Cannabis Tax Return
General Information
As a distributor of cannabis or cannabis products (or microbusiness operating as a distributor), you are required to electronically file your cannabis tax return with us to report the amounts of both the cultivation tax and cannabis excise tax collected and pay the amount due. The cannabis tax return is due on the last day of the month following the reporting period. Even if you are a distributor that is not responsible for collecting the cultivation tax or the cannabis excise tax, and you have no taxable transactions to report, you are still required to file a cannabis tax return and report your activities to us.
A cannabis distributor is a person required to be licensed with the Department of Cannabis Control as a distributor who procures, sells, and/or transports cannabis between licensed cannabis businesses, such as a cultivator, manufacturer, or retailer. A microbusiness licensed to act as a distributor must comply with all the same requirements as a distributor.
Cannabis Excise Tax Information
As a cannabis distributor, if you sell and transfer cannabis or cannabis products to a retailer, or if you transfer cannabis or cannabis products on behalf of a manufacturer or cultivator, you are required to collect the cannabis excise tax based on the average market price of the cannabis sold in a retail sale.
In instances where a distributor sells or transfers cannabis or cannabis products to another distributor, including hiring another distributor to transport cannabis or cannabis products to a retailer, documentation, such as a shipping manifest or invoice between the distributors, should indicate which distributor has collected or will collect the cannabis excise tax from the retailer based on the average market price of the cannabis sold in a retail sale and report and pay it to us. In the absence of such documentation, both distributors may be held liable for any unpaid cannabis excise tax owed on the retail sale of the cannabis or cannabis products.
Average Market Price
The average market price is calculated based on the type of transaction between a cannabis retailer and its supplier. There are two types of transactions, an arm's length transaction or a nonarm's length transaction.
Arm's Length Transactions:
- An arm's length transaction means a sale entered into good faith for a price that reflects the fair market value in an open market between two informed and willing parties.
- In an arm's length transaction, the average market price is calculated by using the retailer's wholesale cost of the cannabis or cannabis products plus our predetermined mark-up. The 15 percent cannabis excise tax is applied to the average market price to calculate the cannabis excise tax.
- Example: Wholesale cost of cannabis flowers is $1,000.00 and the mark up is 80% (1,000 x 0.80 = 800); the average market price is $1,800.00 (1,000 + 800).
Nonarm's Length Transactions:
- A nonarm's length transaction occurs when a transaction does not meet the definition of an arm's length transactions, meaning there is no good faith sale to a cannabis retailer at a fair market price.
- In a nonarm's length transaction, the average market price is the gross receipts of the retail sale of cannabis or cannabis products. The 15 percent cannabis excise tax is applied to the average market price to calculate the cannabis excise tax due.
- Example: Selling price of cannabis is $35.00, local business tax is $3.50 and delivery charge is $5.00; the average market price is $43.50 (total selling price, 35.00 + 3.50 + 5.00)
Report the total average market price of cannabis and cannabis products that were sold or transferred to a cannabis retailer during the reporting period for arm's length transactions and nonarm's length transactions. Do not include any medicinal cannabis or medicinal cannabis products that were donated to a cannabis retailer for subsequent donation to a medicinal cannabis patient. Also, do not include any trade samples provided to other licensees.
Excess Excise Tax Collected
If a cannabis retailer collects more cannabis excise tax from their customer than the retailer originally paid to a distributor, it is considered excess excise tax collected. When this occurs, the retailer must return the excess excise tax collected back to the customer. In the event the retailer cannot return the excess excise tax collected to their customer, the retailer must pay the excess excise tax to a distributor.
As the distributor, you must report any excess excise tax collected, that a retailer paid you, on the first return due after receiving the excess amount from the retailer. You will report the excess excise tax collected in the Excess Excise Tax Collected field of the return.
Additionally, if you collect excess excise tax from a cannabis retailer because of your miscalculation of the excise tax, you must return the excess amount back to the retailer. If you are unable to return the excess excise tax collected, you must enter the excess amount in the Excess Excise Tax Collected field of the return.
Be sure to keep all supporting documentation of any collected excess excise tax reported in this field. If the excess excise tax is returned to the retailer after you report and pay it to us, the excess excise tax credit on the next line will only be allowed with proper documentation showing the amount was paid to us and later returned to the retailer.
Excess excise tax collection can occur in the following situations:
- When excise tax is computed on a higher calculated average market price of the cannabis or cannabis products than the average market price reported on the return;
- When excise tax is computed using a tax rate higher than the rate imposed by law, and;
- When mathematical or clerical errors result in an overstatement of the tax on an invoice, receipt, or similar document.
