Tax Guide for Cannabis Businesses

Cannabis Taxation

The increase in quantities sold masked the big price decreases’ effect on tax per product between 2018 and 2019. Of course, that effect also works the other way when prices increase, as they did through the second half of 2019. In the end, the likely decline in prices over time may hurt Oregon’s ability to continue to grow excise revenue with an ad valorem tax. Each component has different qualities and potency defined by content of cannabinoids.

Republican Cannabis Bill Would Tax by Category

The first section presents the marijuana market data and tax design from U.S. states. The second section discusses tax design options for states and the federal government as well as some of the factors impacting tax policy design in the marijuana space. Taxing marijuana is complex, in part because an array of marijuana consumption products exists. Marijuana can be smoked, with different strands having different potency levels of THC, or liquid cannabis extracts and concentrates can be used in the creation of edible or drinkable products, with varying levels of THC. Any federal taxes would pyramid on top of state taxes, compounding the effects of taxation.

  • Federally, marijuana is classified as a Schedule I substance under the Controlled Substances Act, making the drug illegal to consume, grow, or dispense.
  • Paul Dunford, vice president of knowledge and co-founder at Green Check, has helped more than 150 institutions set up financial services for cannabis as a specialist in tech and services needed to “compliantly and profitably” serve cannabis-related businesses under the government’s 2014 FinCen guidelines.
  • Furthermore, taxing based on the price harms consumer choice and product quality as it incentivizes manufacturers and retailers to reduce prices to limit tax liability.
  • Currently, 21 states have implemented legislation to legalize and tax recreational marijuana sales.
  • [1] Drug scheduling is determined by a combination of the risk of abuse and potential for medical use.

Adult-use cannabis products tax

If there is a conflict between this document and the law, decisions will be based on the law. For additional information regarding gross receipts, please see our Cannabis Tax Fact — Gross Receipts Subject to Cannabis Excise Tax. We may inspect any business that sells or stores objects of any kind bearing the universal cannabis accounting cannabis symbol for commercial activity in violation and any objects deemed contraband may be seized by us. Upon completion of this course, you will not only have a solid understanding of these complex tax matters but also be able to identify resources that will aid you in making well-informed tax decisions.

New HSR Rules Threaten M&A Activity Vital to Small Businesses

Cannabis Taxation

Cannabis taxes support various initiatives and programs but each state decides how to use this money based on its priorities. It’s important to note that funds allocated to local governments often have more independent management, giving jurisdictions flexibility in spending without strict state requirements. This makes the expenses economically unfeasible, even when the business is required to provide them. Consumer safety also may take a back seat when the cost of quality product testing or child-safe packaging is not deductible and not required. Payroll taxes, health benefits, and retirement matching are not feasible for companies marginalized by laws that tax them on those costs. All this affects businesses who lack access to low-cost bank accounts and most sources of capital.

If the legalization trend continues and more consumption is moved to the legal market the regulated and taxed share may become even bigger. Cannabis taxes are sometimes called a “sin tax” because, unlike a general sales tax, the tax is levied in part to address the negative effects of marijuana use, such as addiction and impaired decision making. (Marijuana has known negative effects and documented benefits.) However, unlike a cigarette tax, a cannabis tax is not typically meant to discourage broad consumption. Instead, some states use revenue from cannabis taxes to fund programs related to the drug or the harmful effects of prior drug law enforcement. Cannabis Excise Tax – Cannabis retailers are now responsible for reporting and paying the cannabis excise tax to the California Department of Tax and Fee Administration (CDTFA) for retail sales of cannabis or cannabis products made beginning January 1, 2023.

Cannabis Taxation

Do dispensaries pay federal taxes?

  • Often, ad valorem taxes also result in tax pyramiding, which is when a state levies an excise tax at the wholesale level and a retail tax based on retail selling price.
  • The site includes information on a number of relevant topics such as Internal Revenue Code (IRC) section 280E guidance, reporting taxes, making large payments with cash and more.
  • When discussing taxation in relation to the cannabis industry, taxes can appear even more daunting if one doesn’t know the right questions to ask.
  • An experienced grower can get up to 36 ounces out of one plant.[89] When compared with an estimated annual use of 20.5 ounces for heavy users, it could be advisable to limit home cultivation to home consumption.
  • Further, the system does not consider the ability to extract THC from the flower and create highly potent concentrates from a small amount of plant material.

Tax Design Recommendation

  • I have done three of these types of events over the last year, and what I have heard is a genuine desire to comply with the tax laws regarding the industry.
  • Our enforcement efforts in the industry indicate there are taxpayers operating in segments of the industry (growers, transporters, wholesalers and retailers/dispensaries) who fail to file U.S. tax returns.
  • While Oregon has managed to increase its receipts year over year, the figures hide the impact of declining prices.
  • Now, when a customer buys from Verdi Cannabis, the store accepts credit cards, but with some extra steps.
  • The federal government already has experience with testing alcohol by volume and should be able to implement a similar system for marijuana.
  • The Getting Started section provides key resources related to registration, filing returns, account maintenance, and other information cannabis businesses may need.
  • Additionally, some states allow and tax (at low rates) the purchase of marijuana for medical use.

Marijuana tax rates in Ohio

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