(s) why the cultivation tax was not collected.

The cultivation tax is based on the category and weight of cannabis that you, as a cultivator, sell or transfer to a distributor or a manufacturer. The distributor will need to know the weight in ounces of each category of cannabis that is sold or transferred to properly calculate the amount of cultivation tax due. Partial ounces, rounded to the nearest hundredth, must be included in the calculation of the cultivation tax due. The amount of cannabis that is sent for testing is excluded from the calculation. 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 × 16 = 80 ounces of dried cannabis flowers

3 × 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 × $9.25)
$740
Tax on leaves (48 × $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

There is no cultivation tax category for whole dry cannabis plant. If you sell or transfer cannabis as a whole dried cannabis plant to a distributor or manufacturer, you must use the cannabis flower category for the whole dried plant at a tax rate of $9.25 per dry-weight ounce.

Rather than paying the flower tax rate for the whole dry plant, you may do one of the following:

  • Separate the dried plant into leaves and flowers and separately weigh the dried cannabis flowers and leaves; the flowers at $9.25 per ounce, and the leaves at $2.75 per ounce.
  • Weigh the cannabis plant within two hours of harvesting in an unprocessed state and sell or transfer the cannabis as fresh cannabis plant at a tax rate of $1.29 per ounce.

All cannabis removed from your premises, except for plant waste, is presumed to be sold and is subject to the cultivation tax. There may be circumstances when cannabis is removed from your premises for valid purposes other than for entry into the commercial market.

This presumption may be rebutted by evidence demonstrating that the cannabis was removed from your location for purposes not subject to the cultivation tax such as, fire, flood, pest control, processing, testing, and storage required prior to the required testing.

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 license is a type of cultivation license issued by the California Department of Food and Agriculture. A processor performs trimming, drying, curing, grading, or packaging of cannabis and non-manufactured cannabis products.

Generally, cannabis removed from a cultivator's premises is presumed to be sold and is subject to the cultivation tax. Cannabis removed from a cultivator's premises for processing, however, is not subject to the cultivation tax at that time. The cultivator that sells or transfers the cannabis to the distributor or manufacturer is responsible for paying the cultivation tax. If you are a processor, you are responsible for paying the cultivation tax if you sell or transfer cannabis to a distributor or manufacturer.

Additionally, as a processor, any trimming, drying, curing, grading, and packaging activities are considered fabrication labor and are subject to sales tax. A cultivator may provide you 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 you must report and pay the sales tax to the CDTFA. Even if all your sales are not subject to sales tax and proper resale certificates are collected, you are still required to file a sales tax return and report your activities to the CDTFA. You should indicate on the sales tax 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 excise 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 CDTFA-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.


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

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,
  • $2.75 per dry-weight ounce of cannabis leaves, and
  • $1.29 per ounce of fresh cannabis plant.*

*To qualify for the "fresh" plant category, the unprocessed cannabis must be weighed within two hours of harvesting.

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.

The cultivation tax also applies if the licensing agency allows cannabis or cannabis products to enter the commercial market without being tested. If the cannabis or cannabis product does not pass testing or quality assurance review, cannot be remediated and does not enter the commercial market, the cultivator is entitled to the return of the cultivation tax collected from them. The distributor is responsible for returning the cultivation tax collected to the cultivator.

The cultivation tax does not apply to cannabis that was transferred or sold to you or a distributor prior to January 1, 2018. You should keep documentation to support that your purchases of cannabis were made prior to January 1, 2018, for cannabis products that are sent to a distributor and enter the commercial market after January 1, 2018.

Industry Topics

As a cannabis manufacturer, you are required to collect the cultivation tax from cultivators when the unprocessed cannabis is first sold or transferred to you based on the weight and category of the cannabis. You must then pay the cultivation tax you collected to your distributor, based on the weight and category of the cannabis that was used to produce the cannabis product, when the cannabis products are sold or transferred to the distributor for quality assurance review and testing.

If the cannabis product is sold or transferred to one or more manufacturer prior to being sold or transferred to the distributor who arranges for testing and performs the quality assurance review, the cultivation tax must be passed to the next manufacturer who takes possession of the cannabis product until the tax is remitted to the distributor based on the weight and category of the cannabis that was used to produce the cannabis products.

When collecting the cultivation tax, you must provide an invoice, receipt, or other similar document to the cultivator that includes and identifies the following:

  • Your name, as the licensee receiving the product.
  • The cultivator from which the product originates.
  • The associated unique identifier for the cannabis.
  • The amount of cultivation tax.
  • The date of sale or transfer.

The cultivation tax is based on the category and weight of cannabis. To properly calculate the cultivation tax due from the cultivator, it is important that you know the weight in ounces of each category of cannabis that is transferred or sold. Partial ounces, rounded to the nearest hundredth, must be included in the calculation of the cultivation tax due. The distributor will also need to know information on the category and weight of the cannabis sold or transferred to you to properly complete the cannabis tax return. The example below provides a sample scenario and guidance on how to compute the amount of cultivation tax due.

