Historical Industry Topics for Cannabis Businesses
The historical industry topics listed below apply to transactions that occurred prior to January 1, 2023.
Historical Industry Topics For Retailers
Cannabis Excise Tax Collection (January 1, 2018 – December 31, 2022)
The cannabis excise tax is imposed on the purchaser of cannabis or cannabis products. As a retailer, you are required to collect the cannabis excise tax from your customers at the time of the retail sale of cannabis or cannabis products.
For sales or transfers of cannabis or cannabis products from distributors before January 1, 2023
As a cannabis retailer, you must pay the cannabis excise tax to your distributor for cannabis or cannabis products you purchased or received from your distributor prior to January 1, 2023. Cannabis 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 before January 1, 2023, to you based on the average market price of the cannabis or cannabis products. When you sell cannabis or cannabis products in a retail sale prior to January 1, 2023, you are required to collect the cannabis excise tax from the purchaser based on the average market price of the cannabis or cannabis products. The easiest way to calculate the cannabis excise tax is to include the amount of cannabis excise tax that you paid to your distributor in the selling price to the purchaser. You are not required to itemize the amount of cannabis excise tax collected from your customer on the receipt for your retail sales made prior to January 1, 2023. You must include the following statement on every invoice or receipt to purchasers:
“The cannabis excise taxes are included in the total amount of this invoice.”
Average Market Price (January 1, 2018 – December 31, 2022)
A cannabis excise tax applies to the average market price of cannabis or cannabis products sold in a retail sale prior to January 1, 2023. 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.
Arm's Length Transaction
An “arm's length transaction” is a sale entered into in good faith for a price that reflects the fair market value 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 determined by us. On and after January 1, 2020, the wholesale cost is the amount you, the retailer, paid for the cannabis or cannabis products, including transportation charges. For transactions prior to January 1, 2020, 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. For more information on wholesale cost, see the New Definition of Wholesale Cost for Calculating the Average Market Price heading under the Tax Facts tab.
CDTFA was required to determine the mark-up rate every six months, which applies through December 31, 2022. The mark-up rate is posted on our Special Taxes and Fees Rates Page, under Cannabis Taxes.
The mark-up rate is not intended to be used to determine each party's selling price. The mark-up is only used by the distributor 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 retail selling price may be different than the average market price. The excise tax amount collected from your customers should be the same amount collected from you by your distributor.
Nonarm's Length Transaction
A nonarm's length transaction is a transaction that does not meet the definition of an arm's length transaction, meaning there is no good faith sale to a cannabis retailer at a price reflecting fair market value.
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, certain transportation charges, and any local business tax listed separately on the invoice or receipt. For more information on gross receipts, see Revenue and Taxation Code section 6012 and the Nonarm's Length Transaction heading on this page.
Arm's Length Transaction (January 1, 2018 – December 31, 2022)
An “arm's length transaction” is a sale entered into in good faith, between the cannabis retailer and its supplier at a sales price that reflects the fair market value in the open market between two informed and willing parties, neither under any compulsion 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.
Distributors are required to calculate and collect the amount of cannabis excise tax due on the cannabis or cannabis products they supply to you prior to January 1, 2023. 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.
Nonarm's Length Transaction (January 1, 2018 – December 31, 2022)
A “nonarm's length transaction” is a transaction that does not meet the definition of an “arm's length transaction.” In other words, the transaction is not a sale to a cannabis retailer that is entered into in good faith and that reflects fair market value in the open market. One example of a nonarm's length transaction would be when a distributor sells cannabis to a cannabis retailer at a sales price that is lower than what the same distributor offers to other cannabis retailers and, which does not reflect the fair market value.
When a microbusiness, authorized to cultivate cannabis or manufacture cannabis products, also sells cannabis or cannabis products at retail, there is no sale that reflects the fair market price in the open market from the cultivation or manufacturing part of the business to the retail part of the business. As such, the transaction would be a nonarm’s length transaction.
