Category: aBIZinaBOX Inc. and Jordan S. Zoot

We have discussed in other Posts our concerns about inadequacies in the information the California Department of Tax and Fee Administration [“CDTFA”] has distributed relating to the Cannabis Excise Tax [“CET”] and Cannabis Cultivation Tax [“CCT”] as well as inadequacies in the tax return CDTFA adopted[1]. We have also regularly submitted questions to CDTFA. Frequently we have suggested answers to our questions. We are publishing this Post as the foundation for a series of at least three Posts in which we will suggest best practices in the financial record-keeping for cultivators, distributors, and dispensaries[2]. In this Post we are making suggestions to improve and streamline the tax reporting and collection process for the benefit of CDTFA as well as California’s cannabis industry.

We are again writing on the topic of representation because the failure the above referenced agencies to take into account the importance of qualified representation is one of the reasons California’s roll-out of the regulation of the cannabis industry has been described as maladroit. We are not qualified to make recommendations regarding the qualifications BCC, CDPH and CDFA should establish for representatives, although we note that duly licensed attorneys have the authority as a matter of law to represent clients before administrative agencies.

“We need to first acknowledge that we understand CDTFA was tasked with the implementation of the statutory language the California Legislature worked into SB 94. CDTFA has accomplished a great deal with the language it inherited. Unfortunately, there are some gaping holes in the statutory language, including some issues that CDTFA may not be able to remedy through the promulgation of regulations. Some issues may require a legislative fix.”

Guidance – Micro-business – Multi-License – CDTFA has published a new notice that provides new guidance to the holders of multiple cannabis licenses with respect to the calculation of Cannabis Excise Tax [CET”]. We will have further commentary after we have the opportunity to review the notice carefully. However, we do note that they have not addressed their view of the impact on Cannabis Cooperative Associations [“CCA’s] in the notice. We add that we observed that the item was labeled under a new term “Tax Fact” as distinct from a “Special Notice” and will inquire as to the difference between the two.

We decided to publish our thoughts as a consequence of Jeff Daniels article on AB 286, “California Proposes Slashing Cannabis Taxes to Help Regulated Industry Compete With Black Market.” We will not “shoot the messenger.” Jeff Daniels appears to have accurately reported the information he received.

Cannabis Tax collections did not meet projections. California has begun to ask why. There are multiple reasons California’s Cannabis Tax collections did not meet projections. One significant reason is the failure of licensed distributors and manufacturers to prepare and maintain appropriate financial records. The California Department of Tax and Fee Administration [“CDTFA”] will begin knocking on doors looking for the taxes that appear to be missing. As a distributor or manufacturer, are you prepared for an audit by CDTFA?

This Post suggests some specific changes relating to the reporting and collection of Cannabis Cultivation Tax (“CCT”) and Cannabis Excise Tax (“CET”). California’s shortfall in cannabis tax revenue is not because California’s underground market did not pay CCT and CET taxes. The individuals involved in California’s underground cannabis industry pay little if any, taxes of any sort.

Illinois Medical Cannabis Precipice – we read a very well written article in the Chicago Tribune over the long weekend, and couldn’t help but cringe, at what we believe are very likely critical mistakes that the State of Illinois is about to make as it encounters the “Green Wave” that is going to result from Governor J.B. Pritzker’s decision to move “full speed ahead” into recreational “adult” use cannabis market in Illinois.

We were prompted to write this Post by the publication of an article explaining some of the reasons California’s cannabis tax collections fell so far behind projections. The article suggests other states should study California’s experience in planning legislation and regulation. We agree. Other states should carefully study California’s foray into the regulation of its cannabis industry. Other states may profit from those actions California took that were prudent and take heed of the several grievous errors California made.

Jordan and his team have written an article that we’d describe as beyond comprehensive. He writes by way of introduction. “Tax practitioners often are accused of speaking a language that only they to understand…which may be an exaggeration, but in this case the accusation is ABSOLUTELY TRUE. Let’s begin with an old joke…how many sets of books does a business need to keep? The smart assed answer is two…”one set for the tax collector and one set that is accurate”. We all know how that story ends. The new reality is that a California cannabis business needs to maintain FOUR sets of books in order to comply with the requirements of the agencies that regulate California’s cannabis industry.”

As we noted in an earlier Post, we have not yet seen a copy of a receipt issued by a California cannabis dispensary to a cannabis consumer in which it appeared to us that the dispensary “Got it Right” in connection with the collection of taxes.  The failure of a dispensary to issue receipts to retail purchasers of cannabis that establish the dispensary properly collected and accounted for taxes will ultimately prove to be a fatal error for many, if not most, California dispensaries.

The faith does not oppose the use of medical cannabis, but leaders have said that they object to the specifics of the initiative, which they fear would create a host of public safety issues and societal harms.

CCT CET – Responsible Persons – we see a constant barrage of complaints about how oppressive the cannabis regulatory structure in California has been. Well, we work with that structure every day, and that includes regular contact with analysts and attorneys who are involved in both writing the regulations and attempting to implement them. We will pause for a moment to commend their efforts; most of them are working quite hard to make the system work.

Jordan has penned a monster of an article here leaving no stone unturned in explaining what you need to do when looking for and engaging a reliable tax advisor for your cannabis business.