Cannabis has been touted as a financial windfall and not just for the people and businesses involved in the growing and sale of the product. State governments were going to make a mint in tax revenues. Somewhere along the way, however, the taxes became onerous and too many people got into the business of growing cannabis.
For example, the Santa Barbara Independent recently reported that in Santa Barbara County, growers with permits for over 160 acres worth of permits had abandoned those permits. Why? There is a glut of cannabis production to be sure but high taxes, according to county officials, were a large part of this and the general fall in revenue from cannabis taxation. You can read the full piece here. Note that this is just one example and other businesses, across the state, have felt the pinch.
As part of the solution to this potential killing of the golden goose, the state of California has started to offer tax credits for the cannabis business. There have been a number of attempts to simplify and ameliorate taxes on these businesses. The High-Road Cannabis Tax Credit (HRCTC) is an important one of these.
The HRCTC can be claimed by qualified businesses beginning this year through 2027. The credit is for up to 25% of qualified expenditures (up to a maximum of $250,000). Obviously, this is a substantial break. But there are requirements. The first of which is making a tentative credit reservation. And making this soon is important as there is a limit on the total amount of this credit ($20 million).
To qualify a business must be a commercial cannabis business with a retail or micro-business license. These businesses also must provide full-time employees with wages, group health insurance and retirement benefits/pension benefits (including stock options with the employer paying the full value of the stock). The taxpayer must be exempt from the requirements of the CalSavers Retirement Savings Program.
Expenses that qualify for the credit include wages for full-time employees, safety-related training, equipment and services and workforce development and safety training for employees. Remember that you MUST make a tentative credit reservation and these are given on a first-come, first-served basis.
You can find out more here.
Hito would be happy to help your California cannabis business navigate through the details of claiming this tax credit. Feel free to get in touch anytime.