California provides details on collecting and reporting the cannabis excise tax for cannabis retailers who are also distributors.
The collection and reporting requirements for independent or third party distributors also apply to a cannabis business that:
- is licensed as a microbusiness and authorized to act as a distributor; and
- that holds multiple cannabis licenses to operate as both a distributor and retailer.
When A Cannabis Distributor Sells to a Related or Affiliated Retailer
It is considered a “nonarm’s length” transaction when a cannabis business that is both a distributor and a retailer transfers cannabis or cannabis products to the retail portion of that 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. Such businesses must calculate the excise tax based on the gross receipts. The gross receipts include all charges related to the sale of the cannabis or cannabis products.
Reporting and Paying the Cannabis Excise Tax
Such businesses must report and pay the cannabis excise tax on nonarm’s length transactions. The tax is reported for the reporting period that the transfer occurred. The tax return must be filed electronically. The return and payment of the excise tax are due on the last day of the month following the reporting period.
Cannabidiol Products that Contain Cannabis
Cannabidiol (CBD) products that contain cannabis are subject to the cannabis excise tax. CBD products that do not contain cannabis are not subject to the cannabis excise tax. The tax does not apply even if the CBD product contains trace amounts of tetrahydrocannabinol (THC).
“Cannabis” is defined as all parts of the cannabis sativa L. plant and the term excludes industrial hemp.
A “cannabis product” is defined as cannabis that has undergone a process that transforms the cannabis plant material into:
- a concentrate;
- an edible;
- a topical; or
- other thing that contains cannabis.
In general, CBD products made from industrial hemp are not subject to the cannabis excise tax. The California Department of Food and Agriculture (CDFA) regulates the industrial hemp industry.
Cannabis Tax Fact, California Department of Tax and Fee Administration, April 12, 2018; Cannabis Tax Fact, California Department of Tax and Fee Administration, April 16, 2018