Tag Archives: Oakland

New Taxes for California Cannabis Industry

By Jasmine Davaloo
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Welcome to the evolving world of cannabis legislation and taxation in California. With the recent 2018 midterm election, a green wave of new laws and regulations has washed ashore, and Taxnexus, a cannabis tax compliance service provider for cannabis businesses, has analyzed the results, looking for insights to guide cannabis business owners in 2019.

In summary, the trend of local counties and cities imposing new cannabis taxes on dispensaries, distributors and cultivators continues, but with some important lessons being learned.

A Brief History of California Cannabis Tax Regulations.

The legalization of cannabis in California brought with it cannabis excise tax and cultivation taxes with the hope of bringing in significant amounts of income in cannabis taxes. The state had projected $185M in cannabis tax revenue for the first six months of 2018. Although California has since collected tens of millions of dollars fewer than anticipated, it did bring in over $135M in the first and second quarters from a brand new industry.

Local governments are able to collect these taxes directly from cannabis businesses.  With the green light from the state and the need for a new source of revenue, many local governments followed suit and passed laws to impose taxes on cannabis businesses operating in their jurisdictions. The need for additional revenue is even greater for localities that allow cannabis business operations given that the state takes virtually all of the state-imposed cannabis taxes while the local government entities are burdened by the related costs of regulations and enforcement at the local level.

Cannabis business taxes have an extra allure for local jurisdictions. Unlike local sales and use taxes, the state does not require local cannabis business taxes to go through the state before a portion of it gets funneled back to the localities. Local governments are able to collect these taxes directly from cannabis businesses.

Since January 1, 2018, many local jurisdictions have come onboard and placed ballot measures for their voters to decide whether to tax cannabis businesses. According to research conducted by Taxnexus, by the end of the second quarter this year, there were over 500 different local cannabis tax rates in California.The new cannabis tax measures are also continuing the trend of widely ranging local cannabis tax laws.

Midterm Results Continue Overwhelming Support for Cannabis Industry

With about 50 cannabis tax measures placed on the November 6 local ballots, most of which passed with overwhelming support from voters, the number and variation of local cannabis business taxes continue to grow. This demonstrates the continuing trend of local governments welcoming cannabis businesses, the evolving voter attitude toward recreational cannabis, and perhaps most importantly, the localities’ desire to take their cut of the new industry’s tax revenue.

The new cannabis tax measures are also continuing the trend of widely ranging local cannabis tax laws. Given that the Medicinal and Adult-Use Cannabis Regulation and Safety Act granted local jurisdictions control over deciding their own cannabis business regulations, there is no statewide uniformity. Here are a few examples of the cannabis business tax measures that were on local ballots on November 6:

San Francisco

While some local jurisdictions were quick to impose cannabis taxes, others have delayed in taxing their local cannabis businesses. San Francisco’s Proposition D, which received a 66% voter approval, won’t go into effect until January 1, 2021. It imposes taxes on cannabis businesses that do business in the city, whether or not they are physically located there. The new cannabis business taxes are as follows:

  • For cannabis retail businesses, 2.5% of gross receipts up to $1M and 5% of gross receipts over $1M.
  • For cannabis non-retail businesses, 1% tax of gross receipts up to $1M and 1.5% of gross receipts over $1M.

These taxes do not apply to the first $500,000 of recreational cannabis gross receipts nor revenues from medical cannabis retail sales. The measure allows the Board of Supervisors to adjust the tax rates up to 7%. The cannabis businesses taxes are expected to generate $5M to $12M in cannabis tax revenue, and will go into the City’s general fund.The new tax measures underscore the lack of uniformity in local cannabis business taxes throughout the state. 

Emeryville

Emeryville passed a new cannabis business tax measure to increase its current nominal rate. Measure S imposes a cannabis business tax of up to 6% of gross receipts. This is estimated to generate $2M in tax revenue to be used for unrestricted governmental purposes.

Oakland

Oakland is among the few local jurisdictions that placed a measure on its November 6 ballot to lower its existing cannabis business tax rates. Previously, Oakland imposed a 5% tax on medical cannabis and a 10% tax on recreational cannabis, for all cannabis activities throughout the supply chain. These are among some of the highest cannabis tax rates in the state and are squeezing out small operators. Although Oakland has long been seen as the leader in California’s cannabis industry, the high taxes are making it difficult for its cannabis businesses to compete with nearby cities that charge lower taxes. While the city acknowledged the hardship its high taxes imposed, it maintained that it could not lower the rates on its own and required the voter approval. On November 6th, Oakland voters passed Measure V by 78%, which gives the City Council the authority to lower the city’s cannabis tax rates through an ordinance. To give additional relief to the cannabis businesses in the city, this measure also allows them to deduct the cost of raw materials from their gross receipts- something they cannot do on their federal tax returns. Furthermore, local cannabis business taxes can now be paid on a quarterly basis instead of one annual payment at the beginning of each year, which was severely burdensome for most businesses.