In a nonarm's length transaction, the average market price is 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, delivery charges, and any local business tax listed separately on the invoice or receipt. For example, if you, as the retailer, deliver cannabis or cannabis products to your customers with your own vehicles and there is no explicit written agreement executed prior to the delivery that title passes to the purchaser before delivery, the charge for that delivery is included in the gross receipts subject to the cannabis excise tax. Additionally, if you add a separate amount to your customers' invoices or receipts to cover a cannabis business tax required by your city, that amount is included in the gross receipts subject to the cannabis excise tax. 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 and calculate the cannabis excise tax and sales tax due in a nonarm's length transaction that occurred prior to January 1, 2023:
Example – A microbusiness (which is licensed to be a cultivator, distributor, manufacturer, and retailer) grows and sells the flowers at retail to their customers for $35.00 per eighth of an ounce. The microbusiness also charges $5.00 for delivery. 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.
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 or transferred the product to the retailer.
Excise tax calculation:
Sales tax calculation:
The microbusiness is responsible for reporting and paying the cannabis excise tax of $6.53 ($43.50 × 15%) to us on their cannabis tax return. The microbusiness is also responsible for reporting and paying the sales tax of $4.25 ($50.03 × 8.5%) to us on their sales and use tax return.
Please check with your local jurisdiction for guidance on how the local business tax shall be calculated and for the current rate.
Mark-up Rate (January 1, 2018 – December 31, 2022)
Distributors use a mark-up rate to compute the average market price of cannabis and cannabis products sold or transferred prior to January 1, 2023, to a cannabis retailer 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.
CDTFA was required to determine the mark-up rate every six months, which applies through December 31, 2022. The mark-up rate is posted on our Special Taxes and Fees Rates Page.
Cannabis Excise Tax and Sales Tax Computation (January 1, 2018 – December 31, 2022)
The cannabis excise tax is 15 percent of the average market price of cannabis or cannabis products sold in a retail sale prior to January 1, 2023, 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 75 percent (0.75). You must use the rate in effect at the time of sale. The mark-up rates can be found on the Special Taxes and Fees Rates Page, under Cannabis Taxes.
Example #1 – Cannabis – from purchase to resale
This example explains:
- How the distributor computes and charges you (the retailer) the cannabis excise tax due on cannabis or cannabis products that you purchase for resale prior to January 1, 2023;
- How to collect the cannabis excise tax due from the purchaser for your retail sales made prior to January 1, 2023; and
- How to compute the sales tax due on your retail sales of cannabis or cannabis products.
1. How the distributor computes the cannabis excise tax due for transactions that occur prior to January 1, 2023
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 value in the open market.
Your distributor charges you $1,200 for the cannabis flowers 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 75 percent mark-up to your wholesale cost as follows:
The distributor computes the cannabis excise tax due of $393.75 on the average market price as follows:
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 or cannabis products made prior to January 1, 2023
When reselling the cannabis flowers purchased from your distributor in this transaction, you must collect the cannabis excise tax from the purchaser. You may not sell cannabis or cannabis products unless the purchaser pays the excise tax.
You are not required to itemize the cannabis excise tax on your receipt or invoice you provide to the purchaser, 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 or cannabis products
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. 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:
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:
Example 3 – Medicinal cannabis sold to a qualified patient or their primary caregiver
You sell an eighth of an ounce of cannabis for $38.00, which includes the cannabis excise tax, to a purchaser 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 purchaser 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:
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 purchaser 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 purchaser 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 applicable exemption from the cannabis excise tax.
Sales tax calculation:
Example 5 – Medicinal cannabis sold to a purchaser with only a physician's note
You sell cannabis infused lotion for $40.00, which includes the cannabis excise tax, to a purchaser 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 purchaser 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.
Sales tax calculation:
Receipts for Cannabis Excise Tax Paid to Cannabis Retailers (January 1, 2018 – December 31, 2022)
Each cannabis retailer is required to provide a purchaser (retail customer) of cannabis or cannabis products with an invoice, receipt, or other similar document for retail sales made prior to January 1, 2023, that includes the following statement:
“The cannabis excise taxes are included in the total amount of this invoice.”
This invoice or receipt with the required statement is sufficient to relieve the purchaser of their liability for the cannabis excise tax due on the purchase of cannabis or cannabis products.
