Tax Incentives for California Cannabis Businesses
By Omar Figueroa and Lauren Mendelsohn
March 20, 2023
Starting in 2023, the State of California is providing several tax incentives for owners of certain types of cannabis businesses. Below we will be discussing the High-Road Cannabis Tax Credit, the Cannabis Equity Tax Credit, and Vendor Compensation for qualifying equity operators. (We previously mentioned these incentives, which were created via AB-195 last year, here and here.)
The High-Road Cannabis Tax Credit is available for taxable years beginning January 1, 2023 through December 31, 2027. This credit offers taxpayers conducting a qualified cannabis business a tax credit of 25% of their qualified expenditures in the taxable year, up to a maximum of $250,000 of credit per year. Furthermore, unused credits can be carried over for 8 taxable years after being generated. Per the HRCTC, a qualified taxpayer must be a commercial cannabis businesses possessing a Type-10 (retailer) or a Type-12 (micro-business) license. Qualified expenditures include wages for full-time employees (must be paid no less than 150% but no more than 350% of the state minimum wage), safety-related equipment, training and services, workforce development, and safety training for employees. Businesses interested in the HTCTC must take a tentative reservation with the Franchise Tax Board (FTB) each year.
The Cannabis Equity Tax Credit is available from taxable years beginning January 1, 2023 through December 31, 2027. The CETC offers a state tax credit of $10,000 for any licensee that received approval from the Department of Cannabis Control (DCC) for an equity fee waiver or deferral. Unused credits can be carried over for 8 taxable years. The DCC will provide a list of eligible licensees to the FTB, who do not have to do anything to receive this credit other than to claim it.
Vendor compensation is available for licensed retailers, and licensed microbusinesses engaged in retail activities, that have been approved for an equity fee waiver from the DCC. Approval for vendor compensation, which must be obtained from the California Department of Tax and Fee Administration (CDTFA), allows the retailer to retain 20% of the cannabis excise tax they collect from retail sales for one licensed premises. This program is effective for tax years beginning January 1, 2023 through December 31, 2025. Licensed retailers can find the Vendor Compensation Application by logging into their CDTFA online services account, and must submit the application along with the required information and documentation.
We look forward to helping clients obtain these and other incentives available to eligible cannabis businesses.
This information is provided as a public educational service and is not intended, nor should be construed, as legal advice. For specific questions regarding cannabis and hemp laws and regulations in California, contact the Law Offices of Omar Figueroa at 707-829-0215 or info@omarfigueroa.com to schedule a confidential consultation.