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Cannabis: The Taxation of a Substance


The Accounting Industry: Can Firms Keep Up?

Cannabis has been a growing hot topic for several years now, and the growth rate of legalization of medicinal and recreational cannabis raises questions as to whether states have the administrative and regulatory infrastructure that is essential to effectively and advantageously tax cannabis. The taxation of a substance such as this is not as simple as one may think (Kluwer 00:02:50-00:03:26).


Principal analyst, Mark Luscombe and senior content management analyst, Carol Kokinis-Graves discuss the possibilities and holes of the taxation of cannabis on the Federal and State levels on Wolters Kluwer’s podcast Tax Talks. The major flaw that Kokinis-Graves points out regarding the legalization of cannabis is that medicinal cannabis and recreational cannabis is usually taxed at two different rates. It is not as simple as legalizing the sale of cannabis and implementing sales and use tax, but rather there are levels of distribution and taxation that must stand in place within the distribution process such as excise tax, privilege tax, and cultivation tax. The other reality is that cannabis businesses are not as clearly distinguished as something like a liquor store. Distilleries are not the only existing party that needs to be aware of and abide by cannabis taxation laws. Luscombe and Kokinis-Graves point out the “collectives and cooperatives, cultivators, distributors, manufacturers, micro businesses, nurseries, processors, retailers, and testing facilities” all need to know, apply, and abide by the several levels of taxation (00:05:16-00:05:33).


The complexity of the necessary infrastructures and laws required to accurately tax cannabis slows the legalization of it and can complicate laws regarding the separation of medicinal and recreational cannabis.



By: Katlyn Richardson, Onboarding Specialist at CROFT & FROST







Resources:

Kluwer, Wolters, speaker. “The Taxation of Cannabis.”, Tax Talks, 2 October 2020, https://open.spotify.com/episode/6vCGY8dLOiEugY8liLRnCA?si=2hQzLjvmTZOSIbZXhdkKxQ.










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