The High-Road Cannabis Tax Credit (HRCTC) is a nonrefundable California tax credit that can be captured by eligible cannabis businesses from January 1, 2023, to December 31, 2027. The credit is worth 25% of qualified expenditures during each tax year, with a maximum credit limit of $250,000 per year.
To qualify for the High-Road Cannabis Tax Credit (HRCTC), a taxpayer must operate a commercial cannabis business in California, paid W2 employees during the tax year, and hold either a Type-10 or a Type-12 license in accordance with Division 10 of the Business and Professions Code.
Type-10 (retailer). A storefront retailer has a physical location where cannabis goods are sold. Storefront retailers can also deliver cannabis goods.
Type-12 (micro-business). The Type-12 license is for businesses that do at least three of the following activities at one location:
Cultivation – up to 10,000 total square feet.
Manufacturing – use of non-volatile solvents, mechanical extraction, or infusion.
Distribution or distribution transport-only.
Retail – storefront or non-storefront
What Are Qualified HRCTC Expenditures?
Qualified expenditures are used to calculate the HRCTC and refer to the amounts that are paid or incurred by a qualified business and include the following.
1. Wages paid to full-time employees of the business.
Note: Not all employees are required to meet these criteria, but their wages must be considered qualified expenditures.
Full-time employees must either receive wages for services not less than an average of 35 hours per week or be salaried employees compensated for full-time employment.
Full-time employees must be paid between 150% ($23.25) and 350% ($54.25) of the state minimum wage.
Qualified wages may include amounts paid by the employer for group health insurance, childcare benefits, employer contributions to employer-provided retirement benefits, or employer contributions to pension benefits.
Wages paid to employees earning more than 350% of the state minimum wage do not qualify as expenditures
2. Safety-related equipment, training, and services.
This includes equipment primarily used by employees of the cannabis licensee to ensure personal and occupational safety or the safety of customers.
Training for non-management employees on workplace hazards, such as safety audits, security guards, security cameras, and fire risk mitigation.
3. Workforce development and safety training for employees.
This category encompasses various initiatives, including but not limited to:
Joint labor-management training programs.
Membership in a joint apprenticeship training committee registered by the Division of Apprentice Standards.
Participation in a state-recognized high-road training partnership, as defined in Section 14005 of the Unemployment Insurance Code.
Tentative Credit Reservation
To claim the HRCTC, qualified taxpayers are required to reserve the credit tentatively with the relevant authorities, beginning July 1, 2023. The credit can then be claimed when filing the tax return.
It is important to note that the cumulative amount allocated for the HRCTC is $20 million and it is allowable on a first come, first served basis. There are less than 2 weeks remaining before credits may be tentatively reserved!
Help Applying For The High-Road Cannabis Tax Credit (HRCTC)
The HRCTC presents a beneficial tax credit option for commercial cannabis businesses in California. For further details, one can refer to the eligibility criteria provided on the official website of the State of California Franchise Tax Board.
Calculating the High-Road Cannabis Tax Credit can be time-consuming and labor-intensive. Substantiating this credit involves reviewing payroll and financial records and having knowledge and understanding of applicable tax laws. To determine qualification and potential savings, feel free to contact our dedicated team of tax credit experts.
Contact Us To Help You Claim The HRCTC
With Tax Credit Collective, you can benefit from our 20 years of tax credits experience, our proven track record, and the peace of mind of having a licensed tax attorney to provide audit defense, allowing you to confidently claim the HRCTC.
Contact us at 214.414.9881 to discover how your cannabis business can maximize this tax credit!