Now that the state’s regulated cannabis market is up and running, some residents may be second-guessing that decision.
Recent reports in industry publications have cited cases of “sticker shock” among California cannabis consumers. Between the state’s excise tax, regular sales tax, and local business tax, adult-use customers are paying anywhere between 28 and 40 percent tax on every purchase. That can add up to a pretty substantial bill that may be upsetting to some patrons.
So what do you do when your customer calls the final price into question? Unfortunately, you can’t do anything to change the law – but you can be prepared to explain exactly what the taxes are and where they’re going.
California Cannabis Sales Tax
Total tax on California cannabis sales varies by location. The statewide base sales tax rate is 7.25 percent — 6 percent state tax, plus a 1.25 percent mandatory local tax. Local jurisdictions can apply an additional tax of up to 3 percent, bringing total sales tax as high as 10.25 percent.
California Cannabis Sales Tax Breakdown
1. Excise Tax (15%)
The excise tax is a business tax charged to the retailer and paid to the distributor. It applies to all legal cannabis sales, both medical and adult-use. Although the regulations do not explicitly say that the excise tax has to be rolled into the retail price, this seems to be the intention and the best practice.
The excise tax goes toward state spending on such things as environmental cleanup, law enforcement, and drug prevention programs, among others.
2. State Sales Tax (8-10%)
The state sales tax rate varies slightly depending on where you are, but it typically ranges between eight and 10 percent. This tax is charged at the cannabis dispensary POS, on top of the sales price and the cannabis business tax. However, medical patients with a state-issued medical marijuana card are exempt from this tax.
This revenue goes to the state’s general fund as well as toward local transportation, social services, and public safety funds.
3. Cannabis Business Tax (5-15%)
Local governments (city or county) also have the ability to tax cannabis sales at their discretion. These local cannabis business tax rates can range anywhere between five and 15 percent and are charged at the point-of-sale on top of the product’s selling price. The funds typically go toward local services.
4. Medical vs. Adult-Use Tax Rates
It’s important to note that medical marijuana sales are exempt from the state sales tax. Medical patients still have to pay the 15 percent excise tax, and local jurisdictions can choose to levy a sales tax on medical cannabis.
Changes on the Horizon
The good news that you can pass on to your cannabis dispensary’s customers is that if California follows the trend of other legal states, marijuana prices will begin to fall as production and supply increase. In Colorado, Oregon, and Washington, wholesale prices have dropped significantly over the past several years – which means cannabis retailers can pass on the savings to their customers.
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