Example 1: 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 × 16 = 80 ounces of dried cannabis flowers

3 × 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 × $9.25)
$740
Tax on leaves (48 × $2.75)
$132
Total cultivation tax due:
$872

Example 2: Using the same figures as provided in Example 1 above, you use the five pounds of dried cannabis flowers to make 250 grams of cannabis oil. The 250 grams of cannabis oil are placed into 500 vape pen cartridges. Each vape pen cartridge contains 0.5 grams of cannabis oil. You transfer or sell 300 vape pens to distributor A and 200 vape pens to distributor B.

To calculate the amount of cultivation tax that would be passed along to each distributor, you must determine how much cannabis tax is associated with each vape pen cartridge. First, divide the $740 of tax on the cannabis flowers by the 250 grams of cannabis oil produced. The amount of tax associated per gram of oil is $2.96 ($740 / 250).

Next, divide the $2.96 of tax per gram of oil by two, as each vape pen cartridge contains only 0.5 grams of cannabis oil. The amount of tax associated with each vape pen cartridge is $1.48 ($2.96 / 2).

Amount of tax passed along to distributor A $444.00 ($1.48 × 300)

Amount of tax passed along to distributor B $296.00 ($1.48 × 200)

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

There is no cultivation tax category for whole dry cannabis plant. If a cultivator sells or transfers the cannabis as a whole dried cannabis plant to you as the manufacturer, you must use the cannabis flower category for the whole dried plant at a rate of $9.25 per dry-weight ounce.

Rather than paying the flower rate for the whole dry plant, the cultivator may do one of the following:

  • Separate the dried plant into leaves and flowers and separately weigh the dried cannabis flowers and leaves; the flowers at $9.25 per ounce, and the leaves at $2.75 per ounce.
  • Weigh the cannabis plant within two hours of harvesting in an unprocessed state and sell or transfer the cannabis to you as fresh cannabis plant at $1.29 per ounce.

As a manufacturer of cannabis products, when you receive unprocessed cannabis from a cultivator, you are required to collect the cultivation tax based on the weight and category of the cannabis. When you sell or transfer the cannabis product you manufactured to a licensed distributor, you must pay the cultivation tax you collected to the distributor based on the weight and category of the cannabis that you used to produce the cannabis products. However, you may manufacture cannabis product that you sell or transfer to another, or multiple, manufacturer(s) instead of directly to the distributor. In these instances, you pass the cultivation tax that you collected from the cultivator on the cannabis you used to manufacture the cannabis product you are selling or transferring to the next manufacturer(s).

To illustrate how the cultivation tax you collected from the cultivator follows the cannabis product to another manufacturer and finally to the distributor, assume you purchased 90 pounds of cannabis leaves from a cultivator.  The cultivation tax is calculated as follows:

You collect $3,960 in cultivation tax from the cultivator and provide the cultivator a receipt.  You then manufacture cannabis oil from the 90 pounds of cannabis and sell one third of the cannabis oil to each of three different manufacturers. 

When you sell the cannabis oil, you will pay each of the three manufacturers $1,320 ($3,960/3) in the cultivation tax you collected.  You pass the cultivation tax and the cannabis information (that is, the weight, category, and unique cannabis identifier number) to the next manufacturer(s), or other party.

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.

As a manufacturer, you may sell samples or promotional items to a retailer. How cannabis excise tax and the sales and use tax applies depends on whether the samples are sold to the retailer for marketing purposes; that is, the retailer will consume and not resell the items, or whether the samples are sold to the retailer for resale to the retailer's customers.

Samples not for resale by a retailer:

Excise Tax
If the sample or promotional items are sold to the retailer for marketing purposes, that is, the retailer does not resell the samples to their customers, the retailer is the consumer of the items. Samples or promotional items not sold for resale should be labeled accordingly; for example, "not for resale." The cannabis excise tax only applies to retail sales from a retailer to the retail purchaser. Therefore, the distributor is not required to collect the cannabis excise tax on sales of samples to a cannabis retailer when the retailer is the consumer.

Sales and Use Tax
Generally, you owe sales tax on the sale of samples or promotional items sold to cannabis retailers when the retailer is not purchasing these for resale, and the sales tax is calculated based on the sales price. However, if the sample or promotional items are sold for less than 50 percent of your cost when the value of the merchandise is not obsolete or about to expire, you do not owe sales tax, but you do owe use tax based on your cost of the product sold.

For example, you sell a cannabis product sample to a retailer for $1.00 when the cost of the taxable items used to manufacture the product cost you $10.00. Since your selling price is less than 50 percent of your cost of the taxable items used to manufacture the item, you owe use tax based on your cost of $10.00. If your sales and use tax rate is 9.5 percent, you owe use tax of $0.95 ($10.00 x 9.5 percent).

