How Colorado Determines Taxes for Wholesale Transactions Varies from Common Commodity Benchmarking Methodologies
Colorado cultivators in the state’s adult-use sector moving flower to commonly-owned retail operations will see slightly higher tax burdens on such transfers in 2019. The state Department of Revenue (CDOR) recently announced that the Average Market Rates (AMRs) for flower and trim that will be in effect from January through March of 2019 are up compared to the prior period.
AMRs are set by state regulators quarterly and used by licensed adult-use cultivators to determine their tax burdens on transfers of unprocessed cannabis plant material to associated retail and product manufacturing operations. As no cash changes hands when product moves between a commonly-owned cultivation and retail or processing facility, the state’s 15% excise tax on wholesale transfers in the adult-use market is levied based on the pertinent AMR.
As of January 1, 2019, the AMR for flower will rise to $781 per pound, up from $759 per pound, which was the AMR in effect for Q4 2018. This means that vertically-integrated businesses will pay $117.15 in tax on each pound of flower transferred internally, up from $113.85 in the current period. The AMR for trim will rise to $396 per pound, from $359.
However, integrated operations that include extraction and infused product manufacturing may see the slight rise in taxes on flower and trim offset to some degree by falling AMRs for bud and trim allocated for extraction. Both will sink to $200 per pound come the new year, down from $228 and $225 per pound, respectively, in Q4 2018.
The AMR for flower set by CDOR cannot be compared directly with Cannabis Benchmarks price assessments, as the methodologies employed by each agency are distinct. In short, CDOR’s AMRs are medians of eligible transactions, according to information from the state, while Cannabis Benchmarks price assessments are volume-weighted averages. Additionally, CDOR’s AMRs are based on historical data – those for Q1 2019 are based on transaction data from August through October 2018 – while Cannabis Benchmarks price assessments are updated each week from current data gathered by our Price Contributor Network and in-the-field price reporters.