California Cannabis Taxes: How New Rates Will Affect You?

Dispensary owners must focus on efficiency to beat black market operators.

California cannabis dispensaries are coming into 2020 with unwelcome news: the state is levying higher taxes on wholesale cannabis products.

As of January 1st, 2020, the tax cost of cannabis flower will increase from $9.25 to $9.65 per ounce. Marijuana leaves will increase from $2.75 to $2.97 per ounce, and fresh cannabis plants will increase from $1.29 to $1.35 per ounce. Separately, the markup rate used to calculate cannabis tax liability is jumping up from 60% to 80%.

The rates apply to all cannabis that cultivators sell or transfer to processors or distributors. These will result in increased prices, which will have to carry over to marijuana consumers.

What to Do About Higher Cannabis Retail Taxes

Unsurprisingly, most cannabis business owners and advocates are unhappy with the move towards higher taxes. Many industry insiders believe that lower taxes will help encourage black-market cannabis operations to apply for legitimate certification, helping to level the playing field between regulated cannabis and the black market.

For certified California dispensary owners, it can seem like the state is pushing to price out many of the industry’s smaller businesses. But the solution is not to close up shop and move out of the state. Dispensary owners simply need to streamline expensive processes and implement competitive technological solutions for handling dispensary compliance.

Also, other laws have taken effect as of January 1st, 2020, that may help cannabis dispensary owners curb the impact of higher taxes. For instance, Assembly Bill 37 now allows cannabis operators to deduct expenses – an important cost-saving measure that was previously blocked due to a federal injunction. 

Senate Bill 34 also helps to stem the tide of low-income medical marijuana users turning to the black market. Donations made to terminally ill medical marijuana patients are now tax-exempt

Capitalize on Statewide Delivery

Statewide delivery is perhaps the most important change that California dispensary owners can use to balance the impact of higher taxes. California has passed legislation that allows for statewide marijuana delivery.

Although the law is being contested in multiple municipalities, it offers greater profit opportunities to certified cannabis dispensaries. Dispensary owners can now widen their prospective territories in order to increase sales and compensate for higher taxes.

Although black market cannabis remains a challenging problem for the California industry, legal cannabis consumption has to remain competitive compared to the black-market equivalent.

Major Federal Changes May Come in 2020

Nobody wants to pay higher taxes, but the situation among California dispensary owners may not last in its current form. While total federal legalization seems unlikely, a bill that allows federally insured banks to lend to cannabis dispensaries has passed the House of Representatives and may make it through the Senate in some form.

The upcoming presidential election will play an important role in determining how the overall political climate surrounding the cannabis industry unfolds. In either case, dispensary owners who accommodate the current business environment are likely to be treated to a friendlier one in the near future.

Automation of inventory SKU taxes will allow you to scale your business

ezGreen Compliance will allow you set the taxes including, excise, city and state for each unit of inventory when you receive chain of custody from distribution.  The state of California is most concerned with products containing over 3% of THC within their ingredients and automating the your inventory intake process will protect business owners from employees marking the wrong products with the wrong taxes.  Finally, setting your excise tax formularies will ensure the retailer will not double pay excise themselves, forget to charge or overcharge consumers. Reach out to ezGreen Compliance for more information on this process.