To pay use tax, report your cost (which is generally your purchase price) of the cannabis 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 on use tax, visit our use tax webpage.

Samples for resale by a retailer:

Excise Tax
If the sample or promotional items are sold to the retailer and the retailer will be selling the samples to consumers in a retail sale, the cannabis excise tax applies and the distributor is required to collect the excise tax from the retailer based on the average market price of the cannabis or cannabis products.

In an arm's length transaction, the distributor calculates the average market price by applying the CDTFA's predetermined mark-up to the retailer's wholesale cost. The wholesale cost is the amount paid by the retailer for the cannabis or cannabis products, including any transportation charges. In addition, if you give any price reductions (stated or unstated), such as discounts or trade allowances off your supplier’s list price, the distributor must add these reductions back when determining the retailer's wholesale cost.

Therefore, if you sell or promote regular, full-sized products at a discounted price, the distributor must calculate the average market price using the regular wholesale price, before the discount or price reduction is given. However, when you sell samples or promotional items that are single-serve, or low cost, or formerly free samples and the wholesale cost represents your supplier’s list price, no discount is given and the amount the retailer paid for the cannabis or cannabis product is the amount the distributor should use as the retailer's wholesale cost to calculate the average market price to determine the amount of excise tax that is due, even if the wholesale cost is very low or nominal.

In a nonarm's length transaction, the average market price of the cannabis or cannabis products is equal to the retail selling price of the cannabis or cannabis products. The distributor will apply the 15 percent cannabis excise tax to the retail selling price of the samples or promotional items, even when the retail selling price is very low or nominal.

Sales and Use Tax
When you sell cannabis samples or promotional items to a cannabis retailer for resale and the retailer provides you with a valid and timely resale certificate, the sale is not subject to sales tax. For more information on resale certificates, see publication 103, Sales for Resale.

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.

Filing a Cannabis Tax Return for Cannabis Distributors


Tax Help for the Cannabis Industry — Retailers


Tax Help for the Cannabis Industry — Distributors


Tax Help for the Cannabis Industry — Cultivators & Manufacturers


Other Video Resources

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.


As you know, beginning January 1, 2018, licensed distributors who supply you with cannabis or cannabis products are required to calculate and collect the 15 percent cannabis excise tax from you. When you sell those items at retail you are required to collect the cannabis excise tax from your customer. If you had cannabis or cannabis products in your inventory on January 1, 2018, you are required to collect the 15 percent cannabis excise tax from your customer when you sell those items and then pay that amount to a licensed distributor with whom you have established a business relationship.

To collect the excise tax from your customers, apply the 15 percent excise tax to the "average market price." The average market price can be calculated as either:

  1. Your gross receipts, which is the retail selling price to your customer, or
  2. Your wholesale cost plus a mark-up predetermined by the California Department of Tax and Fee Administration (CDTFA). The current mark-up rate is 60 percent.

The examples below illustrate the two methods to calculate the average market price and apply the 15 percent excise tax on your sale to your customer. Both examples assume that your retail selling price to your customer is $100 and the sales tax rate is 8 percent (your actual sales tax rate may be different):

Example # 1 – Based on your gross receipts:

Retail selling price
$100.00
15% excise tax ($100 × 15%)
$15.00
Total gross receipts ($100 + $15)
$115.00
8% sales tax ($115 × 8%)
$9.20
Total amount due ($115 + $9.20)
$124.20

You must pay the $15.00 excise tax collected from your customer to a licensed distributor with whom you have a business relationship. The sales tax is due on your total gross receipts, which includes the excise tax. You must report and pay the $9.20 in sales tax on the quarterly sales and use tax return you file with the CDTFA.

Example #2 – Based on your wholesale cost plus a 60 percent mark-up predetermined by the CDTFA.

Your wholesale cost
$75.00
60% current mark-up ($75 × 60%)
$45.00
Average market price ($75 + $45)
$120.00
15% Excise Tax Due ($120 × 15%)
$18.00

You must pay the $18.00 excise tax collected from your customer to a licensed distributor with whom you have a business relationship.

The sales tax is a separate computation as follows:

Retail selling price, including excise tax ($100 + $18)
$118.00
8% sales tax ($118 × 8%)
$9.44
Total amount due
$127.44

The sales tax is due on you your total gross receipts, which includes the excise tax. You must report and pay the $9.44 in sales tax on your quarterly sales and use tax return you file with the CDTFA.

When invoicing your customer, you are required to add the following statement on the invoice or receipt to your customer, "The excise taxes are included in the total amount of this invoice."

