On November 8, Californians will have the chance to vote to legalize recreational cannabis use through Proposition 64 (also known as the Adult Use of Marijuana Act, or AUMA). In addition to legalizing and regulating recreational cannabis across the state, Prop 64 will also add state level taxes for licensed dispensaries and cultivators.
Beginning in 2018, a 15% marijuana excise tax would be assessed on the gross receipts of any retail sales of cannabis. Though the tax is technically owed by the purchaser of the marijuana or marijuana product, the obligation to collect the tax is on the seller (e.g. the dispensary) as with other sales and use taxes applied in California. There is an exception to the excise tax for sales of medical cannabis and medical cannabis products, but only if a qualified patient or caregiver provides a Medical Marijuana Identification Card issued by the state. Though the decision to register as a medical marijuana patient with California has until now been completely voluntary, Proposition 6 will require a card if a patient seeks to avoid paying the 15% state tax.
Also beginning in 2018, a cultivation tax on all harvested marijuana that enters the commercial market will be assessed at a rate of $9.25 per ounce of flowers and $2.75 per ounce of leaves. The tax will be collected from licensed cultivators but excludes any marijuana cultivated for personal use or by a qualified patient or primary caregiver under California’s Compassionate Use Act.
In addition to the potential state level tax, both the Medical Cannabis Regulation and Safety Act (MCRSA), which regulates medical cannabis businesses in California, and Prop 64 grant authority to California cities and counties to impose local taxes on licensed cannabis businesses. Thus, several municipalities have included local tax measures on the November 8 ballot as well.
In Northern California, proposed tax measures for cultivators in Lake County, Calaveras County, Monterey County, and Humboldt County will be assessed based on total square footage of the grow. Mendocino County has two separate tax measures on the ballot, one from the County’s Board or Supervisors and one from local cannabis advocates, both with a 2.5% tax based on gross sales of medical marijuana but with the latter including a higher 5% tax on recreational sales.
In Southern California, a proposed tax measure in San Diego will tax dispensaries starting at a rate of 5% and rising to 8% in 2019. This falls within the range of local taxes for dispensaries currently in place in major California cities like Los Angeles, Long Beach, Palm Springs, San Jose, Oakland, Sacramento, Stockton, and Berkeley. Palm Springs and Cathedral City are currently tied for the highest local taxes in California with rates of up to 15%, but a tax measure in Santa Barbara could begin taxing businesses there at a rate of 20%. Stockton and Berkeley are currently tied for the lowest local taxes at a rate of 2.5%, though a November tax measure could raise tax rates in Stockton if passed. Several of the desert towns in the Southern California region have also recently started permitting and taxing cannabis businesses in an effort to raise tax revenue to bolster their local economies. Coachella will vote on a measure to add taxes of up to 6% on gross sales and $15 per square foot of space each quarter.
Any marijuana taxes are assessed on top of California’s usual state and local sales taxes that are determined based on locality. Currently those tax rates range from 7.5% to 10%, which means with everything added together some cannabis businesses could be looking at an effective tax rate of almost 45%. For California cannabis businesses owners, as well as for any California cannabis consumers concerned about the prices they pay, a lot will be at stake during November’s elections.