Do Free Samples get Taxed?

Posted by Margolin & Lawrence on May 1, 2018

Free Samples

 

Update: This blog post does not apply to Los Angeles, as the distribution of free samples is non-compliant under the LA Ordinance 185344 Rules and Regulations for Cannabis Procedures, Regulation No. 10. Operational Requirements and Violations. Section D.

 

Since the pot-prohibition era has ended, there has been much ambiguity around the transition from an illegal market to one that is becoming strongly regulated. The cannabis tax rates for California were definitely met with much opposition, with both merchants and customers appalled by the exorbitant tariffs on California’s favorite vice (read more here).

With the growth of the legal green industry, an abundance of cannabis products, lifestyles, and brands are sprouting from all over. New brands must compete to breakthrough a saturated market, to overcome big-name existing brands, and to stay unique while targeting specific audiences in the midst of it all. As such, the need for free samples is more prevalent than ever.

During the medical collective days in California, cannabis brands would utilize ambassadors to showcase products in dispensaries. By directly presenting varieties of products to potential customers, providing detailed information, and giving free samples, these brand ambassadors were able to gain new customers through intimate conversations and interpersonal relationships. As direct representatives of cannabis brands, the agents are personifications of the brands themselves. Countenance, quality of conversation, and the amount of perceived expertise of the ambassador correlate to the customer’s acceptance of free samples, probability of reaching for other merchandise, and ultimately, the purchase of the actual product. Free samples are crucial in this transitioning market. New cannabis connoisseurs are eager to gain more knowledge, as experienced ones seek ingenious new products.

As a cannabis retailer, you must have the Bureau of Cannabis Control’s (BCC) authorization for the distribution of free cannabis samples. In terms of the taxation of these samples, the distributors of the samples do not have to pay the 15% cannabis excise tax on free samples. Instead, they must pay the Sales and Use Tax on the amount of free product given away.

The difference between the cannabis excise tax and the Sales and Use tax is that the former is a mandatory tax on all cannabis products, medicinal and recreational, while the latter is applied only to retail sales of cannabis. This means that when distributing free samples, instead of paying 15%, the distributor will pay the lesser Sales and Use Tax Rate, which is 9.5% for Los Angeles. The Sales and Use Tax Rates varying by location can be found on the CDTFA website. Cannabis brands can continue to give out free samples and pay a decreased tax rate, while customers can still enjoy complimentary samples.

 

Cannabis SOPs, LA Cannabis Permits, LA Cannabis Licensing, Cannabis Taxation, LA Cannabis Taxes, Licensing, Cannabis Retail Store, Cannabis Business Los Angeles, Cannabis Business California, Cannabis Microbusiness, Los Angeles Cannabis Ordinances, Los Angeles Cannabis Zoning, California Cannabis Regulations, California Cannabis Lawyer, Los Angeles Cannabis Licensing, Los Angeles Cannabis License, Cannabis Trademark Attorney, Cannabis Trademark, Cannabis Regulations, Los Angeles Cannabis Ordinance, Los Angeles Cannabis Regulations, Cannabis Ordinance

Categories

This blog is not intended as legal advice and should not be taken as such. The possession, use, and/or sale of marijuana is illegal under federal law.