The cannabis retailer may separately state the charge for the cannabis excise tax when cannabis or cannabis products are sold to the retail customer prior to January 1, 2023, and the separately stated charge must equal the excise tax required to be paid to the distributor, which may be more or less than 15-percent of the actual retail selling price. When the amount collected from the retail customer is more than what was paid to the distributor, the retailer has collected excess tax, which must be returned to the customer or paid to the distributor. The retailer cannot keep the excess tax amount collected.
Tax Fact
Cultivation Tax No Longer Applies
Beginning July 1, 2022, the cultivation tax no longer applies to cannabis or cannabis products that enter the commercial market. Additionally, distributors and manufacturers are no longer required to collect the cultivation tax from cultivators when a cultivator sells or transfers cannabis to a manufacturer or distributor on or after July 1, 2022.
What happens when a cultivator sells cannabis to a distributor or manufacturer on or after July 1, 2022?
The distributor or manufacturer must not collect the cultivation tax from the cultivator. The invoice between the cultivator and distributor or manufacturer should indicate no cultivation tax was due.
What happens when a cultivator sells cannabis to a distributor or manufacturer before July 1, 2022, and the cannabis or cannabis products enter the commercial market on or after July 1, 2022?
The cultivation tax is not due on cannabis or cannabis products that enter the commercial market on or after July 1, 2022, even if a cultivator sold or transferred cannabis prior to July 1, 2022. Any cultivation tax collected on cannabis that entered the commercial market on or after July 1, 2022, must be returned to the cultivator that originally paid the cultivation tax. Cannabis enters the commercial market when the cannabis or cannabis products pass the required testing and quality assurance review.
How does a manufacturer pay excess cultivation tax collected?
A manufacturer who collected cultivation tax and cannot return it to the cultivator who paid it must transfer the excess cultivation tax collected to a distributor for the distributor to pay the excess cultivation tax collected to CDTFA.
How does a distributor pay excess cultivation tax?
A distributor must pay excess cultivation tax collected to CDTFA by reporting and paying the excess cultivation tax collected on their next cannabis tax return.
Historical Industry Topics for Distributors, Manufacturers, and Cultivators
Average Market Price (January 1, 2018 – December 31, 2022)
Through December 31, 2022, a 15 percent cannabis excise tax applies to the average market price of the cannabis or cannabis products sold at retail. 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.
Arm's Length Transaction
An “arm's length transaction” is a sale entered into in good faith for a price that reflects the fair market value 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.
We determine the mark-up rate every six months through the reporting period ending December 31, 2022. Prior mark-up rates are posted on our Special Taxes and Fees Rate Page, under Cannabis Taxes.
The mark-up rate is not intended to be used to determine each party's retail selling price; 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.
Nonarm's Length Transaction
A nonarm's length transaction is a transaction that does not meet the definition of an arm's length transaction, meaning there is no good faith sale to a cannabis retailer at a price reflecting fair market value.
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, certain transportation charges, and any local business tax. For more information on gross receipts, see Revenue and Taxation Code section 6012 and the Nonarm's Length Transaction heading on this page.
Cannabis Excise Tax – Arm's Length or Nonarm's Length Transactions (January 1, 2018 – December 31, 2022)
To properly calculate and collect the 15 percent cannabis excise tax imposed on retail sales made by a cannabis retailer before January 1, 2023, cannabis distributors must determine whether the sale or transfer to the cannabis retailer is considered an arm's length transaction or a nonarm's length transaction.
What is an Arm's Length Transaction?
An arm's length transaction is defined as a sale, entered into in good faith, between the cannabis retailer and its supplier at a sales price that reflects the fair market value in the open market between two informed and willing parties, neither under any compulsion to participate in the transaction.
What is a Nonarm's Length Transaction?