Excess Excise Tax Remitted, later Returned to Retailer
If you paid excess excise tax to us that was later returned to a retailer, enter the amount in this field. Proper documentation must be kept to support any amount reported here. We may request documentation from you before this credit is accepted. Documentation may include but is not limited to:
- Records that show when the excess excise tax was reported and paid to us,
- The original invoice that supports excess excise tax was collected, and
- A credit memo or similar document that supports the excess excise tax was returned to the retailer.
Cultivation Tax Information
Beginning July 1, 2022, the cultivation tax no longer applies to harvested cannabis entering the commercial market. Distributors and manufacturers (including microbusinesses authorized to distribute or manufacture) are no longer required to collect the cultivation tax from cultivators.
Cultivation tax is not due on harvested cannabis entering the commercial market on or after July 1, 2022, even if you received cannabis from a cultivator prior to July 1, 2022. Any cultivation tax collected on harvested cannabis that enters the commercial market on or after July 1, 2022, is considered excess cultivation tax collected and must be returned to the cultivator that originally paid the cultivation tax, or if unable to be returned to the cultivator, paid to the California Department of Tax and Fee Administration (CDTFA).
From January 1, 2018, through June 30, 2022, a cultivation tax was imposed on cultivators on all harvested cannabis that enters the commercial market.The cultivation tax is based on the category and weight of cannabis that a cultivator sells or transfers to a manufacturer or distributor and shall be consistent with the weight and category of the cannabis that a cultivator records in the California Cannabis Track-and-Trace (CCTT) system.
The cultivation tax is due once the cannabis or cannabis products enters the commercial market. To properly calculate the cultivation tax due, it is important that you know the weight in ounces of each category of cannabis that enters the commercial market. Partial ounces, rounded to the nearest hundredth, must be included in the calculation of the cultivation tax due.
Report the total ounces of cannabis (including ounces of cannabis designated as trade samples and medicinal cannabis designated for donation), for each cultivation tax category, that entered the commercial market during the reporting period. Then report the ounces of cannabis that were designated as trade samples and medicinal cannabis that a cultivator designates for donation in the CCTT system. The system will calculate the ounces of cannabis to which the cultivation tax will apply for each category.
Excess Cultivation Tax
Cultivation tax collected prior to July 1, 2022, on harvested cannabis that entered the commercial market on or after July 1, 2022, is considered excess cultivation tax collected and must be returned to the cultivator that originally paid it. A distributor who has collected excess cultivation tax and is not able to return it to the cultivator that originally paid it, must report the excess cultivation tax collected on their next cannabis tax return and pay it to CDTFA. A manufacturer who has collected excess cultivation tax and is not able to return it to the cultivator that originally paid it, must transfer that amount collected to a distributor for the distributor to report it as excess cultivation tax collected on their next cannabis tax return.
Each licensee in a transaction should keep clear records to document, as applicable, when excess cultivation tax was collected or not collected, returned to a cultivator, transferred to a distributor, or when excess cultivation tax was paid to CDTFA. Such documentation serves as evidence that you did not collect and retain any excess cultivation tax, which protects you from liability for any excess cultivation tax collected.
Enters the Commercial Market
Cannabis enters the commercial market when the cannabis or cannabis products pass the required testing and quality assurance review, as described in section 26110 of the Business and Professions Code.
Penalty Information
The Cannabis Tax Law imposes a mandatory 50 percent penalty for failure to pay the amount of cultivation tax or cannabis excise tax due.
If you fail to pay the cannabis taxes by your due date, you may be relieved of the 50 percent penalty if we find that your failure to timely pay was due to reasonable cause and circumstances beyond your control, and occurred notwithstanding the exercise of ordinary care and absence of willful neglect. Additional penalty and interest may be assessed per Fee Collection Procedures Law section 55042.
Filing Instructions for Cannabis Distributors (Tax Returns for July 1, 2022, through December 31, 2022)
What are you reporting?
Select “Yes” or “No”
Are you reporting excise tax on cannabis or cannabis products?
Are you reporting excess cultivation tax collected?
Please note: If you selected “Yes”, you will be asked to provide additional information about the subject.
If you select “No”, no further information will be requested on that subject.
If you have no taxable transactions to report, select “No” for each question.
Click “Next”
Excise Tax on Cannabis
Enter the average market price on sales/transfers of cannabis and cannabis products to cannabis retailers in arm's length transactions.
Enter the average market price on sales/transfers of cannabis or cannabis products to cannabis retailers in nonarm's length transactions.
The total average market price on sales/transfers of cannabis or cannabis products will automatically be calculated by the system.
15 percent excise tax rate (the system will automatically determine this rate).
Excise Tax Due (the system will automatically calculate this amount).
Add excess excise tax collected, if any. If you have collected more tax than what is due (excess excise tax) for this reporting period, enter the amount of excess excise tax collected.
