Know Your Cannabis Taxes

Cannabis Taxation
Categorized as Accounting, Taxes Tagged , , ,

Taxes. Does that kill your buzz? You don’t often hear the word ‘taxes’ in conversations about cannabis and cannabis industries. But it’s important. Just like any other tax, there are tax implications of a marijuana business. But first, let’s look into this idea of running a cannabis business.

Types of Business in the Cannabis Industry

With the widespread legalization of marijuana, many business opportunities have opened up. The business of growing plants, processing plants, and dispensing the finished products — dispensaries — are obvious. But there are other businesses that entrepreneurs can launch in this budding industry.

  • Product Retailing: Selling all related products to marijuana, from pipes to paper.
  • Breeder (seeds): Breeders design seeds for all the varieties and purposes of cannabis, from medical to recreational, including flavors and strength.
  • Cultivator (plants): These are the plant growers.
  • Dispensary: This is where your favorite bud-tender works.
  • Experiences: There is a flourishing industry around creating cannabis experiences with tours, B&Bs, painting, culinary, and more.
  • Extractors: A manufacturing process of pulling the oils and other nutrients from the cannabis plants.
  • Manufacturing: Producing all the products sold at retailers.
  • Information Technology: There’s an app for that! Yes, developers create apps, websites, and software for the cannabis market.

Medical Marijuana versus Recreational Marijuana

Across the United States, the cannabis industry is divided into two categories: medical and recreational. Many states have medical marijuana laws but have not legalized recreational pot. For medical marijuana, dispensaries are often non-profits, adding a new layer of tax laws onto the business.  Check your state for taxes on recreational marijuana. 

Most tax municipalities tax recreational marijuana higher than medical marijuana. That’s for the plant products, not the ancillary products like pens, paper, etc.

Cannabis Tax Laws in California

Personally, you can get a tax break on medical marijuana here in California — up to 10% of marijuana purchases that are directed by a doctor. You have to get a Medical Marijuana Identification (MMID) card (that’s a $100 fee, so do the math on your spending/savings). That card will exempt you from sales taxes on marijuana purchases for a year. That’s where you get the “up to” 10% tax savings.

For marijuana-related business taxes, there are two main categories:

  • Excise Tax: The state has a 15% excise tax, based on the 60% markup rate of marijuana market prices. This tax is subject to change on occasion.
  • Cultivation Tax: Leaves, flowers, and plants are weighed within two hours of cultivation and taxed separately: $9.25 per dry-weight ounce, $2.75 per dry-weight ounce, and $1.29 per ounce, respectively.

Considerations for Starting a Business in the Cannabis Industry

Starting a cannabis business is mostly just like launching any business. You’ll need to pick your form of business (sole proprietorship, LLC, Corporation, etc.), get your trade name, acquire licenses, etc. If you’re going to sell cannabis, you’ll need to get your seller’s permits through the state, including cannabis tax permits. And remember, you’ll have to pay all of the normal taxes, like payroll, income, sales, and more.

Still Have Questions?

At ASCEND Business Advisory, we specialize in new, innovative businesses. We thrive on helping entrepreneurs disrupt industries and set up cutting edge shops. If you’re looking to start a cannabis related business, you don’t have to go it alone. We’re here to help. Either give us a call at (888) 297-3321 or schedule a complimentary consultation with us to discuss your business idea.