A non-arm's length transaction is a transaction that does not meet the definition of an arm's length transaction, meaning there is no good faith sale to a cannabis retailer at a fair market price.
| Arm's Length Transactions | Nonarm's Length Transactions |
|---|---|
| A distributor sells cannabis to an unrelated cannabis retailer for resale. The sales price between the distributor and cannabis retailer is at a fair market price. | A distributor sells cannabis to a cannabis retailer for resale at a sales price that is different than what the distributor offers to other cannabis retailers and does not reflect the fair market value. |
| A distributor sells cannabis to a cannabis retailer that has common ownership with the distributor. The sales price between the distributor and the cannabis retailer is at a fair market price. | A distributor sells cannabis to a cannabis retailer that has common ownership with the distributor, at a discounted price that does not reflect fair market value, offered only to this cannabis retailer with the same common ownership. |
| A microbusiness authorized to manufacture, distribute, and sell cannabis at retail, sells cannabis to an unrelated cannabis retailer. The sale between the microbusiness and unrelated cannabis retailer is at a fair market price. | A microbusiness authorized to manufacture, distribute, and sell cannabis at retail, supplies its own retail inventory. There is no sale at a fair market price from the distribution part of the business to the retail part of the business. |
| A cultivator sells cannabis to an unrelated cannabis retailer and uses a third-party distributor for testing and transporting the cannabis to the cannabis retailer's location. The sale between the cultivator and cannabis retailer is at a fair market price. | A cultivator is also licensed to sell cannabis at retail and supplies its own retail location. The cultivator uses a third-party distributor for testing and transporting the cannabis. There is no sale at a fair market price between the cultivation part of the business and the retail part of the business. |
Wholesale Cost (January 1, 2018 – December 31, 2022)
On and after January 1, 2020, the “wholesale cost” is the amount paid by the cannabis retailer (retailer) for cannabis or cannabis products, including transportation charges and after any discounts are provided.
Distributors were required to collect the cannabis excise tax from retailers whom they sold or transferred cannabis or cannabis products before January 1, 2023, based on the average market price of the cannabis sold in a retail sale. In an arm's length transaction, the average market price is calculated by using the retailer's wholesale cost of the cannabis or cannabis products plus our predetermined mark-up.
Example – As a distributor, you sell cannabis products to a retailer in an arm's length transaction before January 1, 2023, 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 × 25%), reducing the cost to $1,125 ($1,500 - $375).
The retailer's wholesale cost used to calculate the average market price in an arm's length transaction is $1,225, calculated as follows:
The average market price and the cannabis excise tax due are calculated as follows:
For this transaction, you collect $321.56 in cannabis excise tax from the retailer plus the wholesale cost of $1,225.00 for the cannabis products and transportation charge.
Effective January 1, 2020, the wholesale cost is the amount paid by the retailer for the cannabis or cannabis products, including any transportation charges. Prior to January 1, 2020, wholesale cost is the amount paid by the retailer, including transportation charges, and adding back in any discounts or trade allowances.
*This example assumes a mark-up rate of 75 percent. The applicable rate is the rate in effect at the time of the transaction. The historical mark-up rates can be found on our website located on the Special Taxes and Fees Rates Page, under Cannabis Taxes.
Cannabis Mark-up Rate (January 1, 2018 – December 31, 2022)
CDTFA was responsible for determining a mark-up rate every six months through the reporting period ending December 31, 2022. The mark-up rate must be used by distributors to compute the Average Market Price of cannabis or cannabis products sold or transferred to a retailer in an arm's length transaction through December 31, 2022. Historical cannabis mark-up rates are posted on our Special Taxes and Fees Rate webpage under Cannabis Taxes.
In determining the mark-up, we examine transactions recorded in the California Cannabis Track-and-Trace (CCTT) system. Wholesale costs and retail selling prices listed in the CCTT from over 15 million individual transactions are used to calculate the mark-up. Transactions with data errors and from vertically integrated businesses (i.e., nonarm’s length transactions) were removed from the calculation. Retail selling prices are assumed to include the cannabis excise tax and are adjusted accordingly. To calculate the mark-up, we use the following formula:
| Reference | Cannabis Excise Tax Mark-up Rate Calculation |
|---|---|
| Line 1 | Wholesale Cost <CCTT Data> |
| Line 2 | Retail Selling Price <CCTT Data> |
| Line 3 | Adjusted Retail Selling Price (for the Excise Tax Included) (Line 2/1.15) |
| Line 4 | 15% Excise Tax (Line 2-Line 3) |
| Line 5 | Gross Profit (Line 3 – Line 1) |
| Line 6 | Mark-up Rate (Line 5/Line 1) |
Below is an example of how the mark-up calculation works when the actual sales data shows that the average mark-up between wholesale and retail prices is 75 percent. A cannabis retailer purchases cannabis from a distributor for $50. In this example, the distributor will calculate the 15% cannabis excise tax due from the retailer as follows:
The distributor will collect $13.13 in cannabis excise tax from the cannabis retailer and remit that tax payment to us.
