Medical cannabis patients eligible for fee reduction, but still face high tax rate
December 4, 2017
A state-backed medical marijuana identification card program, which hasn’t been popular among cannabis patients in recent years, may ramp up when California’s new marijuana laws take effect in January, some say, because the regulations allow cardholders to skip the sales tax when purchasing cannabis products.
Nevada County residents who already have current doctor’s recommendations for medical cannabis can apply for identification cards through the county’s Public Health Department, which processes the cards for the state.
After January, a medical cannabis patient will be able to receive a sales and use tax exemption when purchasing from a dispensary if they present their medical marijuana ID card and another valid form of government-issued identification at the time of a sale, according to California’s tax code.
A doctor’s recommendation, when presented on its own, will allow a patient to purchase medical cannabis, but won’t qualify them for a sales tax exemption.
Although the tax exemption doesn’t kick in until January, the voluntary ID card program isn’t new. It has, however, been relatively unsuccessful in attracting many cannabis patients.
According to Jill Blake, director of the Nevada County Public Health Department, the department has issued less than 25 identification cards per year since the program began.
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The cards cost $100 — the maximum price any county health department can charge under the state’s marijuana laws — and applying for one requires an in-person, scheduled visit to the health department’s Grass Valley office.
MediCal participants are eligible for a 50 percent fee reduction on the price of a card and County Medical Services Program participants are eligible to have the fee waived entirely.
Hezekiah Allen, executive director of the California Growers Association, said the lack of interest in the identification card program isn’t unique to Nevada County. It’s typical around the state.
“Right now, we see pretty dramatic under-adoption,” Allen said. “There really isn’t a compelling reason to have (an ID card).”
Cannabis patients who choose to purchase the cards, he said, typically do so for personal security reasons.
“It’s the best way to not have your product confiscated. … And it’s a really quick and easy way to demonstrate your legitimacy as a patient,” he said.
Once the tax exemption kicks in, though, Allen expects more cannabis patients to shell out the $100 for an ID card.
He expects other changes too.
Recreational use of cannabis becomes legal in January, at the same time as the tax exemption takes effect for ID cardholders. According to Allen, the framework of the entire medical system could shift when that happens.
“If we’ve learned anything from the other states that have gone first in this experiment, we should be expecting pretty dramatic changes to the medical marketplace,” Allen said. “I think those cards will become more of a requirement. … And as we see the adult use marketplace expand and come into its own, we’ll see some pretty significant changes to who can even get those cards.”
Nevada City, the only jurisdiction in Nevada County to approve a cannabis dispensary, allows only one marijuana retail storefront to operate. The city hasn’t authorized recreational sales in preparation for next year’s new regulations.
The city’s future medical cannabis dispensary, Elevation 2477′, was approved by city council members last month and is set to open early next year, according to Daniel Batchelor, the company’s chief executive officer.
If more medical cannabis patients start taking advantage of the state-issued ID cards, as Allen predicts will be the case, the dispensary may not collect much sales and use tax.
But, after January, the state charges an additional 15 percent excise tax on cannabis, which retailers are required to collect from purchasers “based on the average market price of any retail sale,” and pay to their distributor, according to the California Department of Tax and Fee Administration. ID cards don’t exempt medical patients from that fee.
The state also taxes growers at a rate of $9.25 per ounce of cannabis flowers that enter the commercial market and $2.75 per ounce of leaves.
Nevada City is proposing an additional cannabis-specific tax structure, which, if approved by voters, would charge a 4 percent excise tax on the dispensary’s gross sales receipts.
According to Paul Cambra, an information officer with the Tax and Fee Administration, people with medical marijuana ID cards will not be exempted from additional local taxes unless the language of a local ordinance specifically provides for that exemption.
Nevada City’s proposed cannabis tax ordinance does not exempt purchases made by cardholders, according to Catrina Olson, the city’s interim city manager, because the proposed fee is an excise tax and not a sales tax.
The city proposes charging fees for other cannabis businesses, too, including a tax of $4 annually per square foot of canopy space for growers using artificial lighting, $3 per square foot for growers using both natural and artificial lighting, $1 per square foot for only natural lighting and 50 cents per square foot for nurseries.
A 2 percent tax on gross receipts for manufacturing, processing and distribution businesses and testing laboratories is also in Nevada City’s proposed cannabis tax ordinance.
Many fear those fees will trickle down to customers, who will end up paying a high price for medical cannabis. That could, in turn, discourage them from patronizing legal businesses.