Regardless of which method you choose, you must pay the excise tax you collect to a licensed cannabis distributor by the fifteenth of the month following the date you collected the excise tax from your customer. Make sure you receive a receipt from the licensed distributor showing the amount of excise tax you collected and paid to the licensed distributor.

Beginning January 1, 2018, cannabis distributors are required to calculate and collect the cannabis excise tax from you on cannabis or cannabis products that they sell or transfer to you. In an arm's length transaction, your distributor calculates the cannabis excise tax based on the "average market price," which is computed by applying the CDTFA's predetermined mark-up rate (currently at 60 percent) to the wholesale cost of the cannabis and cannabis products sold or transferred in an arm's length transaction.

Your distributor will provide you with an invoice or receipt that contains the following:

  • Your name, as the licensee receiving the product,
  • The distributor's name,
  • The unique identifier associated with the cannabis or cannabis products, and
  • The amount of cannabis excise tax paid.

Although your cannabis distributor is required to use the predetermined mark-up rate to compute the average market price in an arm's length transaction, the predetermined mark-up rate is not meant or required to be used by you to determine your selling price of cannabis or cannabis products.

When you sell cannabis or cannabis products, you are required to collect the cannabis excise tax from your customer. The easiest way is to include the cannabis excise tax that you paid to your distributor in the selling price to your customer. You are not required to itemize the amount of cannabis excise tax collected from your customer on the receipt; however, you must include the following statement on the invoice or receipt,

"The cannabis excise taxes are included in the total amount of the invoice."

You are not required to reconcile the average market price the distributor calculates for determining the excise tax with your retail selling price of cannabis or cannabis products.

Remember, unless there is an applicable exemption, sales tax is due on your retail sales of cannabis or cannabis products and is computed on your retail selling price, including the cannabis excise tax.

As a cannabis retailer, you are prohibited from giving away any amount of cannabis or cannabis products unless authorized to do so by the Bureau of Cannabis Control (BCC), the agency that administers the cannabis licensing activities for retailers and distributors. If you are authorized to give cannabis or cannabis products away free of charge, the cannabis excise tax does not apply; but you do owe use tax on your purchase price of the cannabis or cannabis products.

Cannabis Excise Tax

The BCC provides that free cannabis or cannabis products can be provided to medicinal cannabis patients or primary caregivers in possession of valid Medical Marijuana Identification Cards issued by the California Department of Public Health. The cannabis excise tax does not apply to medicinal cannabis provided for free to qualified patients. If you already paid the excise tax to a cannabis distributor, you may request a return of the tax from the distributor who supplied you with the cannabis or cannabis product. For additional information on what can and cannot be given away for free, please contact the BCC.

Sales and Use Tax

You owe use tax based on your purchase price of the cannabis or cannabis products you provide to medicinal cannabis patients or primary caregivers free of charge. Or, if you are also a licensed manufacturer, you owe tax on the cost of the taxable items used to manufacture the cannabis products. To pay use tax, report your purchase price of the cannabis 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.

As a retailer, you are required to collect cannabis excise tax from your customer when you sell cannabis or cannabis products at retail. Therefore, you must collect from your customer the same amount of cannabis excise tax that you paid to your distributor.

Discounted cannabis – Arm's length transaction

For example, you purchase two items of cannabis products for $100 ($50 each) and your distributor calculates the average market price of these two items as $160 (your wholesale cost of $100 plus the current predetermined CDTFA markup of 60 percent). The distributor collects $24 in cannabis excise tax from you on this purchase ($160 x 15%).

If your regular selling price of these items is $100 each, when you offer your customers a "two for one promotion" on these items, that is, get two for the price of one, you are required to collect from your customer the $24 in cannabis excise tax paid to your distributor on these two items. Therefore, you should factor the excise tax you paid to your distributor into your discounted or promotional price.

You are not required to separately state the amount of cannabis excise tax collected from your customer on the receipt, but the receipt must state, "The cannabis excise taxes are included in the total amount of this invoice."

  1. This example assumes a mark-up rate of 60 percent (0.60). Your distributor will use the rate in effect at the time of sale. The current rate can be found on our website.

Discounted cannabis – Nonarm's length transaction

The cannabis excise tax due in a nonarm's length transaction is based on the retail selling price of the cannabis or cannabis products. For example, if you sell cannabis for a discounted price of $100 to your retail customer, the cannabis excise tax due is $15 ($100 x 15%), regardless of your wholesale cost.

You are not required to separately state the amount of cannabis excise tax collected from your customer on the receipt, but the receipt must state, "The cannabis excise taxes are included in the total amount of this invoice."

As a cultivator, you are responsible for the cultivation tax on all harvested cannabis entering the commercial market. Your distributor or manufacturer is required to collect the cultivation tax from you based on the category and weight of the cannabis.