Lake County

Voters in Lake County approved Measure K by a majority vote to tax cannabis businesses in the unincorporated county effecting January 1, 2021. The county was previously only taxing cultivators at $1 to $3 per square footage depending on the method of cultivation. These rates will be reduced to $1 per square footage for cultivators and nurseries, and other cannabis businesses will be taxes between 2.5% and 4% of their gross receipts.

Mountain View

While there is a maximum of four cannabis businesses permitted to operate in Mountain View, over 80% of voters approved Measure Q to tax them. The measure imposes up to 9% of gross receipts to fund general city purposes, with an estimated annual revenue of $1M.Some have even set the effective dates of their cannabis tax laws several years out to allow their local cannabis businesses an opportunity to establish roots and drive out the black market.

Lompoc

Some jurisdictions have passed more creative cannabis business tax regimens than one rate applicable to the entire supply chain. Voters in Lompoc in Santa Barbara County approved Measure D2018 to authorize the city to impose following cannabis business taxes:

  • Up to $0.06 per $1 (6%) of recreational retail sales proceeds;
  • Up to $0.01 per $1 (1%) of cultivation and nursery proceeds;
  • An annual flat fee tax of $15,000 if net income is less than $2M of manufacturing and distribution proceeds;
  • An annual flat fee tax of $30,000 if net income is $2 Million or more of manufacturing and distribution proceeds;
  • A total aggregate tax of $0.06 per $1.00 (6%) of microbusinesses proceeds, not including medical cannabis transaction proceeds; and
  • No tax on testing.

Riverbank

There are signs that other localities that waited to jump onboard have learned from these high-taxing jurisdictions and opted for lower rates. There are even those localities that although they do not statutorily permit cannabis businesses to operate in their jurisdictions, they still want a piece of the action when it comes to cannabis taxes. The city of Riverbank in Stanislaus County currently does not allow cannabis businesses to operate without first obtaining a permit from City Hall and entering into a development agreement with the city that negotiates how much of their revenue the city would take. However, the voters just passed Measure B, which authorizes Riverbank’s City Council to impose a business license tax of up to 10% of gross receipts on cannabis businesses in the event the city allows cannabis businesses to operate within its city limits in the future. This tax has incentives other than the apparent potential of tax revenue. This guarantees the city a cut of the earnings of any illegal cannabis businesses, and serves as a protection in the event the permit and development agreement scheme the city has enacted is later found to be invalid.

The Chaos Continues

The new tax measures underscore the lack of uniformity in local cannabis business taxes throughout the state. Compliance is especially burdensome for delivery companies and multi-location and multi-license cannabis businesses. Cannabis businesses are required to keep up with new and evolving cannabis tax regimens, which, judging by the shortfall in cannabis tax revenues compared to their projections so far, is a difficult feat for these highly-regulated businesses.Of course, there are still some local governments that appear to have missed all the signs and have passed new high taxes. 

The overall trend in 2018, persisting through the midterm elections, is that more local jurisdictions are joining the cannabis tax bandwagon, and while the tax rates and structures are still all over the map, there appears to be some movement toward honing the cannabis business rates toward that “sweet spot.”

Cities like Oakland and Berkeley that immediately began to tax cannabis businesses at high rates have lowered or taken steps to lower their tax rates to keep their competitive edge and retain cannabis businesses within their jurisdictions. There are signs that other localities that waited to jump onboard have learned from these high-taxing jurisdictions and opted for lower rates. Some have even set the effective dates of their cannabis tax laws several years out to allow their local cannabis businesses an opportunity to establish roots and drive out the black market.

Of course, there are still some local governments that appear to have missed all the signs and have passed new high taxes. In due time, they, too, will give in to the market pressures and make necessary adjustments if they want to continue to benefit from the legal cannabis industry in their jurisdictions.


Taxnexus is an automated transaction-to-treasury cannabis tax compliance solution for the entire cannabis supply chain that provides point-of-sale state and local cannabis tax calculation, sales and use tax calculation, tax data management as the authority of record, and timely filing of returns with all applicable taxing authorities.

