Since the opening of 2019, Nevada cultivators have been subject to lower tax rates on most products compared to the second half of last year. Nevada’s 15% excise tax on cultivators is calculated based on Fair Market Values (FMVs) for the various types of product sold or transferred internally by growers to processors or storefronts. The state Department of Taxation (NDOT) determines FMVs biannually. Cultivators are subject to a tax of 15% of the FMV for each pound, or other unit, of a respective product sold or moved to an associated license.
For the first six months of this year, the FMV for flower has been set at $2,303 per pound, down by 17.7% compared to the FMV for H2 2018, which was $2,799 per pound. The FMV for “small bud” for the current period is set at $2,041 per pound, off by 8.4% from the previous FMV of $2,227 per pound. H1 2019’s FMV for trim declined nominally from that of H2 2018, from $798 to $794 per pound.
Additionally, Nevada regulators added new product categories with designated FMVs this year called “unsalable flower and trim approved for extraction.” The FMVs for such lots have been set at $850 and $617 per pound, respectively. The addition of the new categories will allow Nevada cultivators to salvage product that did not pass muster to be sold to consumers in its raw form but has been determined by officials to be safe for extraction and processing. It will also permit growers to move such product at lower tax rates, reflecting to some extent its actual market value.
As in the case of Colorado’s Average Market Rates (AMRs), Nevada’s FMVs are based on historical data – in this case on transactions from April through September of 2018 – and do not necessarily reflect current market conditions accurately. It must also be noted that the methodology employed by NDOT in determining FMVs is different from that of Cannabis Benchmarks in calculating our price assessments.
The nearly 20% tax savings enjoyed by cultivators on transfers and sales of flower do not appear to have impacted wholesale prices over the course of the first month of 2019. While businesses could use the tax relief to lower wholesale prices, they could also pocket increased profits or invest additional capital back into their operations. It should also be noted that the FMV for flower in effect in the second half of 2018 was significantly higher than our assessment of Nevada’s Spot Index for that period, when it averaged $1,776 per pound, indicating that cultivators in the state were being overtaxed based on the market conditions at the time.