The tax code for cannabis in California is detailed and can be slightly confusing. One of the areas where this tax gets particularly complicated is in deciphering who pays the cultivation tax. Today, we will discuss how the cultivation tax specifically applies to cannabis pre-rolls.
To recap, cannabis cultivators must pay the cultivation tax when selling cannabis to manufacturers or distributors. As we previously outlined in our primer on cannabis cultivation tax, the amount of tax paid depends on the weight and category of cannabis:
- $9.25 per dry-weight ounce of cannabis flowers
- $2.75 per dry-weight ounce of cannabis leaves
- A proposed $1.29 per ounce of fresh cannabis plant fee*
*Fresh cannabis plant fee only applies when the cannabis plant is weighed in an unprocessed state within 2 hours of harvesting.
If you have questions on the cultivation tax in general, please get in touch with our experts or go through our primer. With this background, know that with pre-rolled cannabis, the cultivation tax process is a bit different.
Who Pays the Cultivation Tax on Pre-Rolled Cannabis?
When a cultivator sells or transfers cannabis to a processor, including making cannabis pre-rolls, the cultivator is not responsible for the cultivation tax. Document this transaction by keeping records! These records should indicate that no cultivation tax was collected when business was done between the cultivator and processor. In addition, note the weight and type of cannabis used when making the pre-rolls. This information will be used when the cultivation tax is eventually paid.
When the processor eventually sells or transfers cannabis pre-rolls to a distributor, it will be the processor that pays the cultivation tax. The processor will pay to the distributor. The amount paid will be based on weight and category of the product used in the pre-rolls.
The distributor also has a lot of responsibility because the distributor that organizes testing (which is required) and handles quality assurance, is also responsible for collecting the cultivation tax. The distributor must report and pay the cultivation tax on their cannabis tax return. This will be reported during the reporting period that the cannabis enters the commercial market.
If you have specific questions in regards cultivation tax as it relates to cannabis pre-rolls, please contact our experts at Green Growth CPA to discuss further.