California Cannabis Dispensaries Face New Tax Payment Rules

LOS ANGELES- In November 2024, numerous licensed cannabis dispensaries in the Los Angeles area received notices from the California Department of Tax and Fee Administration (CDTFA) indicating a shift in their tax payment schedules from quarterly to monthly, effective January 1, 2025. This change is attributed to the increasing tax liabilities within the cannabis industry.

The CDTFA’s decision to alter the reporting basis is based on the average tax liability reported by these businesses. Dispensary owners, such as Jerred Kiloh of The Higher Path, have expressed concerns over the administrative and financial implications of this adjustment. However, the CDTFA has provided an option for businesses to request the retention of their current quarterly payment schedules by contacting the agency before December 1, 2024.

This development occurs amid broader financial challenges in California’s cannabis sector. As of December 31, 2023, nearly 15% of the state’s cannabis operators were in default on their sales and use tax obligations, amounting to approximately $189.3 million. Additionally, 15.4% of retail licensees defaulted on the cannabis excise tax, totaling over $54.2 million. These defaults are partly due to penalties and interest on unpaid taxes, including a mandatory 50% penalty for late or missed payments as stipulated by California’s Cannabis Tax Law.

Further compounding the industry’s financial strain, the state’s 15% excise tax rate on cannabis products is set to increase to 19% on July 1, 2025, unless legislative action is taken to prevent this automatic hike. Industry stakeholders have expressed concerns that this increase could exacerbate the existing challenges faced by legal cannabis businesses, potentially driving more consumers toward the illicit market.

These developments highlight the ongoing financial and regulatory pressures within California’s legal cannabis industry, prompting calls for policy interventions to support the sector’s sustainability and competitiveness.