Cannabis Taxes Explained

If you’ve purchased cannabis in the past few months, then you have likely noticed something a little extra on your receipt. The days of tax-free cannabis in California are long gone.

Ah, taxes. We pay them on boats, clothes, cars, homes, and now cannabis, too. If you need some guidance on exactly what taxes consumers are required to pay, look no further.

Since Prop 64 legalized cannabis for adult use on January 1, 2018, three new taxes have gone into effect on all cannabis purchases:

Excise Tax: A 15% excise tax is imposed upon those who purchase cannabis and cannabis-infused products. Retailers are required by law to collect the excise tax and pay it directly to the cannabis or cannabis-derived product distributor. This tax is unavoidable and travels from seed to sale in all products.

Sales and Use Tax:  This tax rate starts at 7.25% but will quickly grow to 10% or more as jurisdictions add district taxes. Sales and Use Tax is the second-highest tax on cannabis, after Excise Tax. It is calculated by the combined total of retail price and excise tax. Los Angeles is currently charging 9.5% Sales and Use Tax. Some good news for MMIC holders – they don’t have to pay this.

Local Sales Tax:  A few counties and cities in California have a separate tax for retailers operating within their borders. Rates and rules can change and can drastically vary based on locations. Cities can charge anywhere from 0 – 10%. Most cannabis consumers will notice an upcharge of 5-7% tax. Local Tax also cannot be avoided. Los Angeles currently charges 10% Local Sales Tax, but patients with a doctor’s recommendation or MMIC are only required to pay 5%.

I have my doctor’s recommendation, do I still need to pay these taxes? Yes. A doctor’s recommendation only qualifies you for a 5% break on the Local Sales Tax that is normally 10% in Los Angeles. Patients with a doctor’s recommendation will still be charged State Excise Tax, State Sales Tax, and Local Sales Tax.

What does MMIC stand for? MMIC, or Medical Marijuana Identification Card, is a state-issued license that allows you to purchase cannabis without paying the Sales and Use Tax. An MMIC is different than the doctor’s recommendations we have all known for years under Prop 215. There is an official form to be filled out by your doctor (a general practitioner or other licensed medical specialist) for verification of qualifying medical condition. After your doctor completes this form, you must make a visit to your local participating Public Health and Human Services office where they will process your paperwork along with a $100 payment, and issue your MMIC through the state of California where it will be valid for 1 year. In Los Angeles, MMIC holders pay a total of 20% in taxes on their cannabis purchases, while recreational customers are paying a total of 34.5%. Whether or not this investment is worthwhile depends on the person, but avid medicinal users will likely find substantial long-term savings with this option.

I don’t have my doctor’s recommendation, can I still buy cannabis? Do I need to pay taxes? Yes and yes. As of January 1, 2018, anyone over the age of 21 can purchase cannabis at a licensed shop in California. You will be required to pay all three taxes, totaling 34.5% in Los Angeles County.

The changes that come with passing legalization have only just begun. As a consumer, is important to stay up to date on current legislation to know and understand what you are paying for. Hopefully, we’ve helped clear up some confusion on the cannabis taxes of Prop 64. Until next time, friends!

Kushfly infographic:

local tax calculator:

LA county MMIC program:

state MMIC program:

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