Adult-use cannabis products tax

The taxes imposed on adult-use cannabis products do not apply to sales to persons holding cannabis research licenses under the Cannabis Law.

You must maintain complete and accurate records containing all the information you need to properly prepare your adult-use cannabis products tax returns and to verify their accuracy if you are audited by the Tax Department. This includes, but is not limited to, complete records of every sale of adult-use cannabis products.

If adequate records are not kept and made available, the Tax Department may determine the distributor tax due based on the retail price of any adult-use cannabis products distributed.

You must retain all records for three years after the due date of the return they relate to or the date you file the return, whichever is later.

Adult-use cannabis products distributors and retailers are subject to the penalties below, in addition to any other civil or criminal penalties that may apply.

Penalty for failure to obtain an adult-use cannabis certificate of registration

Any distributor or retailer that has not obtained a certificate of registration but possesses adult-use cannabis products is subject to a penalty up to:

• $7,500 for the first violation, and
• $15,000 for the second or subsequent violation within three years of a prior violation.

Penalty for recordkeeping violations

Any distributor or retailer that fails to maintain or make required records available to the Tax Department, is subject to a penalty up to $500 for each month or part of a month in which the failure occurs.

Penalties for illicit cannabis

If you are required to obtain a certificate of registration and it is determined you have sold or possessed illicit cannabis, your certificate of registration will be revoked for up to:

• one year for the first such sale or possession,
• three years for a second such sale or possession within five years, and
• five years for a third such sale or possession within five years.

Your sales tax Certificate of Authority may be revoked if you:

• do not have an Adult-Use Cannabis Certificate of Registration, and
• it is determined you have possessed or sold any adult-use cannabis products or illicit cannabis three or more times within five years.

If you knowingly possess or have control over any type of illicit cannabis, you may be liable for a civil penalty as follows, after notice and an opportunity for a hearing:

• two times the adult-use cannabis products tax required to be paid for the product for the first violation; and
• three times the adult-use cannabis products tax required to be paid for the product for the second or subsequent violation within three years of a prior violation.

If you knowingly possess for sale illicit cannabis, illicit concentrated cannabis, or illicit cannabis edible products, you may be liable for a civil penalty as follows, after notice and an opportunity for a hearing:

If you knowingly possess more than 5 pounds of illicit cannabis or more than 1 pound of illicit concentrated cannabis or illicit cannabis edible product, for sale in a commercial location, you may be liable for additional civil penalties as follows, after notice and an opportunity for a hearing:

• $50,000 for a first violation; and
• $100,000 for a second or subsequent violation within three years of a prior violation.

Adult-use cannabis products distributors who knowingly sell any adult-use cannabis products to any person who is not registered as an adult-use cannabis products retailer but is selling such products at retail, or whose registration has been suspended or revoked, may be liable for a civil penalty as follows, after notice and an opportunity for a hearing:

• $50,000 for a first violation; and
• $100,000 for a second or subsequent violation within three years of a prior violation.

Penalty for tax fraud acts 

You may be subject to criminal penalties and a jail sentence if you:

• knowingly fail to pay the adult-use cannabis products tax; or
• knowingly possess any adult-use cannabis product for sale and the adult-use cannabis products tax required to be paid has not been paid.

The Tax Department is authorized to perform the following wherever adult-use cannabis products are distributed, placed, stored, sold or offered for sale:

• conduct inspections during normal business hours of any place of business, including a vehicle used for such business; and
• examine any adult-use cannabis products and the books, papers, invoices and other records of any place of business or vehicle.

Refusal to give the Tax Department the means, facilities, and opportunity for the inspections and examinations required, after notice and an opportunity for a hearing, may result in the revocation of a Certificate of Registration for:

• one year for the first refusal,
• up to three years for a second refusal within three years, and
• up to seven years for a third refusal within five years.

Adult-use cannabis products means cannabis, concentrated cannabis, and cannabis-infused products, as reflected on the product label, whether or not for use by a cannabis consumer. It does not include medical cannabis or cannabinoid hemp product.

Commercial location means real property or a vehicle held out as open to the public or otherwise used to conduct wholesale or retail transactions, including a storage area in or adjacent to such property or vehicle. It does not include a residence or a personally owned vehicle located at such residence.

Distributor means any person who sells at wholesale any cannabis product, except medical cannabis, which requires an adult-use cannabis license issued by the Office of Cannabis Management.

