CEPC secures tax reductions for Equity businesses
This week Governor Newsom released the final "Budget Trailer Bill" (AB 195), which includes a significant win on tax reform for Equity businesses.
Through a new Vendor Compensation Program, Equity businesses will receive an annual payment from the state equal to a 3% reduction on their total annual tax bill. We will send a full summary and breakdown of this new tax rebate program in our newsletter next week.
While it's not everything we asked for, it does reflect the principle that Equity businesses should pay at least a 3% lower tax rate than the general rate. At the Direction of our board President, Madison Shockley III, CEPC consistently advocated for this principle from the beginning of this legislative session. We are pleased that this principle is reflected in the form of the Vendor Compensation Program. This is an essential step in getting equity businesses the tools needed to compete in California's cannabis industry.
This would not have been possible without the support of our coalition partner the United Food and Commercial Workers International Union!
Here is a complete summary of everything that is included for cannabis industry in the trailer bill:
· Civil Penalties/Revocations
o Makes landlords/managers of commercial property liable for civil penalties of up to $10k for unlicensed commercial cannabis operations
o Cultivation cases may be brought by AG and county counsel, depending on code section
o CDTFA can revoke a seller’s permit if licensee violates cannabis tax provisions.
o Illicit operators are liable for cultivation and excise tax that they would have to pay if they were in the legal market.
· Labor Peace Agreements
o Reduces LPA requirement to 10 employees starting on 7/1/2024
o Labor orgs and current/former employees of the business can report to the state or Agricultural Labor Relations Board of noncompliance but must show evidence
· Track and trace
o Date of retail sale will now be included
o Information related to cannabis/cannabis products leaving licensed premises in delivery vehicle will now be recorded (details TBD by DCC)
o In general, delivery will now be included in track-and-trace by 1/1/2023 (each delivery is a unique trip). Information on trips will be integrated with Law Enforcement tracking system. There may be emergency regs to adopt this new law.
· Task force on local regulation of commercial cannabis activity
o The purpose of the task force is to promote communication between state and local entities engaged in the regulation of commercial cannabis activity and facilitate cooperation to enforce applicable state and local laws.
o Lots of state agency reps and local reps that wish to participate
o Will begin meeting 2x a year starting 7/1/2023
o Only in effect until 7/1/2025 then is repealed
· Tax exemptions for Medical Cannabis
o Gross receipts from the sale in this state of, and the storage, use, or other consumption in this state of, medicinal cannabis or medicinal cannabis products when a person with an identification card or primary caregiver furnishes the seller with both their card issued and their government ID
· Tax Credits
o High Road Employer (HRE) Tax Credit
§ Up to $250k on “net tax” for HREs from 1/1/2023-1/1/2028. No more than $20M for all taxable years, cumulatively
§ Available for employers with Type 10 or 12 license only
§ Employer must provide the following:
· wages paid to full-time employees who are paid no less than 150 percent but no more than 350 percent of the applicable minimum wage
· group health insurance
· retirement benefits or pension benefits, including stock in the duly licensed commercial cannabis employer to employees under employee stock ownership plans where the employer pays for the full value of the stock
o Cannabis Equity Tax Credit
§ Up to $10k on “net tax” for equity licensees who have received approval, including approval contingent on availability of funds” from 1/1/2023-1/1/2028
§ On 1/1/2024 and every six months thereafter, DCC will provide FTB with a list of qualifying taxpayers for the credit
· Vendor Compensation Program
o Retailers with approved license fee waiver may retain 20% of the excise tax that they collect – referred to as “vendor compensation”
· Excise/Cultivation Taxes
o excise tax held at 15% for next 3 years, cultivation set to 0.
o Starting 7/1/2025, CDTFA to adjust excise tax every 2 years by a rate that would generate an amount of revenue equivalent to what would have been collected from the cultivation tax
o Backfill with GF any lost revenue by setting the allocation for public programs at $670M for the next 3 years
o Requires economic report on the status of the industry by 1/1/2025