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So You Wanna Be a Cannabis Star

Today is 420’s biggest celebration yet. With it comes lots of hype for the industry triggering dreams to get a piece of the action. Wise people often say that working while doing something you love is a key factor in a happy, fulfilling life. For many cannabis aficionados, that dream is to open a dispensary.

Launching a Canna-Business Requires Deep Pockets

Operating a marijuana dispensary can be like any other type of small business. However, getting it started can be much more expensive than you think, because of certain state regulations and other financial hurdles to overcome that don’t exist elsewhere.

Before you even sell your first gram, you must spend a good amount of money just to get a green light to open shop. One of the first steps in opening a dispensary is applying for a license and permit. While these fees vary from state to state, an accurate expectation would be to spend about $12,000+ on this piece alone. And it’s best to have an experienced professional do it for you, adding to the cost.

Finding a retail space that will allow a dispensary to operate on the premises is only half the battle, as you also need to find an area that has good visibility and ideally high foot traffic. Annual real estate expenses might run $100,000 plus the one-time cost of remodeling the space to your liking. The latter is likely to be your biggest start-up cost.

Once you’ve passed through the first set of monetary hurdles, you’re in a good position to become operational. Before opening day, remember that you’ll need a full Point of Sale and tracking system, a security system, and inventory to sell. POS contracts vary in price. They are an important part of your daily operations, and a big part of your operational costs. And stocking your shop with quality product should run at the rate of $1,800 per pound. Plus all the other processed plant products and other accessories. You better buy a lot.

Operational Costs High for Great Customer Experience

To run any business successfully, your employees must be capable and trained. The size of your shop will certainly dictate how many people you need on staff. Let’s assume you have a few quality budtenders, a supervisor, security and a store manager–you can expect your annual payroll to run close to $370,000 if you’re paying them at industry rates.

Other operational costs include your advertising budget. Depending on your location, and how many competitors you have, this could run up to $25,000 in a major market. It’s required to have insurance and a relationship with an attorney that specializes in Cannabis. Given that the cannabis industry is vulnerable in many ways, these annual costs will approach $50,000.

The Banks Aren’t Playing Along Yet

Marijuana dispensaries fall into a gray area in the business world, as they are technically illegal from a federal standpoint. Because of this, many banks don’t want to transact with a dispensary for their initial investments as well as their day to day needs.

To get around the issue with banks, owners will do business with credit unions or even private marijuana banks if they’re present in the area. This, too, comes with a cost. These organizations realize you might not have any other choice, and they can (and do) charge holding fees of about $2,000 per month.

And when applying for your license and permits, you must prove that you have enough capital to remain a viable company in the industry. Some states don’t require that you have any assets at all, but others like Pennsylvania stipulate that you have $2,000,000 in assets with at least $500,000 of it in liquid cash.

Preparing for Uncle Sam & Aunt Mary Jane

Are you overwhelmed yet by the true cost of opening a marijuana dispensary? There’s one final piece of the puzzle, which again varies dramatically from state to state. TAXES!

Most of the discussion about compliance in the cannabis industry centers around the product as it pertains to the quality, strength, and other regulations placed upon it. Rarely is there discussion about tax compliance, a costly and highly regulated part of the the business. Of course you have to pay specialty cannabis Taxes, but tracking and preparing the documents is specifically hard.

In California particularly, the tax code is chaotic. The code continues to evolve as tax jurisdictions work out the kinks. Staying on top of the tax code, with the ability to calculate, store, and file your cannabis taxes in a compliant manner can be an arduous and costly process in itself. Currently, dispensaries rely on difficult manual processes at POS (time consuming and human error involved), and use expensive accountants to extract and file the correct returns.

A fully automated system of calculating, storing, and filing all cannabis taxes along the product chain with compliance is exactly what the industry needs to stay tax compliant. Taxnexus delivers automated, transaction-to-treasury tax compliance services to the cannabis industry. In the crazy realm of cannabis taxes, from chaos comes clarity with Taxnexus.