Less excess excise tax previously remitted, later returned to retailer. If you have returned any remitted excess excise tax to your retailer during this reporting period, enter the amount of excess excise tax that was remitted, and returned to your retailer. Documentation may be requested to support this amount.
Total cannabis excise tax due (the system will automatically calculate this item).
Please note: For additional information on the cannabis excise tax, see Cannabis Excise Tax Information above.
Click “Next”
Excise Tax on Cannabis Collected
Enter the total excess cultivation tax collected, if any, that could not be returned to the cultivator that originally paid it.
Please note: For additional information on the cannabis excise tax, see Cultivation Tax Information above.
Click “Next”
Department of Cannabis Control license number
Enter your Department of Cannabis Control (DCC) license number below.
Your site location address will be displayed but you must “Add DCC License Number” in the box provided.
This screen will not appear if you have already provided your DCC license number for your site location(s).
Click “Next”
Filing Instructions for Cannabis Distributors (Tax Returns for January 1, 2022, through June 30, 2022)
Please also view our video, Filing a Cannabis Tax Return for Cannabis Distributors.
What are you reporting?
Select “Yes” or “No” for each question.
Are you reporting excise tax on cannabis or cannabis products?
Are you reporting cultivation tax on cannabis flowers?
Are you reporting cultivation tax on cannabis leaves?
Are you reporting cultivation tax on fresh cannabis plant?
Please note: If you selected “Yes”, you will be asked to provide additional information about the subject.
If you select “No”, no further information will be requested on that subject.
If you have no taxable transactions to report, select “No” for each question.
Click “Next”
Excise Tax on Cannabis
Enter the average market price on sales/transfers of cannabis and cannabis products to cannabis retailers in arm's length transactions.
Enter the average market price on sales/transfers of cannabis or cannabis products to cannabis retailers in nonarm's length transactions.
The total average market price on sales/transfers of cannabis or cannabis products will automatically be calculated by the system.
15 percent excise tax rate (the system will automatically calculate this rate).
Excise Tax Due (the system will automatically calculate this amount).
Add excess excise tax collected, if any.
Less excess excise tax remitted, later returned to retailer.
Total cannabis excise tax due (the system will automatically calculate this item).
Please note: For additional information on cannabis excise tax, see Cannabis Excise Tax Information above.
Click “Next”
Schedule A – Cultivation Tax on Cannabis Flowers
In the empty field below the Year of Original Sale/Transfer from Cultivator column, select the current or prior year(s) from the drop down menu. The year selected is the year when the original sale/transfer of cannabis flowers from a cultivator occurred.
In the Total Ounces column, enter the total ounces of cannabis flowers that entered the commercial market for each selected year, including any ounces of cannabis flowers that were donated or given as trade samples.
In the Ounces Donated column, enter the total ounces of medicinal cannabis flower designated for donation that entered the commercial market for each selected year.
In the Ounces of Trade Samples column, enter the total ounces of cannabis flower designated as trade samples that entered the commercial market for each selected year.
The Total Ounces Exempt from Cultivation Tax, Total Taxable Ounces, Cultivation Tax Rate per Ounce, and Cultivation Tax Due for each year will automatically be calculated by the system.
The system will automatically calculate the Total Cultivation Tax Due on Cannabis Flowers.
Please note: For additional information on cultivation tax, see Cultivation Tax Information above.
Click “Next”
Schedule B – Cultivation Tax on Cannabis Leaves
In the empty field below the Year of Original Sale/Transfer from Cultivator column, select the current or prior year(s) from the drop down menu. The year selected is the year when the original sale/transfer of cannabis leaves from a cultivator occurred.
In the Total Ounces column, enter the total ounces of cannabis leaves that entered the commercial market for each selected year, including any ounces of cannabis leaves that were donated or given as trade samples.
In the Ounces Donated column, enter the total ounces of medicinal cannabis leaves designated for donation that entered the commercial market for each selected year.
In the Ounces of Trade Samples column, enter the total ounces of cannabis leaves designated as trade samples that entered the commercial market for each selected year.
The Total Ounces Exempt from Cultivation Tax, Total Taxable Ounces, Cultivation Tax Rate per Ounce, and Cultivation Tax Due for each year will automatically be calculated by the system.
The system will automatically calculate the Total Cultivation Tax Due on Cannabis Leaves.
Please note: For additional information on cultivation tax, see a Cultivation Tax Information above.
Click “Next”
Schedule C – Cultivation Tax on Fresh Cannabis Plant
In the empty field below the Year of Original Sale/Transfer from Cultivator column, select the current or prior year(s) from the drop down menu. The year selected is the year when the original sale/transfer of fresh cannabis plant from a cultivator occurred.