Illicit cannabis means and includes any adult-use cannabis product, including concentrated cannabis, and cannabis edible products on which any tax required to have been paid has not been paid. Illicit cannabis does not include any cannabis lawfully possessed.

Person means every individual, partnership, limited liability company (LLC), society, association, joint stock company, corporation, estate, receiver, trustee, assignee, referee, and any other person acting in a fiduciary or representative capacity, whether appointed by a court or otherwise, and any combination of the foregoing.

Place of business does not include a residence or other real property, or any personal vehicle on or about such property, not held out as open to the public or otherwise being utilized in a business or commercial manner, unless probable cause exists to believe that such residence, real property or vehicle is being used in a business or commercial manner for the buying or selling of adult-use cannabis products.

Possession for sale means possession of more than five pounds of adult-use cannabis products, or one pound of concentrated cannabis products or cannabis edible products, at a business or other location used for the storage, distribution or sale of such cannabis products, with the intent to sell the products at retail.

Retailer means any person who sells at retail any cannabis product, which requires an adult-use cannabis license issued by the Office of Cannabis Management.

Sale means any transfer of title, possession, or both, exchange or barter, rental, lease or license to use or consume, conditional or otherwise, in any manner or by any means whatsoever for a consideration or any agreement therefor.

Can I apply for an Adult-Use Cannabis Certificate of Registration if I have not received my adult-use cannabis license?

No. You must have a valid license from the Office of Cannabis Management before you can apply.

Who’s required to register with the Tax Department as an adult-use cannabis products distributor?

You must register as an adult-use cannabis products distributor if you sell or transfer adult-use cannabis products to an adult-use cannabis products retailer.

Who’s required to register with the Tax Department as an adult-use cannabis products retailer?

You must register as an adult-use cannabis products retailer if you sell adult-use cannabis products to a retail customer.

I am licensed with the Office of Cannabis Management as a registered organization. Am I required to register with the Tax Department as an adult-use cannabis products retailer or distributor?

If you sell or transfer adult-use cannabis products to an adult-use cannabis products retailer, you must register as an adult-use cannabis products distributor. If you sell adult-use cannabis products to a retail customer, you must register as an adult-use cannabis products distributor.

I am licensed with the Office of Cannabis Management as a microbusiness. Am I required to register with the Tax Department as an adult-use cannabis products retailer or distributor?

If you sell or transfer adult-use cannabis products to an adult-use cannabis products retailer, you must register as an adult-use cannabis products distributor. If you sell adult-use cannabis products to a retail customer, you must register as an adult-use cannabis products retailer.

Do I need to register with the Tax Department if I am an individual that uses or cultivates cannabis?

An individual who participates in lawful personal use or personal cultivation of cannabis is not required to register.

Who’s required to file an adult-use cannabis products tax return?

You must file returns with the Tax Department if you are:

• a distributor that sells adult-use cannabis products to a retailer, and/or
• a retailer that sells or transfers adult-use cannabis products to a retail customer.

Do I need to register for a sales tax Certificate of Authority?

If you plan to sell taxable tangible personal property or provide taxable services, you must apply for your sales tax Certificate of Authority at least 20 days before beginning business.

Are adult-use cannabis products subject to sales tax?

No. Adult-use cannabis products are exempt from sales tax.

Can a tax professional register on behalf of an adult-use cannabis products distributor or retailer?

No. Tax professionals cannot apply for an Adult-Use Cannabis Certificate of Registration on behalf of their clients.

Can I distribute or sell adult-use cannabis products as soon as I register with the Tax Department as an adult-use cannabis distributor, adult-use cannabis retailer, or both?

No. You must wait until the Tax Department emails Form MT-222.7, Adult-Use Cannabis Certificate of Registration, to you for printing before you can distribute or sell adult-use cannabis products.

I am an adult-use cannabis products retailer. How do I determine the jurisdiction for reporting my retail sales of adult-use cannabis products on my adult-use cannabis products tax return?

Enter the taxable sales of adult-use cannabis products on the jurisdiction line for the county where your registered retail dispensary is located.

Do the penalties for illicit cannabis apply to an individual?

The illicit cannabis penalties can apply to an individual. However, they do not apply to certain amounts of cannabis possessed by an individual for personal use and not intended for sale.