California’s Disappearing Benefits: The Golden State’s Support for Cannabis is Evaporating
We recently wrote about the closure of California’s High Road Cannabis Tax Credit. In another example of California’s disregard for the cannabis industry, it now appears the Department of Cannabis Control’s Equity Fee Waiver is no longer being offered. Many are worried that the CDTFA’s Vendor Compensation, whose application requires that a business be approved on a yearly basis for the Equity Fee Waiver, is also threatened. These last two benefits are the cornerstone for California’s cannabis social equity program. 420CPA has been able to confirm that Vendor Compensation will continue – for now.
Whom Does This Effect?
Unlike the HRCTC, which has been available to all California cannabis businesses, the Equity Fee Waiver and Vendor Compensation are both social equity offerings. Both require that a cannabis business have gross revenue of less than $5 million per year. Additionally, they require that at least 50% of ownership of the business be held by an equity owner(s): individuals with a cannabis arrest or conviction, or who have a household income less than or equal to 60% of the median income of the area where they live, or have lived for at least five years between 1980 and 2016 in an area disproportionately impacted by past criminal justice policies implementing cannabis prohibition.
Equity Fee Waiver “Exhausted”, HRCTC “Fully Subscribed”
Those businesses relying on the state’s Equity Fee Waiver have logged on to the DCC’s website to renew their status and found the following notification: “Currently, fee waiver funding for all applicants—including those enrolled in their local jurisdiction’s equity program—is exhausted.”
The equity fee waiver has now gone the way of the High Road Cannabis Tax Credit, a tax credit offered to retailers and micro-businesses by the Franchise Tax Board. The HRCTC was created to support the industry with a tax credit of 25% of qualified employee-related expenses and was slated to run from January 1, 2023 to December 31, 2027. However, the FTB recently notified California cannabis businesses that the credit is fully subscribed and no longer offered.
California Cannabis Exhausted
“It’s California’s cannabis businesses who are exhausted!” states 420CPA’s Rachel Wright. “These credits and fee waivers are all a red herring. California throws a few bones to the cannabis industry, then withdraws them while continuing to drown them in excessive taxation.”
Vendor Compensation
For cannabis retailers to be eligible to apply for Vendor Compensation, which they must do on a yearly basis, they must already have been approved by the DCC for the Equity Fee Waiver (also a yearly application). Social equity retailers have expressed concern that, with the Equity Fee Waiver gone, the CDTFA Vendor Compensation they’ve been receiving will no longer be offered. Vendor Compensation allows a retailer to retain 20% of the state cannabis excise taxes they collect. As excise tax is calculated at 15% of gross receipts before sales tax, 20% of that total has been a significant boost to social equity firms struggling through the current upheavals in the cannabis industry.
420CPA Confirms Vendor Comp to Continue
420CPA reached out to our contacts at the CDTFA and received the following response: “Even though DCC’s funding for fee waivers has been exhausted, DCC will continue to accept and review submissions for a licensee to maintain their eligibility for their fee waiver program … CDTFA will continue approving vendor compensation when a licensee is eligible for a DCC fee waiver, even when fee waiver funds are exhausted.”
Our correspondence with DCC management confirmed this: “All licensees looking to qualify for the CDTFA vendor program still need to apply for the equity fee waiver. The DCC will review the request and if they qualify, we will be notifying the CDTFA.”
Cannabis Business Owners Still Fearful
Vendor Compensation is slated to run through December 31, 2025. With the state’s recent cancellation of cannabis business benefits, social equity recipients are leery whether Vendor Compensation will continue or not. The equity owner of one Southern California dispensary commented to us, “It sounds like we are still good on the vendor excise compensation, but it wouldn’t surprise me if they stopped that with no warning too. We’ll see!”