Arm's Length Transaction (January 1, 2018 – December 31, 2022)
An “arm's length transaction” is a sale entered into in good faith, between the cannabis retailer and its supplier at a sales price that reflects the fair market value in the open market between two informed and willing parties, neither under any compulsion 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 us. As a distributor, you are required to calculate and collect the amount of cannabis excise tax due on the cannabis or cannabis products you sell or transfer to retailers in an arm's length transaction before January 1, 2023.
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 before January 1, 2023, one pound of cannabis flowers for $1, 000 to a retailer and charge a $300 transportation fee. The wholesale cost paid by the retailer to you is $1,300 ($1, 000 + $300).
To determine the average market price, take the wholesale cost and add the mark-up. This example assumes a 75 percent mark-up. You must use the mark-up rate in effect at the time of sale. Historical mark-up rates can be found on our Special Taxes and Fees Rates Page, under Cannabis Taxes.
The cannabis excise tax due from the retailer to the distributor on this transaction is $341.25 (15% × $2,275). See the Excise Tax Computation topic below for more information.
Nonarm's Length Transaction (January 1, 2018 – December 31, 2022)
A “nonarm's length transaction” is a transaction that does not meet the definition of an “arm's length transaction.” In other words, the transaction is not a sale to a cannabis retailer that is entered into in good faith and that reflects fair market value in the open market. One example of a nonarm's length transaction would be when a distributor sells cannabis to a cannabis retailer at a sales price that is lower than what the same distributor offers to other cannabis retailers, and which does not reflect the fair market value.
When a microbusiness, authorized to cultivate and/or manufacture, also sells cannabis or cannabis products at retail, there is no sale that reflects the fair market price in the open market from the cultivation and/or manufacturing part of the business to the retail part of the business. As such, the transaction would be a nonarm's length transaction.
In a nonarm's length transaction, the average market price is 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, certain transportation charges, and any local business taxes listed on the receipt to the retailer's customer. For example, when the retailer delivers cannabis or cannabis products to its customers using its own vehicles and there is no explicit written agreement executed prior to the delivery that passes title to the purchaser before delivery, the charge for that delivery is included in the gross receipts subject to the cannabis excise tax. Additionally, if the retailer adds a separate amount to its customers' invoices or receipts to cover a cannabis business tax required by its city, that amount is included in the gross receipts subject to the cannabis excise tax. 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 and calculate the cannabis excise tax and sales tax due in a nonarm's length transaction:
Example – A microbusiness (which is licensed to be a cultivator, distributor, manufacturer, and retailer) grows cannabis flowers and sells the flowers at retail to their customers for $35.00 per eighth of an ounce. The microbusiness also charges $5.00 for delivery. 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 retail sale. Current sales tax rates can be found on our website.
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 or transferred the product to the retailer.
Excise tax calculation:
Sales tax calculation:
The microbusiness is responsible for reporting and paying the cannabis excise tax of $6.53 ($43.50 × 15%) to us on their cannabis tax return. The microbusiness is also responsible for reporting and paying the sales tax of $4.25 ($50.03 × 8.5%) to us on their sales and use tax return.
Cannabis Excise Tax Collection (January 1, 2018 – December 31, 2022)
As a cannabis distributor, you are responsible for collecting the cannabis excise tax from the cannabis retailers on cannabis or cannabis products that you sell or transfer before January 1, 2023, to the cannabis retailers.
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.
Cannabis Sold or Transferred to Another Distributor (January 1, 2018 – December 31, 2022)
A distributor that sells or transfers cannabis or cannabis products before January 1, 2023, to a cannabis retailer is responsible for collecting the cannabis excise tax from the that retailer and for reporting and remitting the cannabis excise tax to us through reporting periods ending December 31, 2022.
