A Quick Guide to Medical Marijuana Taxation
The medical marijuana industry can be incredibly complex, especially when it comes to businesses and medical marijuana taxes. Whether you choose to open a growing, processing, or retail business, you need to account for fees and taxes as part of your business plan.
Becoming familiar with the complexities of medical marijuana taxation is crucial for avoiding penalties and setting your business up for success. Here’s what you need to know about taxation and medical marijuana sales.
What Business Owners Need to Know About Medical Marijuana Taxation
Is there a tax on medical weed? The short answer is yes. However, fees for licenses, sales taxes, and excise taxes differ. Understanding how your state’s system works is crucial when creating a business plan and obtaining a marijuana loan for your firm.
How does taxation differ for medical versus recreational marijuana? The main difference is that recreational marijuana tends to receive additional sales tax, whereas medical marijuana is exempt. However, some states don’t have special tax regimes for medical marijuana.
Every state treats medical marijuana differently for tax purposes. Marijuana remains illegal at the Federal level, so there’s no one-size-fits-all process between states. Certain states tax medical marijuana at the same rate as recreational marijuana, whereas states like Florida apply no tax on medical weed at all.
With a relatively new industry like this, there’s a lot of confusion around what fees and taxes will apply. Here’s everything you need to know about the various taxes and fees that could impact your medical marijuana profits.
Application Fees
All businesses looking to sell medicinal marijuana must have a license. Application fees are nonrefundable and need only be paid once when starting the business.
Some states like Arizona charge a flat $5,000 application fee for every business seeking to obtain a license. California, on the other hand, has a varying application fee based on whether you are a dispensary or a distributor. In California’s case, application fees are $1,000 for distributors, whereas cultivators can see application fees as low as $135.
Your application fee must be paid upfront. It’s important to note that even if your application is rejected. This is to deter frivolous applications while still giving states a reliable revenue stream from the industry.
Registration Fees & Annual Fees
Your registration fee qualifies you as a licensed medical marijuana business. Without this registration, you will be unable to do business in your state. Any tax-included or tax-free dispensary must pay an initial registration fee to open its doors.
In addition to the registration fee, you’ll also pay annual fees to renew your registration. These fees must be paid, no matter your medical marijuana revenue for the previous year. States levy annual fees to gain extra revenue from the industry.
Registration fees often depend on the type of medical marijuana business. For example, Colorado charges anywhere from $3,000 to $11,000 for medical marijuana centers and $2,200 for infused product manufacturers.
Minnesota has a policy of discouraging smaller providers from entering the market. The annual fee for these businesses ranges from $75,000 to $100,000 per year. On the other hand, there are no separate registration fees.
Excise Taxes
An excise tax is paid when a product (in this case, medical marijuana) is transferred from a cultivator or processing center to the dispensary. Not every state will charge excise taxes on medical marijuana, but these taxes are typically always present with recreational marijuana. The dispensary initially pays excise taxes, but many companies choose to pass these taxes onto their customers.
Nevada levies a 2% excise tax on both wholesale and retail sales, regardless of whether a company sells medical or recreational marijuana. New York is a state that levies high excise taxes on marijuana, with a hefty 7% excise tax. Business owners in New York may, therefore, consider compromising on their medical marijuana profit to reduce the strain on their customers.
California has one of the most complex systems for excise taxes. There’s a flat rate of $9.25 per ounce of cannabis flower, plus an additional 15% retail excise tax. While people purchasing medical cannabis can avoid sales taxes, they cannot avoid excise taxes.
State & Local Taxes
State and local taxes vary heavily on medical marijuana. Some states have high state taxes on medical marijuana, whereas others have none at all. Local taxes also need to be considered. These are charged by your municipality, and there’s no way to give an average for what these may be.
Remember, state and local taxes stack, so you and your customers may need to pay a hefty amount at once. It should be included in your business plan when determining your medical marijuana revenue projections for the year, and you should consider how you’re going to split the taxes to balance your marketability.
Oregon is a state that has seen the marijuana business thrive. There are no state taxes and no sales taxes, meaning marijuana in Oregon is among the cheapest options nationwide. Connecticut also has state tax and sales tax exemptions for medical marijuana of 0%. The same does not apply to recreational marijuana, however.
Florida will charge you 6% state taxes plus any local taxes on medicinal marijuana sales. You may decide to become a partially tax-included dispensary to account for this. Illinois, however, charges the full 7% state excise tax on wholesale purchases, plus a 1% sales tax.
Regardless of whether your state charges state taxes or sales taxes on medical marijuana purchases, local taxes may end up being the kicker. Some dispensaries have found they can serve a neighborhood while registered in a neighboring municipality to limit their tax exposure.
Medical Marijuana Taxation Influences Everything
So, what lesson do the numbers above teach owners of medical marijuana businesses? That medical marijuana taxation in your state will influence everything — from where you establish your business to who you serve and how much you charge them.
While some states like Oregon are extremely generous when it comes to taxation, the increased competition may make it extremely difficult to break into this already saturated market.
The best strategy you can employ is to balance costs with opportunity. It will most likely cost thousands of dollars in fees to start your medical marijuana business, so it’s important that you make sure the opportunity is there after you open your doors to the public.
Prepare a business plan and make realistic projections as to your revenues and profitability during the initial few years. When seeking financing for your new venture, you’ll need to show that you’ve put serious thought into constructing a successful business.
Find Your Funding with L3
While the world of medical marijuana is a thriving industry with tremendous opportunity as regulations across the country change, high fees and taxes in many areas of the country mean that small businesses with less funding start at a disadvantage.
Build a strong foundation for your business with merchant funding from L3. We support medical marijuana businesses during their early stages, helping savvy business owners get the financing they need to watch their dreams grow.To learn more about financing for your medical marijuana venture, contact L3 Funding today.