Cause and Effect, Herb vs. Munchies

When it’s all said and done, the average cost of all the aspects we’ve mentioned is between $250,000 and $750,000. Less than it would cost to open a McDonalds, with a profit potential to greatly exceed any franchise opportunity. If you are fortunate enough to have lined up the investors, a bright future awaits. But if the process and cost outlined above put fear in your heart, consider being a vendor of munchies.

 

By Eric Stone
Taxnexus Product Representative
(April 20, 2018)

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California Cannabis Businesses Prepare for Visits from Uncle Sam and Aunt MaryJane

California Cannabis Businesses Prepare for
Visits from Uncle Sam and Aunt MaryJane

April is a busy month! With just one day left until the national Tax Day, most taxpayers are rushing to file their state and federal income taxes to pay Uncle Sam. As it happens, cannabis businesses will also get a visit from Aunt MaryJane in late April, when they have to file and pay their cannabis taxes.

With All the Excitement Around 4/20, Don’t Forget About 4/30!

As most cannabis businesses prepare for 4/20 sales and celebrations, how many of them are prepared to file their cannabis taxes?

We are fast approaching the end of the inaugural quarter of 2018 post-legalization of cannabis in California. Mark your calendars – California’s 1st quarter cannabis taxes are due April 30, 2018.

This is the first time cannabis businesses will be attempting to file their cannabis excise tax and cultivation tax returns with the State (unless a different reporting period has been implemented for each given taxpayer).

Of course, they also have to figure out how and when to file and pay local cannabis business taxes to county or city tax authorities. With so much at stake, it’s imperative for cannabis businesses to fully comply with state and local cannabis tax filing requirements to avoid audits and payment of imposed penalties and interest.

Back-Breaking Penalties

Did you know that the California cannabis tax law imposes a mandatory 50% penalty for failing to pay the cultivation tax or cannabis excise tax on time? That’s right, a mandatory 50% penalty!

If you get hit by this huge penalty, CDTFA may waive it if it finds that your failure to timely pay your cannabis taxes was due to reasonable cause and circumstances beyond your control, and occurred despite your exercise of ordinary care and absence of willful neglect. This is a very high bar to meet and won’t let you off the hook if you simply forgot, were too busy or didn’t know how to file your taxes.

You Need To File!

Cannabis business owners must meet all of the State and local cannabis tax reporting and remittance requirements to do business.

Understandably, the complicated cannabis tax regimen implemented by the State and local jurisdictions don’t make it easy for cannabis taxpayers who are already burdened by the myriad of cannabis regulations in this industry on top of running a business.

Taxnexus makes cannabis tax compliance easy.

As the premier Transaction-to-Treasury cannabis tax solution, Taxnexus streamlines compliance with state and local tax regimens throughout the cannabis product chain.

Not only does Taxnexus provide real-time one-click situs at the point of sale to calculate and collect the correct cannabis taxes from purchasers, it will also prepare tax reports and automatically file cannabis tax returns.

With Taxnexus, taxpayers no longer have to figure out the when, how, where, and what of cannabis taxes. They can leave taxes to us, and focus on running a profitable cannabis business.

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California Cannabis Tax Compliance – Let the Chaos Begin!

 

California Cannabis Tax Compliance – Let the Chaos Begin!

By Jasmine Davaloo, Esq.
Co-Founder of Taxnexus, Inc.

The Golden State forgot to put some important local jurisdictional restrictions in the current cannabis tax law, which has resulted in a frighteningly high level of concern and non-compliance from cannabis taxpayers. Let’s set the stage for how we got here.

State cannabis taxes, excise taxes, cultivation taxes

 

The Voters Rule!

With the enactment of the Medicinal and Adult-Use of Cannabis Regulation and Safety Act in November 2017, California joined the other eight states and Washington DC to legalize recreational cannabis. With it, effective January 1, 2018, the state began to impose an excise tax on cannabis retailers and a cultivation tax on cannabis cultivators and manufacturers.

The new law also implements a whole host of regulations related to cannabis taxes, such as record-keeping and reporting.

Below is our illustration of California’s complicated cannabis tax regimen.

