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Yes...Cannabis Businesses Pay Excise Taxes Too! They say you can’t escape death and taxes. As a cannabisrelated business owner, you may have an even harder time escaping use and excise taxes.

Excise tax gets added on product sales that range from motor fuel and airline tickets to tobacco and alcohol. Cannabis, an industry that often includes businesses that don’t always keep accounts in order, is also subject to these taxes, which are in addition to general sales tax.

Considered a “secret weapon” by the states against the industry, these taxes are a method for reducing use and demand. But as the interest and consumption of cannabis only continues to grow throughout the country, it’s really just a way for states to bring in more revenues from the industry.

How States Determine Excise Taxes

As part of the legalization legislation, each state and district has already determined the method and percentage of excise taxes they’ll collect. There are three different ways to determine how much is owed:

Percentage of Cost

Like the retail sales tax, excise taxes that are levied by the percentage of price are presumed to be passed on to the consumer. The business owner is then responsible for remitting the tax they collect from the consumer to the state. Some states let local municipalities collect an additional excise tax.

By Weight

Tobacco is subject to an excise tax that’s determined by weight. For some states like California, excise taxes for cannabis are set based on wholesale weight. Excise taxes based on weight can differ based on whether you’re selling flower, trim, or clones.

Potency-Based

Similar to the method for alcohol-based excise taxes, one state taxes cannabis based on the percentage of THC in the product. Illinois taxes products with 35% or less THC at 10% of the product price. Products that contain more than 35% are taxed at 25% of the purchase price. Edibles are taxed at 20% of the purchase price.

How Much Do You Owe in Excise Tax?

How much your business owes in excise tax depends on the state where you do business. State excise taxes can range from no taxing system in place, such as in Vermont, to 37% on retail sales in Washington.

It’s important that you keep all your invoices, receipts, and logs on all your products so you can account for what’s due on both state and local excise taxes on your business. Many cannabis-related businesses aren’t aware of the accounting requirements, and they’re forced to play catchup at the end of the year, or even worse, after the state is already auditing them..

To fully understand your tax responsibilities, work with a certified accountant who understands the specific requirements of the cannabis industry Like Happy Munkey's accountant, My Cannabis Accountant!