If you sell or transfer cannabis or cannabis products to another distributor, before January 1, 2023, you are not required to collect the cannabis excise tax from the distributor. You should document the transaction with an invoice or other similar documentation that identifies that the sale or transfer is from one licensed distributor to another and includes:
- The selling or transferring distributor's name and license number,
- The purchasing or receiving distributor's name and license number, and
- A statement that no cannabis excise tax was collected.
If the transaction is between a distributor and a microbusiness acting as a distributor, the documentation shall indicate that the microbusiness is acting as a distributor.
If you, as a distributor, sell cannabis or cannabis products before January 1, 2023, to a cannbis retailer and transfer the cannabis or cannabis products to another distributor for transportation to that retailer, or if you receive cannabis or cannabis products from another distributor for transportation to a cannabis retailer, you should document the transaction such as with a shipping manifest or invoice, and include:
- The transferring distributor's name and license number,
- The receiving distributor's name and license number,
- A statement indicating that the transaction between the distributors is for transportation services only and
- A statement indicating which distributor has collected or who will collect the cannabis excise tax from the cannabis retailer, and report and pay it to us.
In the absence of such documentation, both distributors may be jointly liable for any unpaid cannabis excise tax they were required to collect from the cannabis retailer on the retail sale of the cannabis or cannabis products.
Excise Tax Computation (January 1, 2018 – December 31, 2022)
The cannabis excise tax is 15-percent of the average market price of cannabis or cannabis products sold in a retail sale before January 1, 2023. To properly calculate the cannabis excise tax due, it is important to know whether the retailer's purchase of the cannabis 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 duethrough December 31, 2022.
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 occurring before January 1, 2023, and sells the cannabis flowers and cannabis candy bars at retail before January 1, 2023. 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 75 percent mark-up. You must use the mark-up rate in effect at the time of sale. The current mark-up can be found on our Special Taxes and Fees Rates Page, under Cannabis Taxes.
The distributor is responsible for reporting and paying the $2,106 cannabis excise tax to us on their cannabis tax return. The distributor is not responsible for verifying the retail selling price of the cannabis. For retail sales of cannabis or cannabis products before January 1, 2023, 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 cannabis retailer, which is part of a microbusiness that also holds a distributor license, sells four pounds of cannabis flowers for $9,600 and 25 cannabis candy bars for $500 to their customers (the consumer) before January 1, 2023. This is considered a nonarm's length transaction because the microbusiness supplied its own cannabis and cannabis products for retail sale. The average market price in the case of a nonarm's length transaction is the cannabis retailer's gross receipts from the retail sale.
The microbusiness is responsible for reporting and paying the $1,515 cannabis excise tax to us on their cannabis tax return.
Cannabis Trade Samples (January 1, 2018 – December 31, 2022)
California law, the Medicinal and Adult-Use Cannabis Regulation and Safety Act, allows certain cannabis licensees to provide and receive cannabis and cannabis product trade samples (cannabis trade samples). As a distributor, you can provide cannabis trade samples to and from other licensees except cannabis event organizers, transport only distributors, and testing laboratories, and you can receive trade samples from cultivators, manufacturers, distributors, and microbusinesses authorized to engage in cultivation, manufacturing, or distribution. The cannabis excise tax does not apply to cannabis trade samples.
As the distributor:
- You should not collect the cannabis excise tax on cannabis trade samples you provided to a cannabis retailer.
- You should provide documentation to cannabis retailers which you provide cannabis trade samples indicating that no cannabis excise tax was collected and maintain copies for your records.
- You should maintain records to document the cannabis trade samples provided to retailers without collection the cannabis excise tax, but you are not required to report trade samples provided to cannabis retailers to CDTFA on its cannabis tax return.
- You should provide or use the cannabis trade samples as required by Department of Cannabis Control (DCC). Please visit DCC's website for additional information regarding cannabis trade sample requirements.
Documenting receipt or transfer of cannabis trade samples:
- The following information should be included on documentation, such as a letter, invoice, note, or preprinted form, between you and the licensee providing cannabis trade samples to you or receiving cannabis trade samples from you:
- A statement indicating that cultivation tax or cannabis excise tax, as applicable, was not collected on cannabis trade samples.