Taxnexus California Cannabis Tax Regimen

No Local Restrictions = High Taxes

Further burdening and complicating compliance by taxpayers, at least 67 of cities and counties in California have adopted local cannabis taxes that vary widely both in structure and rate.[note]Footnote Fitch: Cannabis Taxes Set to Rise with Votes in Seven California Cities. (2017, November 8). Retrieved April 10, 2018, from FitchRatings: https://www.fitchratings.com/site/pr/10010624 [/note] This number continues to grow.

Not only is California’s multi-layered cannabis tax structure one of the more complex cannabis tax systems in the country, it is also one of the highest in cannabis tax rates.

Estimates of the cumulative statewide tax burden for recreational use is as high as 45%.[note]Footnote Fitch: Cannabis Taxes Set to Rise with Votes in Seven California Cities. (2017, November 8). Retrieved April 10, 2018, from FitchRatings: https://www.fitchratings.com/site/pr/10010624 [/note] This includes an excise tax of 15%, a cultivation tax, the state’s average sales tax of 8%, and additional local (county/district/city) cannabis business taxes that range from 5% to 10.25%.

Show Us The Money

While projected cannabis excise tax revenue, such as California’s projection of $175 million in FY 2017-18 and $643 million in FY 2018-19[note]Footnote Edmund G. Brown, Jr., Governor of California, Governor’s Budget Summary 2018-2019 Retrieved April 10, 2018, from http://www.ebudget.ca.gov/FullBudgetSummary.pdf[/note], has played a significant role in the push to legalize cannabis in participating states, there is great concern about the compounding tax rates and their potential impacts on the legal cannabis market.

Several local jurisdictions, such as the city of Berkeley, have already reduced their cannabis business tax rates to alleviate some of the tax burdens on cannabis businesses. In February 2018, even a bipartisan state bill (AB 3157) was introduced that, if successful, would suspend the state cultivation tax until June 1, 2021 and temporarily reduce the state excise tax from 15% to 11% until June 1, 2021.

Hard to Keep Up!

The numerous layers of state and local cannabis tax laws have proven burdensome to cannabis taxpayers not only with the high tax rates imposed, but also with the consequences of non-compliance. This affects all parties involved–the regulators, the taxpaying cannabis businesses, and the cannabis consumers–and thus, destabilizes the prospects of a successful legal cannabis industry.

Running a business in the highly regulated cannabis industry is already a difficult feat. Cannabis taxpayers, such as dispensaries, are finding it hard to stay up-to-date with the new and evolving cannabis tax rates and methods of calculation.

Non-Compliance Rears Its Ugly Head

Because of the complexity, California’s thousands of cannabis taxpayers are failing to properly apply the correct tax rates to each cannabis-related product at the point of sale, causing a host of problems:

  1. The cannabis consumer is paying incorrect amounts in taxes (in most cases more than they are legally required to), which will further discourage consumers to partake in the legal cannabis market and to resort to the black market for greater affordability;
  2. The taxpaying cannabis business is either taxing consumers at rates higher than legally permitted in violation of the law, or too little, which will hurt its bottom-line when it pays its excise taxes to its distributors; and
  3. The taxing authorities are not collecting the entire amount in tax revenues as expected to sustain the legal cannabis industry and fund the various programs as intended.

Lots of Work Ahead

The longevity and success of this emerging industry requires a set standard for tax compliance. Cannabis taxpayers (retailers, cultivators, manufacturers, distributors, delivery businesses, and others) need an easy and reliable system by which they apply the correct multi-layered tax rates for all applicable jurisdictions to their products, use the correct method of tax computation, meet all related record-keeping requirements, timely and accurately file their cannabis excise and sales tax returns with all applicable state and local taxing authorities, and remit the correct tax amounts for full compliance.

Join Taxnexus as we explore this new regulatory domain together. Sign up for our Taxpayer News mailing list and we’ll let you know the next time we publish news or analysis on the California cannabis tax mess.

By Jasmine Davaloo, Esq.
Co-Founder of Taxnexus, Inc.
(April 11, 2018)

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Taxnexus Cloud makes tax compliance easy for the cannabis taxpayer. As the premier global cannabis tax management solution, Taxnexus Situs, Taxnexus Base, and Taxnexus Return are bringing order to the chaos of cannabis tax regulations. For more information about Taxnexus Cloud visit the Taxnexus website at https://taxnexus.net.