NCIA Brings Cannabis Business Summit to Oakland

By Aaron G. Biros
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The National Cannabis Industry Association (NCIA) with their California affiliate, California Cannabis Industry Association (CCIA), hosted over 3,000 business professionals at this week’s Cannabis Business Summit in Oakland, CA. According to Aaron Smith, executive director of the NCIA, this event drew their largest-ever gathering of attendees and well over 100 sponsors on the expo floor. In an exclusive interview prior to the event, Smith expected this would be a wildly successful year. “Last year we had just over 2,000 attendees in Colorado and we are expecting over 3,000 this year in California,” says Smith. “There is tremendous interest in the California market and it is so great to be here with all of the excitement leading up to the ballot initiatives in November.”

aaronsmithncia
Aaron Smith, executive director of NCIA

The theme of the conference was set early on from industry progress to sustainable growth. “I am really proud that NCIA’s events always bring out the best and brightest in the industry,” says Smith. “It is mostly members of NCIA attending, which are the folks invested in the future of the industry and not just in it to make a quick buck; they are here to build a new business sector.” On Tuesday morning, Smith gave his opening remarks and introduced the first keynote delivered by Ahmed Rahim, co-founder and chief executive officer of Numi Organic Tea alongside Kayvan Khalatbari, founding partner of Denver Relief Consulting, to discuss the triple bottom line in business, emphasizing the need for social responsibility, which includes environmental stewardship, fair labor and trade laws and community integration among cannabis businesses. California Lieutenant Governor Gavin Newsom also delivered a keynote address that was received with a standing ovation after discussing the November ballot initiative, which would legalize, regulate and tax the adult use of cannabis in the state.

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The first keynote panel of the Cannabis Business Summit

Newsom’s speech highlighted the state’s opportunity to make considerable progress in the cannabis legalization arena this November. The substance of his speech echoed that of many attendees focused on moving the industry forward sustainably. “We need to right the wrong of the failed war on drugs in America,” says Newsom. Boisterous cheers and applause followed almost every sentence as he continued to emphasize the need for social and criminal justice reform. “We are not doing this to be the next California gold rush or to make tax revenue; our purpose and focus is social justice,” adds Newsom.

Gavin Newsom, Lieutenant Governor of California, delivering the keynote
Gavin Newsom, Lieutenant Governor of California, delivering the keynote

The Lieutenant Governor also mentioned the sheer massive size of California’s market opportunity and their pragmatic regulatory framework in development. “The entire retail of recreational and medical [cannabis sales] in Colorado was just shy of $1 billion last year; we are talking about our 58 counties up in the northern part of this state that produce anywhere from $9-13 billion [sic] of wholesale cannabis- it’s a game changer,” says Newsom. “We have had the benefit of seeing where other states have fallen short or struggled [in regulatory frameworks] and will present that to voters this November.” Newsom also mentioned that members of the cannabis industry need to act as stewards of the environment and protect the small farmers.

Panel discussions throughout the afternoon and following day deliberated a wide variety of topics from laboratory testing standards to the state of affairs in education, training and certification across the country. John MacKay, senior director of strategic technologies at Waters Corporation, led a panel titled Validation of Analytical Methods, Lab Certifications and Standard Methods with Cynthia Ludwig, director of technical services at the American Oil Chemists’ Society (AOCS), Shawn Kassner, senior scientist at Neptune and Company, Inc. and David Egerton, vice president of technical services at CW Analytical Laboratories.

The panel: Validation of Analytical Methods, Lab Certifications and Standard Methods
The panel: Validation of Analytical Methods, Lab Certifications and Standard Methods

The panel addressed many of the current problems facing the cannabis testing space. “It is a very difficult plant to work with and labs are doing their best to provide reproducible results,” says Mackay. Cynthia Ludwig emphasized the need for collaborative studies and method validation in cannabis labs. “We [AOCS] provide official, validated laboratory testing methods, but the cannabis industry really has no official methods to work with,” says Ludwig. Egerton echoed Mackay’s concerns over difficult sample preparation and the difficulty of working with cannabis in the lab. “The problem is the matrix of the cannabis sample; the matrix is a critical aspect of method validation- ensuring we find the signal through the noise,” says David. “In the absence of official methods, cannabis labs need to perform method validation in-house for each type of sample, ranging from dry flower to different types of infused products and concentrates.” In addition to those difficulties of providing robust and reproducible lab tests, the panel emphasized that there is currently no laboratory accreditation program required by California regulators.

The cannabis industry in California is still rather unregulated and lacks consistency in safety standards across the market in almost every sector. Attendees seemed to look forward to the November 8th vote on the ballot initiative in California as a solution for the state’s current problems, hoping consumers and patients alike will find solace in a more regulated, standardized and safe market. The NCIA will be hosting a “Seed To Sale Show” focused on best practices and case studies January 31st and February 1st, 2017 in Denver. The next Cannabis Business Summit will be held from June 12th to the 14th of 2017 in Oakland, CA.