California Raises Wholesale Taxes on Cannabis Flower, Leaf, and Plants

California is raising its cannabis tax rates on flower, leaves, and plants effective January 1. The California Department of Tax and Fee Administration says the rate hikes “reflect an adjust for inflation” as required by the state’s Cannabis Tax Law.

The flower taxes per dry-weight ounce are being raised from $9.25 to $9.65, while leaf taxes per dry-weigh ounce move from $2.75 to $2.87, and the plant rates will increase from $1.29 to $1.35.

“The 15 percent cannabis excise tax is based on the average market price of the cannabis or cannabis products sold in a retail sale. The mark-up rate is used when calculating the average market price to determine the cannabis excise tax due in an arm’s length transaction. In an arm’s length transaction, the average market price is the retailer’s wholesale cost of the cannabis or cannabis products, plus the mark-up rate determined by the CDTFA. 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.” — CDTFA, Cannabis Special Notice

In October, Gov. Gavin Newsome (D) signed a bill overriding Section 280E of the Internal Revenue Code which allows cannabusinesses to take normal business deductions when calculating their state taxes.

Critics have argued that California’s cannabis taxes are already too high, and a United Cannabis Business Association report in September suggests that unlicensed cannabis operators outnumber legal cannabis businesses in the state 3-to-1.

The state had anticipated cannabis tax revenues would be worth $355 million this year and $514 million in 2020, but in May those estimates were adjusted to $288 million this year and $359 million next year. In May, the Appropriations Committee rejected a bill to lower the state’s cannabis taxes. That measure would have reduced the excise tax from 15 percent to 11 percent and suspended the cultivation tax for three years.