- The date the cannabis trade samples were provided or received,
- Your business name,
- Your CDTFA seller's permit number and cannabis tax account number (if applicable),
- Your DCC cannabis license number,
- The name, license type, and DCC cannabis license number of the licensee providing or receiving the cannabis trade samples,
- The description and unique identifier of the cannabis trade samples, and
- The name and license number of the transporting distributor, if it was not you or the licensee providing or receiving the trade samples.
- The documentation should be consistent with the information recorded in the CCTT system regarding the transfer of trade samples to or from you.
- A cannabis licensee may use a written certification that the cannabis or cannabis products were provided or received for use as trade samples.
Taxes may be due for cannabis trade samples when:
- A cannabis licensee who receives cannabis or cannabis products as trade samples and later sells the cannabis or cannabis products is liable for cannabis excise tax and, if applicable, cultivation tax along with applicable penalties and interest on the cannabis or cannabis products sold.
- A cannabis licensee who sells cannabis or cannabis products designated as trade samples in a retail sale is liable for sales tax due on the cannabis or cannabis products sold.
Reporting and Paying the Cannabis Taxes (January 1, 2018 – December 31, 2022)
As a distributor (or microbusiness operating as a distributor), you are required to file a cannabis tax return to report and pay any cultivation tax on harvested cannabis that entered the commercial market before July 1, 2022, and cannabis excise tax on any cannabis or cannabis product you sell or transfer before January 1, 2023, to a cannabis retailer. Even if you are a distributor that is not responsible for collecting the cultivation tax or the cannabis excise tax, and you have no transaction to report, through the reporting period ending December 31, 2022, you are still required to file a cannabis tax return and report your activities to us.
You must report the cultivation tax due for any cannabis or cannabis product that entered the commercial market during your reporting period prior to July 1, 2022, 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 (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, through the reporting period ending December 31, 2022, and pay the amount due. This is required whether or not the cannabis retailer has already sold the cannabis or cannabis products at retail, or whether or not you have collected full payment from the retailer. For assistance filing your cannabis tax return, please view or Online Filing Instructions.
Excess Cannabis Excise Tax Collected (January 1, 2018 – December 31, 2022)
When a cannabis retailer collects cannabis excise tax from the purchaser in a retail sale (customer) on an amount that is in excess of the taxable amount, the retailer has collected excess tax. Excess tax is charged when tax is computed on a transaction that is not subject to tax, when tax is computed on an amount in excess of the amount subject to tax, when tax is computed using a tax rate higher than the rate imposed by law, or when a mathematical error results in an overstatement of the tax on an invoice, receipt or similar document. When this occurs, the retailer shall return the excess cannabis excise tax collected back to its customer. In the event the cannabis retailer cannot or does not return the excess cannabis excise tax collected back to its customer, the cannabis retailer is required to pay the excess cannabis excise tax collected to a distributor, if the retail sale occurred on or before December 31, 2022.
When you, the distributor, collect excess cannabis excise tax from a cannabis retailer that collected the excess tax from the customer, an invoice, receipt, or other similar document must be provided to the retailer with the following information:
- Date of the invoice, receipt, or similar document,
- Name of distributor,
- Name of cannabis retailer,
- The seller's permit number of the retailer,
- The amount of excess cannabis excise tax collected, and
- The seller's permit number held by the distributor or a statement that the distributor does not have a seller's permit.
The distributor must report the excess cannabis excise tax that a cannabis retailer paid to the distributor on the first return after receiving the excess cannabis excise tax from the retailer. The amount of excess cannabis excise tax collected from the retailer is reported on the electronic cannabis tax return in the box that is designated for excess cannabis excise tax collected. This box is for use only when a cannabis retailer collects excess cannabis excise tax from its customer, cannot return the excess amount back to its customer, and pays the excess amount to the distributor.
Excess Excise Tax Remitted, Later Returned to Retailer (January 1, 2018 – December 31, 2022)
If you paid excess cannabis excise tax to us that was later returned to the cannabis retailer, you can claim this credit on your cannabis tax return. This line is for use only when you previously reported and paid excess cannabis excise tax on a previous return and then you subsequently returned this amount back to the retailer because the retailer was able to return the excess amount back to its customer.
