What taxes should you expect when you buy cannabis from a pharmacy?

When you visit a pharmacy for the first or nth time, you will have to pay tax on each cannabis product or item supplied. You pay at least 20% tax on every paid cannabis product. This can be as high as 40% depending on the product and the state you live in.

When I first bought cannabis from a dispensary, I was shocked at the overall price at the point of sale. Further research revealed that customers pay a percentage of the consumption tax, local business tax, and state sales tax. Every cannabis jurisdiction generates multiple types of revenue from cannabis transactions. Most pharmacies have POS software that makes it easy for customers to understand their cumulative and after-tax fees for each transaction.

Cannabis taxes in the constitutional states

Taxes are often added as a percent to the subtotal in traditional retail. For example, the final price would be $33 + $2.98 = $35.98 if the item costs $35 and the sales tax is 8.5%. It goes without saying that cannabis has a more complicated and expensive tax regime. Depending on local regulations, you can expect one or more types of taxes to be collected at your preferred pharmacy.

There are three common types of cannabis taxes.

value added tax

The usual tax we are all used to paying when shopping is sales tax. State-to-state and city-to-city tax rate variations typically range from 4% to 17%. For example, Oregon’s rate is 17%, while Montana’s medical marijuana sales tax is 4%. With a current medical marijuana ID card, medical patients in places like California and Maryland can avoid this fee (MMID).

Sales tax is included in the state’s general fund and is widely used for municipal transportation, health care programs, public safety, and education.

consumption tax

Excise duty is a type of business tax levied specifically on cannabis goods sold to consumers. When a retailer in California buys things in bulk, the price of the item often includes the 15% state excise tax. Consumption tax may be collected on the customer’s receipt or included in the item fee when a business is vertically integrated from its cultivation and/or distribution.

Similar to other states, Nevada levies a 15% tax on cannabis purchases and a 10% excise tax on retail sales. In addition, Colorado imposes an excise tax of 15% on the Average Market Rate (AMR), or contract price, of cannabis for sale. Every marijuana retail facility must file a marijuana excise tax return.

The federal excise tax, which must be included with all legal cannabis sales and is used for projects such as cannabis research, addiction programs, mental health care, and environmental protection, is a quarterly revenue stream for the state.

Local Business Tax

Local governments decide on local taxes, local taxes or post-tax charges. You have the option to apply this tax or not. Municipal business tax may not apply to medical patients, or they may pay a lower rate than consumers using adult use.

Given all of these possible factors, overall taxation can differ significantly, even within the same state. For example, in California, Oakland, San Diego, San Francisco, and Los Angeles all have different tax rates.

Cumulative Tax Calculation

Retailers need to collect different taxes and the order in which they are calculated is important to avoid being charged the wrong amount.

The majority of states, including Massachusetts, Colorado, and Oregon, compare all taxes to the subtotal. Others, like California and Michigan, base each tax on gross receipts plus any other duties already paid. These layered calculations are called “cumulative taxes.”

Each state has an approved rate for each type of tax. For example, if your state’s consumption tax is set at 15%, sales tax at 7.8%, and local business tax at 5%. All of this is added to your product’s subtotal.

Let’s say your subtotal is €30.

The cumulative tax is $38.34.

That’s 30 + (30×7.8%) + (30×5%) + (30×15%)

Note that this is just an example. The actual amount depends on your state’s tax laws.

If you own a dispensary, here are some ways to ensure your business is compliant with cannabis tax laws.

Familiarize yourself with your local tax laws

Calculating taxes on cannabis sales can be challenging. Be sure to check your state and local laws before automating tax calculations at your pharmacy. Contact your accountant or seek legal counsel to verify compliance and accuracy as you do not want to find yourself in a situation where you have incorrectly collected taxes.

Keep your records up to date

Cannabis retailers are required by law to maintain financial records that demonstrate the accuracy of sales. You can track inventory, record activity for each sale transaction, and keep records of every customer who enters your dispensary using a point-of-sale dispensary system designed exclusively for the cannabis industry.

In the event of an audit, you can show exactly where your profits are coming from and where your items are from seed to sale when you have a paper trail of compliance created by documenting everything that happens.

Keep your processes transparent

By properly writing tax information on your receipts, you can help your customers understand exactly what taxes are being charged. This reduces price complaints and makes it clear how their total costs were determined.

To effectively respond to consumer inquiries and provide knowledge on how cannabis tax revenue is used to improve local communities, educate your team about any type of tax.

last words

If you are a customer, it is also advisable that you are well versed in the tax legislation of your country. That way, you’ll know if you’re rightfully being charged or not.

Consumers and business owners must be prepared to take a stand against excessive taxation of cannabis. Many states have little or no tax incentives for purchasing cannabis, while other industries enjoy these incentives. Unless excessive taxation of cannabis is curbed, many consumers will continue to patronize black market operators. Additionally, if tax rates continue to rise, many small cannabis entrepreneurs will be put out of business.

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