The current cannabis cultivation tax categories are:

  • Cannabis flowers at $9.25 per dry-weight ounce that are harvested, dried, cured, and includes trimmed and untrimmed flower.
  • Cannabis leaves at $2.75 per dry-weight ounce that are harvested, dried, cured, and includes all parts of the cannabis plant other than cannabis flowers. 
  • Fresh cannabis plant at $1.29 per ounce that is weighed within two hours of harvesting and includes flowers, leaves, or a combination of flowers, leaves, stems, and stalks cut above the roots, or otherwise removed from the cannabis plant, without further processing, such as any form of drying, curing, or trimming.

Selling or transferring whole dry cannabis plants to a manufacturer

There is no cultivation tax category for a whole dry cannabis plant. When you sell or transfer the cannabis as a whole dried cannabis plant to a manufacturer, you must use the cannabis flower category for the whole dried plant at a rate of $9.25 per dry-weight ounce.  Or, you may do one of the following: 

  • Process the plant and separately weigh the dried cannabis flowers and leaves; the flowers at $9.25 per ounce, and the leaves at $2.75.
  • Weigh the cannabis plant within two hours of harvesting in an unprocessed state and sell or transfer the cannabis to a manufacturer as fresh cannabis plant at $1.29 per ounce.

As a manufacturer of cannabis products, when you receive unprocessed cannabis from a cultivator, you are required to collect the cultivation tax from the cultivator based on the weight and category of the cannabis.

You must provide a receipt to the cultivator that shows the following:

  • Your name (licensee receiving the cannabis)
  • Name of cultivator, including the unique identifier number of the cannabis
  • The amount of the cultivation tax (including weight and category of cannabis)
  • The date of sale or transfer

When you sell or transfer the cannabis product you manufactured to a licensed distributor, you must pay the cultivation tax collected on the unprocessed cannabis used to make the cannabis products to the distributor.The distributor is responsible for arranging testing and quality assurance prior to the sale or transfer of the cannabis product to a retailer. The distributor is also responsible for reporting and paying the cultivation tax to the CDTFA.

However, you may manufacture cannabis products that you sell or transfer to one or more manufacturers instead of directly to the distributor. In these instances, you pass the cultivation tax that you collected from the cultivator on the cannabis you used to manufacture the cannabis product to the next manufacturer(s).

To illustrate how the cultivation tax you collected from the cultivator follows the cannabis product to another manufacturer and finally to the distributor, assume you purchased 90 pounds of cannabis leaves from a cultivator. The cultivation tax is calculated as follows:

90 lbs. × 16 ounces per lb. = 1,440 ounce of leaves
Cultivation tax rate on leaves is $2.75 per ounce
Cultivation tax due (1,440 × $2.75) = $3,960

You collect $3,960 in cultivation tax from the cultivator and provide the cultivator a receipt. You then manufacture cannabis oil from the 90 pounds of cannabis and sell one third of the cannabis oil to three different manufacturers.

When you sell the cannabis oil, you will pass on to each of the three manufacturers $1,320 ($3,960/3) of the cultivation tax you collected. You pass the cultivation tax and the cannabis information (that is, the weight, category, and unique cannabis identifier number) to the next manufacturer(s), or other party.

You, and each party to the transaction, from the original sale from the cultivator to the final transfer or sale to the distributor, are required to provide a receipt, invoice, manifest, or some form of documentation to the next party in the transaction showing the cultivation tax and the weight and category of the cannabis being passed on from cultivation to when the cannabis enters the commercial market.

Your cannabis tax return and payment of the cannabis taxes for the period January 1, 2018, through March 31, 2018, are due by April 30, 2018. To assist you in preparing the cannabis tax return, watch our Filing a Cannabis Tax Return for Cannabis Distributors video located in the Videos Section of this guide.

The electronic cannabis returns are now available online. You may access the online return on our website from the Log In page by using your User ID and Password, or your Express Login Code and the Account Number.

As a cannabis distributor, you are responsible for reporting and paying both the cannabis excise tax collected from retailers to whom you sold or transferred cannabis or cannabis products, and the cultivation tax you collected from cultivators and manufacturers. You will report both these cannabis taxes on the same electronic return. Below are general instructions to correctly report the excise and cultivation taxes on the cannabis return.

Cannabis Excise Tax

To report the excise tax, you must enter the average market price of your sales or transfers of cannabis or cannabis products to a retailer during the reporting period in which the sale or transfer occurred. You must separately enter the total average market price on sales of medicinal cannabis and on sales of adult-use cannabis; there is a separate line on the return for each. The cannabis return will automatically compute the excise tax due based on the amount entered.

The "Add Excess Excise Tax Collected, if any" box is used to report:

  • Any amount of tax that was collected in excess of the amount of tax that is due and was not returned to the retailer and/or retail purchaser
  • The cannabis excise tax retailers paid to you on cannabis or cannabis products that were not purchased from you prior to January 1, 2018, and sold at retail on or after January 1, 2018.

