Cannabis regulations are constantly changing and the government formed regulation enforcement bodies are also evolving alongside them. Learn more about the recent updates in California and our preliminary predictions of how it all may affect your future operations for taxes, ownership, and business management in this article.
In the current scenario, the Bureau of Cannabis Control (BCC), CalCannabis Cultivation Licensing, and Manufactured Cannabis Safety Branch will all be combined into the Department of Cannabis Control by 2021 in California.
The Plans for California State Licensing Authority Changes
On Friday, January 10, 2019, the California Bureau of Cannabis Control (BCC) issued a press release entitled, concerning a budget proposal released by Governor Gavin Newsom.
Per the press release:
1. Gov. Newsom intends to combine all three California cannabis licensing agencies into one single Department of Cannabis Control by July 2021. This new department would have an enforcement branch and would align the current different sets of regulations applicable to cultivators, manufacturers, distributors, and retailers with more details will be released this spring.
2. The state intends to change the point of collection for cannabis taxes. Under this plan, the first distributor in the chain of distributors would be responsible for remitting the Cannabis Cultivation Tax; and retailers – not distributors – would be responsible for remitting the Cannabis Excise Tax. The state believes that this will simplify tax collection both for the California Department of Tax and Fee Administration (CDTFA) and the industry.
3. Gov. Newsom will consult with the industry and stakeholders to consider reducing the number and/or rates of taxes.
4. Budget estimates of about $332.8 million will be available for youth education, prevention, early intervention, and treatment; environmental protection; and public safety-related activities in 2020 and 2021.
How Licensing Authority Changes Could Affect Businesses
It is difficult to predict how these changes would play out; but some of our preliminary thoughts include:
Simplified – Combining all three agencies into one would have its upsides and downsides. It will certainly make life simpler for applicants operating in multiple verticals as they would no longer need to worry about complying with different and inconsistent regulations.
Consistency – It would harmonize things like fees and enforcement as well, but this harmonization may bring unintended consequences.
Reevaluate Ownership Disclosures – The current reality is that the BCC’s rules and regulations are much more stringent on things like ownership disclosures and the ability to contract with third parties. In this specific case, companies that currently contract with licensees of the Department of Public Health and Department of Food and Agriculture may need to reevaluate their ownership and financial interest holder disclosures (depending on how the final regulations shake out).
Less Unlicensed Activity – A unified enforcement effort would likely result in a much-needed crack-down on unlicensed commercial cannabis activity.
Long Process – The transition from three agencies to one will probably be long and complicated.
Less Complicated Taxes – Licensed distributions will certainly welcome the proposed tax revisions shifting some of the burden of tax-collection and remittance to retailers. The rules for how and when distributors collect and remit taxes to the CDTFA are very complicated, and these changes would stop the complex process of transferring cultivation taxes through multiple license types.
Unclear Future Tax Rate Changes – Only time will tell regarding changes to the number or rate of taxes, at least until we have some hard data on the subject from the state.
Do You Have Questions On Future Regulation Changes?
Reach out if you have any questions or want us to help with cannabis regulations research. Our compliance department is ready and able to help you get the right answers from tax codes, to business planning, to advanced license entitlement that can save you a lot in future fees and headaches.