Cannabis Taxes: What is a Cannabis Resale Certificate?

Posted by Margolin & Lawrence on February 14, 2018

As recreational “adult-use” cannabis is officially legalized across California, cannabis taxation is more important than ever for legal cannabis operators. Our Los Angeles Cannabis attorneys are often asked about the new state tax system and what is new since January 1, 2018. As of a few months ago, the BOE became the CDTFA. For California, there are three different state-level taxes on cannabis business: the Cultivation Tax, the Cannabis Excise Tax, and the Sales and Use Tax. The new state tax agency has released an educational series to explain the new tax regime. Cannabis manufacturers and distributors need to become familiar with the resale certificate. As its name implies, a resale certificate relates to the Sales and Use tax.

The Sales and Use Tax applies to sales of cannabis or cannabis products (flowers, plants, hash, bud, vape pens, edibles, oils, etc.) to consumers – in other words, the “final sale” of cannabis before the product is used/consumed. However, there are circumstances in the cannabis supply chain where these products are sold to a cannabis business for resale, rather than to a consumer. For instance, if a licensed distributor sells cannabis to a licensed retailer, they’re making a sale, but the purchaser doesn’t intend to use or consume the product themselves. In order to prevent the distributor from being liable for taxation on this type of sale, the retailer can give the distributor a resale certificate. If timely and valid, this certifies that the purchaser intends to resell the product and therefore exempts the distributor from the tax.

Without a resale certificate, both the seller and the purchaser are liable for Sales and Use Tax. In the example above, the distributor would need to pay it for their sale to the retailer, while the retailer would need to pay it for the sale they make to the final consumer. The same goes for other sales of cannabis between licensed cannabis businesses. For instance, when a cultivator sells cannabis flower to a manufacturer, the cultivator is liable for a Sales and Use Tax unless the manufacturer gives them a resale certificate for the purchase.

One important thing for distributors to keep in mind is the distinction between “transport” and “sale”. If one licensed cannabis business purchases cannabis products directly from another, e.g. a retailer buying flowers from a cultivator, the distributor who is contracted to transport the products from the cultivator’s operation to the retailer’s isn’t making a sale, and therefore doesn’t need to pay a Sales and Use Tax, regardless of whether they’re given a resale certificate.

Even if all their business’ sales are for resale and exempt from Sales and Use Tax, all cannabis operators are still responsible for filing a tax return and reporting their activities to the California Department of Tax and Fee Administration. Remember, a resale certificate only applies to the Sales and Use Tax, not the Cultivation or Excise taxes.

A Macro-Overview of Cannabis Microbusiness Laws In California

Posted by Margolin & Lawrence on December 13, 2017

Our Los Angeles Cannabis Attorneys are constantly fielding questions about a popular license category called microbusiness. The Type 12 license allows you to engage in multiple cannabis activities on the same premises. For example, you could cultivate up to 10,000 sq. ft. of canopy, and distribute, and deliver under one license for microbusiness. The chance to diversify your business and conduct multiple activities under one license is appealing to many existing and prospective cannabis business owners.

The Bureau of Cannabis Control (BCC), released their final regulations for cannabis microbusiness licensees last week, after revising them post SB-94 (you can read more about the process here). Here’s what they have to say about the restrictions on cannabis microbusinesses:

  • Microbusinesses must engage in at least 3 different commercial cannabis activities
  • Microbusiness applicants have to describe operating procedures as required for each activity
  • If a microbusiness license is revoked or suspended, it affects every activity done using that license
  • Microbusiness license fees range from $5,000 to $120,000 depending on size of operation (up to $5 million)
  • Retail operations & Microbusinesses with retail sales can give out free samples to medicinal marijuana customers, as long as it meets the same conditions as normal retail sales
  • Sales at events are allowed
  • Retailers & Microbusinesses with retail will have to employ security guards

If you’re interested in learning more about cannabis microbusiness or retail, Contact us to speak to a Los Angeles Cannabis attorney. 

 

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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.