California to Decrease Excise Tax on July 1, 2022

The CDTFA has announced they will reduce cannabis excise taxes from the current rate of 80% down to 75%, effective July 1, 2022.[1] This rate impacts the markup between the wholesale cost and retail selling price of cannabis products. The 80% markup has stood unchanged since January 1, 2020.

This rate change will affect the amount distributors charge their retail customers for excise tax. Starting July 1, the CDTFA instructs distributors to estimate a typical retail markup of 75% above wholesale cost as being the estimated retail price for cannabis products. Then the excise tax they are responsible for collecting is 15% of that estimated retail price. This calculates to an excise tax of 26.25% of wholesale cost, down from 27%.

For example, as of July 1, 2022, a distributor will collect $262.50 excise tax on $1,000.00 worth of vape cartridges (right now, they’d collect $270.00). While this is not a landslide reduction, any easing in a retail cannabis shop’s tax burden is certainly a welcome change.

However, California Senate Bill SB-1074, which if passed would eliminate the cultivation tax, also has a paragraph that would increase the excise tax in two increments to replace the lost cultivation taxes.[2] The first increase would take place on July 1, 2025 and the second on July 1, 2026. While it is not know how much this increase would be, some industry experts estimate it may be as much as 4%, raising the 15% retail excise tax to 19%. This would mean distributors would be required to charge 33.25%, or $332.50 on $1,000.00 worth of vapes.

With the industry in such turmoil at this time, many hope this portion of SB-1074 may be adjusted before July 2025 makes its appearance!

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[1] https://www.cdtfa.ca.gov/taxes-and-fees/tax-rates-stfd.htm

[2] https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202120220SB1074, Paragraph 3