A new state bill alleviates the tax burden for cannabis businesses operating donation-based medical marijuana dispensaries that serve low-income patients in California. Senate Bill 34, which went into effect on March 1, 2020, allows for cannabis donations that meet certain requirements to be exempt from excise, sales and use, and cultivation taxes. Here we take a closer look at how this new bill amends the cannabis tax code in California.
California Tax Code and Medical Cannabis
Prior to the passage of Prop 64, also known as the Adult Use of Marijuana Act, recreational cannabis was illegal in California. However, the state was the first in the country to legalize medical cannabis with the passage of Prop 215 in 1996.
The Medical Marijuana Program Act of 2003 expanded upon Prop 215, establishing a more formal legal framework for distributing medical cannabis in California. As a result, the state became home to a growing network of medical cannabis dispensaries.
However, neither Prop 215 or the Medical Marijuana Program Act established a specific tax scheme for the cultivation and sale of medical cannabis outside of normal state sales tax. Additionally, many medical cannabis dispensaries, in the spirit of the original Prop 215 or Compassionate Use Act, were operating as non-profit, compassionate care cooperatives with programs that provided free medical cannabis to low income patients.
California Tax Code and Recreational Cannabis
When cannabis was legalized for recreational use, California established a new tax structure for the legal cannabis industry. The new tax code lumped all providers, commercial and non-profit, into a single category.
All legally operating cannabis businesses became subject to an aggressive taxation scheme with the aim of boosting revenue for the state. Taxes applied to cannabis businesses include:
- Excise Tax: a 15% tax imposed on the purchaser for all cannabis products.
- Cultivation Tax: a tax imposed on cannabis cultivators for harvested cannabis, calculated by weight and the category of cannabis (flower, leaves, or fresh plant).
- Sales and Use Tax: standard sales tax for the state as well as local jurisdictions are also applied to cannabis purchases.
Updating the Cannabis Tax Code with Senate Bill 34
Although medical cannabis was exempted from sales and use tax, the new tax code placed a much greater burden on lower income medical cannabis users as well as cannabis retailers operating donation-based medical cannabis programs.
Members of the California state legislature sought to change this. After several failed attempts to amend the state’s cannabis tax code, SB 34 was signed into law in October, 2019. The new bill amends the tax structure of the Adult Use of Marijuana Act and exempts medicinal cannabis donations from excise, cultivation, as well as sales and use tax as long as they meet certain requirements.
In an interview with KQED public radio, Democratic state Senator Scott Wiener who introduced the legislation commented, “This is really about access to medicine. Poverty should not be a barrier to getting your medicine. We don’t tax prescription drugs. Why should we tax medical cannabis?”