On June 30, 2022, California Governor Gavin Newsom signed a $308,000,000,000 state budget and implementing legislation including AB195.  Most headlines regarding the new state budget concern direct tax refunds to Californians, combatting homelessness and reproductive care.  But AB195 makes important changes to taxation of California commercial cannabis businesses, enforcement, and delivery.  KVK is issuing the following bulletin which highlights pertinent changes, below:


ENFORCEMENT

[Cal. Business & Professions Code Section 26038(a)(3)]

  • Amends existing law by imposing a civil penalty of up to $10,000 per violation against a person who manages or controls commercial property and who knowingly rents, leases, or makes it available for use, with or without compensation , the commercial property for the unlicensed cannabis cultivation, manufacture, storage, sale, or distribution of cannabis.
  • Only Attorney General, city or county counsel, or city prosecutor may bring a claim
  • Culpability requires actual knowledge that the cannabis-related activity was for commercial purposes, required a license, and was unlicensed.

Labor Peace Agreement

[Cal. Business & Professions Code Section 26051.5(a)(5)(A)(i)]

  • As of July 1, 2024, the minimum employee threshold requiring a Labor Peace Agreement shall be lowered to 10 employees (currently 20 employees).
  • Entering into a Labor Peace Agreement once a licensee has 10 or more employees shall be a condition of licensure.
  • The California Department of Cannabis Control shall have the authority to suspend, revoke, place on probation with terms and conditions, or otherwise discipline and fine the licensee, if the department determines the licensee has not complied with the Labor Peace Agreement requirements.

TAXES

[Cal. Revenue & Taxation Code Section 34012]

Cultivation Tax

  • Suspends the imposition of cultivation tax
  • Cultivation tax will not apply to harvested cannabis that enters commercial market if:
    • Harvested cannabis was first sold or transferred by cultivator to manufacturer on or after July 1, 2022;
    • Harvested cannabis was first sold or transferred by cultivator to distributor on or after July 1, 2022;
    • Harvested cannabis, or cannabis products containing that harvested cannabis, was first sold by microbusiness to distributor or manufacturer that arranges for lab testing.

Excise Tax

  • Beginning January 1, 2023, imposes a cannabis excise tax on purchasers of cannabis or cannabis products at the rate of 15% of the gross receipts of any retail sale by a cannabis retailer.
  • CDFTA will adjust the excise tax rate for the 2025-2026 fiscal year and every 2 years thereafter, provided that the cannabis tax rate shall not exceed 19% of the gross receipts of retail sales.
      • Beginning January 1, 2023, removes the requirement that the distributor collect the cannabis excise tax from the cannabis retailer, and instead requires the cannabis retailer to collect the cannabis excise tax from the purchaser and to remit the cannabis excise tax to CDTFA quarterly.
      • Cannabis retailers must obtain a CDTFA Cannabis Tax Permit as of January 1, 2023.
      • Engaging in retail without a CDTFA Cannabis Tax Permit shall be misdemeanor.

Tax Credits

    • For each taxable year from January 1, 2023, to January 1, 2028, allows qualified cannabis businesses to claim a credit of up to 25% of their qualified expenditures (employment compensation, safety-related equipment, training and services, and workforce development and safety training).
        • Limited to a maximum credit of $250,000/taxable year and $20,000,000 for all taxable years cumulatively.
    • Each taxable year from January 1, 2023 to January 1, 2028, allows qualified taxpayers (equity licensee approved for state’s fee waiver and deferral program) to receive credit against net tax in amount of $10,000.
        • Limited to maximum credit of $20,000,000 for all taxable years cumulatively.

DELIVERY

[Cal. Business & Professions Code § 26067(a)]

  • Authorizes the California Department of Cannabis Control to adopt and readopt implementing emergency regulations to incorporate delivery into its track-and-trace program by January 1, 2023
  • In particular, the bill requires the following data to be entered into track-and-trace before a delivery leaves the premises:
    • Date of retail sale to customer;
    • Whether sale occurred on retail premises or by delivery; and
    • Information about cannabis/cannabis products leaving licensed premises in delivery vehicle.

For assistance or questions related to these important legal changes, please contact Katchko, Vitiello & Karikomi, PC

By Patrick Babajanian and Yelena Katchko, July 1, 2022.

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