Cultivation Tax

To report the cultivation tax, you must enter the category (flowers, leaves, or fresh cannabis plant) and ounces of cannabis that you acquired from a cultivator or a manufacturer during the reporting period that the cannabis enters the commercial market (that is, passes the required testing and quality assurance review). You must separately enter the weight and category for medicinal cannabis and for adult-use cannabis. The cannabis return will automatically compute the cultivation tax due based on the amounts entered.

As a licensed cannabis distributor, you are required to collect the cannabis excise tax from retailers that you supply with cannabis or cannabis products as of January 1, 2018. You are required to report (based on the average market price) and pay the cannabis excise tax to the CDTFA in the reporting period in which you sell or transfer the cannabis or cannabis products to the cannabis retailer.

However, you may sell or transfer cannabis or cannabis products to another licensed distributor instead of to a cannabis retailer. In these instances, it is the distributor that sells or transfers the cannabis or cannabis products to the retailer who is responsible for collecting the cannabis excise tax from the retailer and reporting and paying it to the CDTFA.

If you sell or transfer cannabis or cannabis products to another distributor, you should document the transaction with an invoice or other documentation, to show that:

  • The sale or transfer is from one licensed distributor to another
  • No cannabis excise tax was collected

As a cannabis distributor, you are required to collect the cannabis excise tax from retailers that you supply based on the average market price of the cannabis or cannabis products. In an arm's length transaction, you calculate the average market price by using the retailer's wholesale cost of the cannabis or cannabis products plus a mark-up predetermined by CDTFA.

The wholesale cost includes:

  • The amount the retailer paid for the cannabis or cannabis products, and
  • The transportation charges to the retailer.

In addition, you must add back any discounts or trade allowances given to the retailer. A discount or trade allowance is when there are price reductions, or allowances of any kind, whether stated or unstated. Examples include, but are not limited to, short-term promotional incentives, such as receiving a discount or allowance for early payment, placing a large order, or having preferred-customer status. However, if the selling price is given to all retailers, the amount of the reduction is not considered a discount or trade allowance and may be excluded from the retailer's wholesale cost.

Example

You sell cannabis products to a retailer in an arm's length transaction for $1,500 plus a $100 transportation charge. You allow the retailer a 25 percent discount if the retailer pays you when the cannabis products are delivered. The retailer earns the 25 percent discount of $375 ($1,500 x 25%), reducing the cost to $1,125 ($1,500 - $375). However, the retailer's wholesale cost used to calculate the average market price in an arm’s length transaction is $1,600, calculated as follows:

Cost of Discounted Cannabis to the Retailer
$1,125
Add Back 25% Discount
$375
Transportation Cost
$100
Retailer's Wholesale Cost
$1,600

The average market price and the cannabis excise tax due are calculated as follows:

Retailer's Wholesale Cost
$1,600
Mark-up ($1,600 x 60%)
$960
Average Market Price ($1,600 + $960)
$2,560
Excise Tax Due ($2,560 x 15%)
$384

For this transaction, you collect $384 in cannabis excise tax from the retailer plus your charges of $1,125 for the cannabis products and $100 for the transportation charge.

  1. This example assumes 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.

You are subject to the same requirements as an independent/third party distributor if you are a cannabis business licensed as a microbusiness that is authorized to engage in distribution, or if you hold multiple cannabis license types to operate as a distributor as well as a cultivator and/or manufacturer. This Tax Fact explains how and when to report the cultivation tax if you are a distributor that obtains cannabis or cannabis products from a related or affiliated cultivator and/or manufacturer.

Cultivator supplies cannabis to a related/affiliated manufacturer

If you are a microbusiness that cultivates and manufactures cannabis, or a related/affiliated cultivator and manufacturer, you are responsible for calculating the cultivation tax due based on the weight and category of the cannabis that you transfer from the cultivation part of your business to the manufacturing part of your business.

Manufacturer supplies cannabis products to a related/affiliated distributer

As a manufacturer, you are responsible for keeping track of the weight and category of the cannabis used to make a cannabis product. You should provide the weight and category of the cannabis to your related/affiliated distributor.

Distributing cannabis or cannabis products for a related/affiliated cultivator or manufacturer

As a distributor who distributes cannabis or cannabis products for a related/affiliated cultivator or manufacturer, you are responsible for keeping track of the weight and category of the cannabis or cannabis products. If you are also the distributor who arranges for the required testing and you conduct the quality assurance review, then you are responsible for reporting the weight and category of the cannabis or cannabis products entering the commercial market and paying the cultivation tax due to the California Department of Tax and Fee Administration (CDTFA) on the cannabis tax return.

