Los Angeles, CA – The California cannabis industry, a landscape once brimming with promise, is now grappling with a crisis of unprecedented proportions: a staggering $1 billion in delinquent taxes owed by retailers. In a recent episode of Retail Revelations, a segment of the Beard Bros Media Network dedicated to exploring the intricacies of the cannabis industry, host Chelsea Mulligan, the “Dispensary Whisperer,” delved into the complex web of financial challenges facing license holders. Mulligan, with her twelve years of experience in the legal cannabis sphere, brought in legal expert Dana Cisneros, founder of Cannabis Corporate Law Firm and co-founder of Full Spectrum Mediation, to dissect the issue.
Cisneros emphasized the urgency of addressing tax liabilities, stating that outstanding tax debts, encompassing both excise and sales taxes collected from consumers, take precedence due to the California Department of Tax and Fee Administration’s (CDTFA) significant enforcement authority. These funds, held in trust by retailers, have, in many cases, been diverted to cover operational expenses like staff salaries and escalating rent costs. The CDTFA’s enforcement mechanisms, including actions like “tilt taps” – where the California Highway Patrol collects cash directly from the cash register – and keeper levies, further exacerbate the situation. These measures can cripple businesses overnight, leaving them unable to meet payroll and forcing closures.
“The CDTFA is the biggest gangster on the block, and they’re going to get theirs if they want to,” Cisneros stated, highlighting the necessity of proactive engagement with the agency to establish payment plans.
Cisneros highlighted that the CDTFA, while firm in its collection efforts, is also willing to negotiate payment plans, especially for businesses that demonstrate a commitment to compliance. She referenced positive interactions with CDTFA representatives who have expressed a willingness to work with the industry, potentially acknowledging the financial strains faced by cannabis businesses. While businesses are required to file and pay at the same time, a substantial percentage of retailers fail to do so due to lack of funds. The CDTFA offers an automatic payment plan to those who can commit to the payment plan.
Cisneros offered a three-pronged approach to tackling financial difficulties. First, addressing delinquent taxes by actively engaging with the CDTFA and negotiating payment plans. Second, confronting old debt by communicating with suppliers, being honest about what’s achievable, and establishing realistic repayment schedules. Third, managing current inventory by adapting to changing market dynamics. Retailers must strategically handle inventory to ensure consistent sales and cash flow, shifting away from practices of the past and not relying on credit or tax money to run their business.
“If you’re digging a deeper hole with invoices, it’s inevitable that it will only be harder to pay it back,” Mulligan noted, urging retailers to prioritize current obligations.
Looking ahead, Cisneros identified several major challenges, including the need for businesses to streamline operations, understand their financial realities, and adapt. Addressing inflated payrolls and focusing on effective inventory management were some of the suggestions given.
The episode concluded with a call to action for cannabis retailers. The industry faces a critical juncture, with a potential increase in the excise tax to 19% looming. Cisneros urged retailers to converge on Sacramento in March to advocate for legislative changes, particularly to address the excise tax and the 50% tax penalty.
“This is a call to action,” Mulligan concluded. “All of you retailers, show up in March. Let’s be proactive instead of reactive. None of us can handle nineteen percent.”
Watch the full episode for more.