When you report a credit on this line, we may request that you provide documentation that supports this credit. Documentation may include but is not limited to invoices that show excess cannabis excise tax was collected from the retailer and credit invoices that list the excess cannabis excise tax as being returned to the retailer because the retailer returned the excess amount back to its customer. This line is not to be used to correct reporting errors on prior cannabis tax returns. When you have any reporting errors, please amend the return that contains the reporting error.
Losses due to Theft
The cannabis excise tax is imposed on cannabis or cannabis products sold at retail. Therefore, if cannabis or cannabis products are stolen from a cannabis retailer, the cannabis excise tax may not be owed.
Cannabis Excise Tax (January 1, 2018 – December 31, 2022)
As a distributor, you are required to collect the 15 percent cannabis excise tax from cannabis retailers on cannabis or cannabis products that you sell or transfer before January 1, 2023, to the cannabis retailer. The cannabis excise tax does not apply to cannabis or cannabis products that you sell or transfer to a cannabis retailer that are subsequently stolen from the retailer. If the retailer paid you the cannabis excise tax and the associated cannabis or cannabis products are subsequently stolen from the retailer, the retailer can request a refund from you for the cannabis excise tax paid to you. For your records and for any claim for refund you file, you should obtain documentation from the retailer that supports loss due to theft. Acceptable forms of documentation may include police reports and/or insurance claims. You must provide the cannabis retailer with a receipt or similar document that indicates the amount of cannabis excise tax returned.
For cannabis excise tax that you reported and paid to us and subsequently returned to the cannabis retailer due to theft, you may submit a claim for refund for the excess cannabis excise tax you paid to us and later returned to the cannabis retailer. You will need to provide us the documentation supporting the loss that the retailer provided.
The 15 percent cannabis excise tax is due on all retail sales of cannabis or cannabis products. There is no exemption or deduction of the cannabis excise tax due to theft of cash.
Cannabis Accessories Sold with Cannabis or Cannabis Products at Retail
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 imposed on retail sales through December 31, 2022, when the sales price of cannabis or cannabis products are separately stated.
Cannabis accessories such as vaping devices or batteries sold in preassembled units may include cannabis or cannabis products. If you are a cannabis distributor who sells these preassembled units with cannabis or cannabis products, or other cannabis accessories, you may separately list the cannabis retailer's cost of the cannabis or cannabis products on your invoice to the retailer to apply the cannabis excise tax to the cannabis or cannabis products only. If you choose to separately state the cost of the cannabis or cannabis product from any cannabis accessories, you must maintain the supporting documentation used to establish the individual cost of the cannabis or cannabis products and the cannabis accessories.
However, when cannabis or cannabis products are sold or transferred with cannabis accessories to a cannabis retailer, and you do not separately state the sales price of the cannabis or cannabis products from the cannabis accessory, the cannabis accessory shall be included in the calculation of the average market price when determining the cannabis excise tax due.
Refunds
If you have collected and remitted more cannabis tax than the amount due, you may be able to get a refund of the overpayment.
You may file a claim for refund using our online services. To submit a claim for refund, simply login using your username and password and click on the account for which you want to request a refund. The claim for refund is located under the I Want to section, More subsection. Simply select the Submit a Claim for Refund link and follow the prompts.
Claims for refund must state the specific reason(s) for the overpayment, specify the period for which you are making the claim, and the amount of the overpayment. We may request documentation to support your claim, including proof that the amount requested has been refunded to the cultivator who paid it, before we process the claim for refund.
Be sure to file your claim for refund by the applicable deadline. If you don't file on time, we 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 we 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 cannabis 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 cannabis retailer in an arm's length transaction. You may claim a credit for that amount of cannabis excise tax that was collected in excess, remitted to us, and returned to the cannabis 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). We 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 cannabis excise tax collected and subsequently returned to the cannabis retailer, along with the retailer's acknowledgement that the excess tax collected was returned to them.
Additionally, cannabis retailers that you sell or transfer cannabis or cannabis products to may request from you a refund of the cannabis excise tax you collected if the cannabis or cannabis products were never sold at retail (for example, if the 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, go to our online services page as described above. You will be required to submit documentation to support that you refunded to the cannabis retailer the amount being claimed and, if applicable, the retailer refunded the excise excess tax to the customer that paid it.