When to report and pay the cultivation tax

  • Distributors are required to report and pay the cultivation tax to the CDTFA  during the reporting period that the cannabis or cannabis products passes the required testing and quality assurance review and is considered to have entered the commercial market.
  • The electronic return and payment of the cultivation tax is due the last day of the month following the reporting period. For example, the filing deadline for the first quarter of 2018 is due by April 30, 2018.

Cannabis accessories such as pipes, pipe screens, vape pens and vape pen batteries (without cannabis), rolling papers, and grinders are not subject to the 15 percent cannabis excise tax. However, as a cannabis retailer, your retail sales of cannabis accessories are subject to sales tax and must be reported on your sales and use tax return.

You may purchase cannabis accessories that you plan to sell in your business from your vendor/supplier for resale. You may issue a resale certificate to your vendor to buy cannabis accessories or other property you will sell in your regular business operations prior to making any use of the product.

For more information on using a resale certificate, see publication 103, Sales for Resale.

Vape Pen Batteries Sold With Cannabis

Cannabis accessories such as vape pen batteries sold in preassembled units may include cannabis. If you are a cannabis distributor who sells these preassembled units with cannabis, you should separately list the retailer's cost of the cannabis on your invoice to the retailer in order to properly apply the excise tax to the cannabis only.

The Bureau of Cannabis Control (BCC) regulates the activities of distributors and retailers. You should contact the BCC to determine if the sale of a specific accessory or item is an allowable activity.

Products that Contain Cannabis

As a reminder, the retail sale of cannabis and products containing cannabis are subject to the 15 percent cannabis excise tax and, unless an exclusion or exemption is applicable, are also subject to the sales tax. Cannabis products include items such as pre-rolls, oils, edibles (cookies, butters, candies, sodas, etc.), topicals, waxes, and balms.

You are subject to the same cannabis excise tax collection and reporting requirements as an independent, third party distributor if you are a cannabis business licensed as a microbusiness that is authorized to act as a distributor, or if you hold multiple cannabis licenses to operate as both a distributor and retailer. This Tax Fact explains how and when to report the cannabis excise tax if your business is both the distributor and retailer of cannabis or cannabis products.

Distributor supplies cannabis or cannabis products to a related/affiliated retailer

It is considered a "nonarm's length" transaction when you transfer cannabis or cannabis products to the retail portion of your business.  In a nonarm's length transaction, the average market price is the gross receipts from the retail sale of the cannabis or cannabis products.  You are, therefore, required to calculate the excise tax based on the gross receipts (all charges related to the sale of the cannabis/cannabis products).

When to report and pay the cannabis excise tax

  • You are required to report and pay the cannabis excise tax on all cannabis or cannabis products you transferred to your retail sales area or activity of your business on your electronic cannabis tax return during the reporting period that the transfer of the cannabis or cannabis products occurred.
  • The electronic cannabis tax return and payment of the cannabis excise tax are due on the last day of the month following the reporting period.

Cannabidiol (CBD) products containing "cannabis" as defined in the Cannabis Tax Law (Revenue and Taxation Code § 34010) and the Health and Safety Code (Health and Safety Code §§11018, 11018.1) are subject to the cannabis excise tax.  CBD products that do not contain cannabis are not subject to the cannabis excise tax, even if the CBD product contains trace amounts of Tetrahydrocannabinol (THC).

"Cannabis" is defined as all parts of the Cannabis sativa L. plant and it excludes industrial hemp, as defined in Health and Safety Code section 11018.5. "Cannabis products" is defined as cannabis that has undergone a process that transforms the cannabis plant material into a concentrate, edible, topical, or among other things that contain cannabis.

In general, CBD products made from industrial hemp, as defined, are not subject to the cannabis excise tax. The California Department of Food and Agriculture (CDFA) regulates the industrial hemp industry. Please contact CDFA for specific information on industrial hemp.

As a distributor, manufacturer, or cultivator, you may sell samples or promotional items to a cannabis retailer. How the cannabis excise tax and the sales and use tax apply depends on whether the samples are sold to the retailer for marketing purposes for the retailer's use, or whether the samples are sold to the retailer for resale to the retailer's customers.

Samples not sold for resale to a retailer

Cannabis Excise Tax

If the samples or promotional items are sold to the retailer for marketing purposes, that is, the retailer does not resell the samples to their customers, the retailer is the consumer of the items. Samples or promotional items not sold for resale should be labeled as "not for resale." The cannabis excise tax applies when cannabis or cannabis products are sold by a cannabis retailer to their retail customer. Therefore, the distributor is not required to collect the cannabis excise tax on sales of samples to a cannabis retailer when the retailer is the consumer of the samples and does not resell them.

Sales and Use Tax

Generally, the seller owes sales tax on the sale of samples or promotional items sold to cannabis retailers when the retailer is not purchasing these for resale. The sales tax is based on the seller's selling price. However, if the sample or promotional items are sold for less than 50 percent of cost when the value of the merchandise is not obsolete or about to expire, the seller does not owe sales tax, but instead owes use tax based on the cost of the product sold.