In the Total Ounces column, enter the total ounces of fresh cannabis plant that entered the commercial market for each selected year, including any ounces of fresh cannabis plant that were donated or given as trade samples.
In the Ounces Donated column, enter the total ounces of medicinal fresh cannabis plant designated for donation that entered the commercial market for each selected year.
In the Ounces of Trade Samples column, enter the total ounces of fresh cannabis plant designated as trade samples that entered the commercial market for each selected year(s).
The Total Ounces Exempt from Cultivation Tax, Total Taxable Ounces, Cultivation Tax Rate per Ounce, and Cultivation Tax Due for each year will automatically be calculated by the system.
The system will automatically calculate the Total Cultivation Tax Due on Fresh Cannabis Plant.
Please note: For additional information on cultivation tax, see Cultivation Tax Information above.
Click “Next”
Summary
All the totals below will be automatically populated based on your previous entries. Penalty and Interest will also be calculated if applicable.
Total cannabis excise tax due
Total cultivation tax due
Total amount of tax due
Penalty
A 10 percent penalty is added for returns or payments made after the original due date. An additional penalty of 50 percent is added for payments made after the original due date.
Interest
Total amount due and payable
If you would like to print a draft of your return prior to submission, click on the Save Draft button displayed below.
Click “Next”
Department of Cannabis Control license number
Enter your Department of Cannabis Control (DCC) license number below.
Your site location address will be displayed but you must “Add DCC License Number” in the box provided.
This screen will not appear if you already provided your DCC license number for your site location(s).
Click Next
Your Information
I hereby certify that this return, including accompanying documents and statements, has been examined by me and to the best of my knowledge and belief is true, correct, and complete.
First Name
Last Name
Title
Country
Telephone
Are you a paid preparer? Choose “Yes” or “No”
Click “Next”
Declaration of Intent
Enter your password and click “OK”
Confirmation
This provides confirmation of your return filing only. Please read carefully. You have the option to print the return by clicking on the Print Return (PDF) button. If you are finished, click “I'm Done.”
Filing Instructions for Cannabis Distributors (Tax Returns prior to 2022)
What are you reporting?
Select “Yes” or “No”
Are you reporting excise tax on cannabis?
Are you reporting cultivation tax on cannabis flowers?
Are you reporting cultivation tax on cannabis leaves?
Are you reporting cultivation tax on fresh cannabis plant?
The items you answered yes too, will display in the next screens and you will be asked to complete.
Click “Next”
Please note: for the questions you select “No” they will not appear on your screen as an option to complete.
Excise Tax on Cannabis
Enter total average market price on sales/transfers of cannabis.
15% excise (the system will automatically calculate this item).
Add excess excise tax collected, if any.
Less excess excise tax remitted, later returned to retailer.
Total cannabis excise tax due (the system will automatically calculate this item).
Click “Next”
Cultivation Tax on Cannabis Flowers
Enter total dry-weight ounces of flowers that entered the commercial market.
Total cultivation tax due on flowers (rate per ounce will be displayed here) and the system will automatically calculate this item.
Click “Next”
Cultivation Tax on Cannabis Leaves
Enter total dry-weight ounces of leaves that entered the commercial market.
Total cultivation tax due on leaves (rate per ounce will be displayed here) and the system will automatically calculate this item.
Click “Next”
Cultivation Tax on Fresh Cannabis Plant
Enter total ounces of fresh cannabis plant that entered the commercial market.
Total cultivation tax due on fresh cannabis plant (rate per ounce will be displayed here) and the system will automatically calculate this item.
Click “Next”
Summary
All the totals below will be automatically populated based on your previous entries. Penalty and Interest will also be calculated if due.
Total cannabis excise tax due
Total cultivation tax due
Total amount of tax due
Penalty
A 10% penalty is added for returns or payments made after the original due date. An additional penalty of 50% is added for payments made after the original due date.
Interest
Total amount due and payable
If you would like to print a draft of your return prior to submission, click on the “Save Draft” button displayed below.
Click “Next”
Department of Cannabis Control license number
Enter your Department of Cannabis Control (DCC) license number below.
Your site location address will be displayed but you must “Add DCC License Number” in the box provided.
Please note: this screen will not appear if you already provided your DCC license number for your site location(s).
Click “Next”
Your Information
I hereby certify that this return, including accompanying documents and statements, has been examined by me and to the best of my knowledge and belief is true, correct, and complete.
First Name
Last Name
Title
Country
Telephone
Are you a paid preparer? Choose “Yes or No”
Click “Next”
Declaration of Intent
Enter your password and Click “OK”
Confirmation
This provides confirmation of your return filing only. Please read carefully. You have the option to print the return by clicking on the “Print Return (PDF)” button or click “I'm Done”.