California Cannabis Industry Is Drowning In Debt: $732M Owed In Taxes, 72% By Companies Already Closed Down

Cannabis companies in California are facing a massive debt issue, with unpaid taxes totaling $732 million. The bulk of this debt, approximately 72%, is owed by businesses that have already shut down, posing a huge challenge to the state to recover these funds.

Greenwave Advisors analyzed data from the California Department of Tax and Fee Administration (CDTFA) and discovered that in addition to the debts from defunct companies, there is also $173 million in taxes on unlicensed cannabis sales. These illegal sales could represent about a quarter of the market, with an estimated total of $1.2 billion.

In 2023, the legal cannabis market in California reported $4.4 billion in revenue, up 16% from $3.8 billion the previous year. Despite this growth, financial issues persist within the distribution and sales infrastructure. For instance, Herbl, a major distributor went bankrupt in September, severely affecting payments throughout the supply chain, noted Green Market Report.

Further complicating the situation, Greenwave estimates that distributors across California might collectively owe the state around $1.2 billion in taxes, an increase from the previous year's $1 billion. This includes debts both to the state and directly to cannabis brands themselves, suggesting a broader systemic issue with financial liquidity in the sector.

High Penalties And Regulatory Challenges

Here’s a MAP of 500 top delinquent tax companies in California. It might be useful to understand the dimension of the problem.

California enforces strict penalties for late or non-payment of taxes by cannabis businesses. The state imposes a 50% penalty on the unpaid tax amount, a standard 10% late payment penalty and interest on the overdue amounts. Occasionally, the CDTFA might offer payment plans or waive some penalties, but these are not guaranteed and require careful negotiation.

The CDFTA regularly publishes a list of the top 500 delinquent taxpayers, which includes those owing more than $100,000 in sales and use tax. This punitive measure is designed to boost compliance. Since the program is online, the CDFTA has collected $29.6 million from 436 qualifying taxpayers, with 342 resolving their debts through installment agreements and 94 settling in full. 

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