The Phoenix, Arizona City Council voted down a measure to increase the dispensary and cultivation yearly cannabis taxes. The proposed bill suggested a 17% tax on State Licensed Arizona dispensaries and cultivators. Cannabis taxes this high could have caused Phoenix dispensaries to go out of business. The concern for local dispensary owners was that a tax this high could put dispensaries and cultivators out of business. Leading to patients having limited access to much needed medication.
“We are desperate for money,” Mayor Thelda Williams said. “I’m not about to touch food tax, sales tax or property tax, so I need a whole new source.” Currently, the Arizona Department of Health Services collects a license tax from medical marijuana annual licenses. Licenses include medical marijuana cards, businesses operating in the cannabis industry, and employee agent cards.
How does Arizona marijuana taxes compare to other states?
Typically, taxes will be higher in legalized states versus medicinal use markets. Some states tax up to 21% for adult recreational use markets. In most states where it is both legal for adult consumption, patients will pay normal sales tax or will be tax exempt.
“Colorado imposes a 15 percent excise tax on the sale of marijuana from a cultivator to a retailer. In addition, the state levies a 15 percent sales tax (up from 10 percent in 2017) on retail sales to customers.” stated on Tax Foundation’s website.
California implies a relatively complicated tax rate of:
- $9.25 per dry-weight ounce of cannabis flowers,
- $2.75 per dry-weight ounce of cannabis leaves, and
- $1.29 per ounce of fresh cannabis plant*.
California taxes cannabis retailers 15% for retail cannabis and cannabis derived products. Recreational adult use customers pay state, local, and additional marijuana taxes at the point of sale.
Patients may be exempt from all or some taxes depending on locations and patient status. Most states that allow for medical marijuana, a person can obtain a license for a nominal fee. Arizona has higher rates compared to other states for obtaining a medical marijuana license.
How much tax does cannabis businesses pay?
Cannabis taxes and rates will vary from state to state and city to city. All state licensed cannabis businesses will pay federal taxes. Any increase to the taxes will affect profits and affording cannabis. The 280E tax code that addresses what expenses can be wrote off limits many businesses in this industry. Some businesses pay upwards of 40% in federal taxes. The cannabis tax problem will continue to be an issue for cannabis businesses until congress addresses issues such as marijuana being a schedule 1 drug, filing taxes, and being able to bank legally.
The issues that the cannabis industry faces in the US, in regards to cannabis taxes are complex. Cannabis is big business. Not only does this industry make billions of dollars annually, it is a highly regulated market. Companies have to ensure that they are reporting correctly and filing taxes regularly. The issues faced from proper tax collection to reporting will affect a business to operate in the future. Taxes play an important role in the bottom line and ability to grow.
The cannabis tax isn’t going away. The cannabis industry will continue to face real issues related to consumer safety, protection, and compliance. Government support and regulation will be necessary as it is is for most consumer goods.
What do you think would be a fair and simple way to tax cannabis businesses and consumers?