Samples sold for resale to a retailer

Cannabis Excise Tax

If the sample or promotional items are sold to the retailer for resale, the cannabis excise tax applies. The distributor is required to collect the excise tax from the retailer based on the average market price of the cannabis or cannabis products.

In an arm's length transaction, the distributor calculates the average market price by applying the CDTFA's predetermined mark-up to the retailer's wholesale cost. The wholesale cost is the amount paid by the retailer for the cannabis or cannabis products, including any transportation charges. In addition, if any price reductions (stated or unstated) are given to the retailer, such as discounts or trade allowances off the supplier's list price, the amount of the reduction must be added back to the sales price when determining the retailer's wholesale cost.

Therefore, if the seller promotes regular, full-sized cannabis products at a discounted price to a retailer, the distributor must calculate the average market price of the cannabis by using the regular wholesale price, before the discount or trade allowance is given.

However, if a seller sells samples or promotional items to a retailer, and the cost paid by the retailer represents the list price, the distributor should use the amount paid by the retailer as the wholesale cost in order to calculate the average market price, even if the amount paid by the retailer is low or nominal. In the instances where the amount paid by the retailer is the same as the supplier's list price, no discount has been given.

  1. The current mark-up rate can be found on our website.

Sales and Use Tax

When cannabis samples or promotional items are sold to a cannabis retailer who resells the items in their business, the sale to the cannabis retailer is not subject to sales tax. The seller should obtain and keep a valid and timely resale certificate from the purchaser as support that the sale was for resale. For information on sales for resale and resale certificates, see publication 103, Sales for Resale.

Please note: The Bureau of Cannabis Control is responsible for the licensing and regulations of the cannabis activities for distributors and retailers. For information on whether distributors are allowed to provide samples to retailers for free or for a nominal amount, please contact the Bureau of Cannabis Control.

In general, the cultivation tax does not apply to immature plants, clones, and seeds. However, the cannabis excise tax and the sales and use tax do apply to the retail sale of immature plants, clones and seeds.

Cultivation Tax

The cultivation tax does not apply to the sale or transfer of immature plants, including clones, or seeds. The cultivation tax is imposed on cultivators for harvested cannabis that enters the commercial market; however, the definition of "enters the commercial market" specifically excludes immature plants and seeds.

Excise Tax

Immature plants, clones, and seeds are subject to the 15 percent cannabis excise tax when sold at retail. Nurseries may sell immature plants, clones, or seeds to another cannabis licensee. However, a distributor is required to transport the cannabis from the nursery to the licensee and when the immature plants, clones, or seeds are sold or transported to a retailer, the distributor is also required to collect the 15 percent cannabis excise tax from the retailer based on the average market price of the immature plants, clones, or seeds. The retailer is responsible for collecting the cannabis excise tax from their retail customers when the immature plants, clones, or seeds are sold at retail.

Sales and Use Tax

Sales tax applies to the retail sale of immature plants, clones, and seeds, unless otherwise exempt. Sales and use tax does not apply to a cultivator’s purchase of immature plants, clones, and seeds when the products grown from them will be resold as part of the cultivator’s regular business activities. The seller should obtain and keep a valid and timely resale certificate from the purchaser as support that the sale was for resale. For information on sales for resale and resale certificates, see publication 103, Sales for Resale.

Cannabis cultivators, including processors, are responsible for paying the cultivation tax when selling or transferring cannabis to distributors or manufacturers based on the weight and category (flowers, leaves, or fresh cannabis plant) of the cannabis. With respect to pre-rolled cannabis, a processor owes the cultivation tax when the processor transfers or sells the pre-rolled cannabis to a distributor.

Processor that transfers/sells pre-rolls to distributor pays cultivation tax

When a cultivator sells or transfers cannabis to a processor for further processing, including making cannabis pre-rolls, the cultivator is not responsible for the cultivation tax at this time. However, documentation such as an invoice or manifest should, in addition to other requirements, indicate the transaction was between a cultivator and a processor and that there was no cultivation tax collected on the transaction. When the processor sells or transfers the cannabis pre-rolls to a distributor, the processor must pay the cultivation tax to the distributor based on the weight and category of the cannabis that was used to make the cannabis pre-rolls. The invoice or manifest between the processor and distributor should indicate the weight and category of the cannabis used to make the cannabis pre-rolls.

Distributor pays cultivation tax on cannabis tax return

The distributor that arranges for the required testing and conducts the quality assurance review is responsible for collecting and reporting the cultivation tax based on the weight and category of the cannabis used to make the cannabis pre-rolls. The distributor is required to report and pay the cultivation tax on their cannabis tax return during the reporting period that the cannabis enters the commercial market (that is, passed required testing and quality assurance review).

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

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