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Business Taxes Law Guide – Revision 2021
 

Cannabis Tax Law

Section 34012


34012. Cultivation tax. (a) Effective January 1, 2018, there is hereby imposed a cultivation tax on all harvested cannabis that enters the commercial market upon all cultivators. The tax shall be due after the cannabis is harvested and enters the commercial market.

(1) The tax for cannabis flowers shall be nine dollars and twenty-five cents ($9.25) per dry-weight ounce.

(2) The tax for cannabis leaves shall be set at two dollars and seventy-five cents ($2.75) per dry-weight ounce.

(b) The department may adjust the tax rate for cannabis leaves annually to reflect fluctuations in the relative price of cannabis flowers to cannabis leaves.

(c) The board may from time to time establish other categories of harvested cannabis, categories for unprocessed or frozen cannabis or immature plants, or cannabis that is shipped directly to manufacturers. These categories shall be taxed at their relative value compared with cannabis flowers.

(d) The department may prescribe by regulation a method and manner for payment of the cultivation tax that utilizes tax stamps or state-issued product bags that indicate that all required tax has been paid on the product to which the tax stamp is affixed or in which the cannabis is packaged.

(e) The tax stamps and product bags shall be of the designs, specifications and denominations as may be prescribed by the department and may be purchased by any licensee under Division 10 (commencing with Section 26000) of the Business and Professions Code.

(f) Subsequent to the establishment of a tax stamp program, the department may by regulation provide that cannabis shall not be removed from a licensed cultivation facility or transported on a public highway unless in a state-issued product bag bearing a tax stamp in the proper denomination.

(g) The tax stamps and product bags shall be capable of being read by a scanning or similar device and must be traceable utilizing the track and trace system pursuant to Section 26068 of the Business and Professions Code.

(h) Cultivators shall be responsible for payment of the tax pursuant to regulations adopted by the department. A cultivator's liability for the tax is not extinguished until the tax has been paid to this state except that an invoice, receipt, or other document from a distributor or manufacturer given to the cultivator pursuant to paragraph (3) is sufficient to relieve the cultivator from further liability for the tax to which the invoice, receipt, or other document refers. Cannabis shall not be sold unless the tax has been paid as provided in this part.

(1) A distributor shall collect the cultivation tax from a cultivator on all harvested cannabis that enter the commercial market. This paragraph shall not apply where a cultivator is not required to send, and does not send, the harvested cannabis to a distributor.

(2) (A) A manufacturer shall collect the cultivation tax from a cultivator on the first sale or transfer of unprocessed cannabis by a cultivator to a manufacturer. The manufacturer shall remit the cultivation tax collected on the cannabis product sold or transferred to a distributor for quality assurance, inspection, and testing, as described in Section 26110 of the Business and Professions Code. This paragraph shall not apply where a distributor collects the cultivation tax from a cultivator pursuant to paragraph (1).

(B) Notwithstanding subparagraph (A), the department may prescribe a substitute method and manner for collection and remittance of the cultivation tax under this paragraph, including a method and manner for collection of the cultivation tax by a distributor.

(3) A distributor or manufacturer shall provide to the cultivator, and a distributor that collects the cultivation tax from a manufacturer pursuant to paragraph (2) shall provide to the manufacturer, an invoice, receipt, or other similar document that identifies the licensee receiving the product, the cultivator from which the product originates, including the associated unique identifier, the amount of cultivation tax, and any other information deemed necessary by the department. The department may authorize other forms of documentation under this paragraph.

(4) The department may adopt regulations prescribing procedures for the refund of cultivation tax collected on cannabis or cannabis product that fails quality assurance, inspection, and testing as described in Section 26110 of the Business and Professions Code.

(i) All cannabis removed from a cultivator's premises, except for plant waste or medicinal cannabis or medicinal cannabis products designated for donation, shall be presumed to be sold and thereby taxable under this section.

(j) The tax imposed by this section shall be imposed on all cannabis cultivated in the state pursuant to rules and regulations promulgated by the department, but shall not apply to cannabis cultivated for personal use under Section 11362.1 of the Health and Safety Code or cultivated by a qualified patient or primary caregiver in accordance with the Compassionate Use Act of 1996 (Proposition 215), found in Section 11362.5 of the Health and Safety Code.

(k) (1) For the 2020 calendar year, the rates set forth in subdivisions (a), (b), and (c) shall be adjusted by the department for inflation.

(2) For the 2021 calendar year, the rates shall be those imposed for the 2020 calendar year in paragraph (1) and shall not be adjusted for inflation unless the adjustment is for an inflation rate that is less than zero.

(3) For the 2022 calendar year, the rates shall be those imposed for the 2021 calendar year in paragraph (2) and shall be adjusted by the department for inflation.

(4) Beginning January 1, 2023, the rates imposed for the previous calendar year shall be adjusted by the department annually for inflation.

(l) The Department of Food and Agriculture is not responsible for enforcing any provisions of the cultivation tax.

History—Added by Proposition 64, approved by voters at the November 8, 2016 election, in effect November 9, 2016. Stats. 2017, Ch. 27 (SB 94), in effect June 27, 2017, substituted "cannabis" for "marijuana" throughout; substituted "cultivators" for "persons required to be licensed to cultivate marijuana pursuant to Chapter 3.5 (commencing with Section 19300) of Division 8 of the Business and Professions Code or Division 10 (commencing with Section 26000) of the Business and Professions Code" after "commercial market upon" in the first sentence, and added "and enters the commercial market" at the end of the second sentence, of subdivision (a); substituted "specifications," for "specifications" after "shall be of the designs,", deleted "Chapter 3.5 (commencing with Section 19300) of Division 8 of the Business and Professions Code" after "by any license under", in subdivision (e); substituted "cannabis shall not" for "no marijuana may" after "regulation provide that" in subdivision (f); substituted "26068" for "26170" after "pursuant to" in subdivision (g); substituted "Cultivators" for "Persons required to be licensed to cultivate marijuana pursuant to Chapter 3.5 (commencing with Section 19300) of Division 8 of the Business and Professions Code or Division 10 (commencing with Section 26000) of the Business and Professions Code" before "shall be responsible" in the first sentence, and substituted "A cultivator's liability … document refers. Cannabis shall not" for "No marijuana may" before "be sold unless" in the second sentence, and added paragraphs (1) – (4), to subdivision (h); added "of 1996 (Section 11362.5 of the Health and Safety Code" after "Compassionate Use Act" in subdivision (j); and added subdivision (l). Stats. 2017, Ch. 253 (AB 133), in effect September 16, 2017, substituted "department" for "board" throughout; substituted "on all harvested cannabis that enters" for "upon entry" after "from a cultivator" in paragraph (1), and deleted "All cultivation tax applicable to a unique identifier shall be paid upon the first sale or transfer of cannabis or cannabis product with an associated unique identifier" in paragraph (2)(A), of subdivision (h). Stats. 2019, Ch. 837 (SB 34), in effect January 1, 2020, substituted "waste or medicinal cannabis or medicinal cannabis products designated for donation," for "waste," after "except for plant" in subdivision (i); and substituted "(Proposition 215), found in Section" for "(Section" after "Compassionate Use Act of 1996" and substituted "Code" for "Code)" after "Health and Safety" in subdivision (j). Stats. 2020, Ch. 93 (AB 1872), in effect September 18, 2020, redesignated subdivision (k) as subdivision (k)(1); substituted "For the 2020 calendar year" for "Beginning January 1, 2020" before "the rates set forth in", deleted "annually thereafter" after "by the department" in paragraph (1), and added paragraphs (2), (3), and (4), to subdivision (k).