High-Road Cannabis Tax Credit

Overview

The High-Road Cannabis Tax Credit (HRCTC) is available for taxable years beginning January 1, 2023 through December 31, 2027. Taxpayers conducting a qualified cannabis business may receive a tax credit of 25% of their qualified expenditures in the taxable year, up to a maximum of $250,000 of credit per year.

Taxpayers must make a tentative credit reservation with us and can claim the credit when they file their tax return. The total cumulative amount available for HRCTC is $20 million.

Qualified taxpayer

A qualified taxpayer must be a commercial cannabis business, possessing a Type-10 (retailer) or a Type-12 (micro-business) license pursuant to Division 10 of the Business and Professions Code.

Qualified taxpayers must provide full-time employees with all of the following:

  • Wages (see Qualified Expenditures below)
  • Group health insurance
  • Retirement benefits or pension benefits, including stock options where the employer pays for the full value of the stock.

Qualified taxpayers must request a tentative credit reservation for each taxable year during the month of July of the taxable year, or within 30 days of the start of their taxable year if it begins after July.

Qualified expenditures

Qualified expenditures are the amounts paid or incurred by a qualified taxpayer for any of the following:

Wages for the full-time employees of the business

Note: Not all employees must meet these requirements but they must if their wages are to be considered a qualified expenditure.

  • Full-time employees must either be paid wages for services not less than an average of 35 hours per week, or be a salaried employee paid compensation for full-time employment.
  • Full-time employees must be paid no less than 150% but no more than 350% of the state minimum wage.
  • To meet the 150% minimum wage requirement, qualified wages may include the 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 who are paid more than 350% of the state minimum wage are not considered a qualified expenditure.

Safety-related equipment, training, and services

  • The equipment primarily used by employees of the cannabis licensee to ensure their personal and occupational safety or the safety of customers of the business.
  • Training for nonmanagement employees on workplace hazards including, but not limited to, safety audits, security guards, security cameras, and fire risk mitigation.

Workforce development and safety training for employees

This includes, but is not limited to:

  • Joint labor management training programs.
  • Membership in a joint apprenticeship training committee registered by the Division of Apprentice Standards, and a state-recognized high-road training partnership as defined in Section 14005 of the Unemployment Insurance Code.

HRCTC Tentative Credit Reservation

You will need an HRCTC Tentative Credit Reservation (TCR) from us for each taxable year to claim the credit. You must submit your reservation online. You will receive an immediate confirmation.

The HRCTC reservation system will be available for the 2023 taxable year from July 1, 2023 through December 31, 2023. A link to the system will be available on this webpage at that time.

Taxable year beginning When you must request reservation
January through July July 1-31 of the taxable year
August through December Within 30 days of the start of the taxable year

Credit amounts

The amount of credit is equal to 25% of qualified expenditures. The maximum amount of credit per taxable year is $250,000.

Claiming the credit

  • You can claim the nonrefundable credit for taxable years beginning January 1, 2023 through December 31, 2027.
  • Any unused credit may be carried over for 8 taxable years after the year the credit was generated.
  • Any deduction or credit otherwise allowed for any qualified expenditure must be reduced by the amount of HRCTC credit allowed.
  • For qualified taxpayers that are required to be included in a combined report under R&TC Section 25101 or authorized to be included in a combined report under R&TC Section 25101.15, the aggregate credit claimed by all included taxpayers is limited to $250,000 per year.

Examples of credit calculation

  • These examples use the 2023 California minimum wage of $15.50 per hour.
  • 150% of minimum wage is $23.25 (150% x $15.50).
  • 350% of minimum wage is $54.25 (350% x $15.50).
  • Because the parameters for the credit are based on hourly wages, we must convert monthly expenses, such as employer payments for health insurance or pensions, to an hourly amount.
  • For some of these examples, we are using 40 hours per week for the calculation. Actual full-time hours may vary, but must be at least an average of 35 hours per week.
  • For a full-time employee working 40 hours per week, the average number of monthly hours is 173.33 [(52 weeks x 40 hours per week)/12 months per year].

Example 1:

  • Employee works an average of 40 hours per week. 
  • Employee is paid $21 per hour (135% of minimum wage).
  • Employer pays $500 per month for this employee's health insurance.

The calculation is as follows:

$500 a month/173.33 (average hours per month) = $2.88 + $21= $23.88, which is more than 150% of minimum wage. Therefore, the employee's wages and health insurance meet the requirements to be qualified expenditures.

Example 2:

  • Employee works an average of 40 hours per week.
  • Employee is paid $50 per hour (322% of minimum wage).
  • Employer pays $1,000 per month towards this employee's pension.

The calculation is as follows:

Wages - The hourly wage of $50 is less than 350% of minimum wage, therefore all the wages are qualified expenditures.

Employee pension - $1,000 a month/173.33 = $5.77 (employer paid pension, allocated per hour).

$50 + $5.77 = $55.77, which is more than 350% of minimum wage. The amount over 350% is not a qualified expenditure. The employer can include only up to $54.25 per hour as a qualified expenditure. Any amount over $54.25 is not a qualified expenditure for this credit.

Example 3:

  • Employee works an average of 35 hours per week.
  • Employee is paid $60 per hour (387% of minimum wage).
  • Employer pays $500 per month towards this employee's health insurance.

Employee's wages and health insurance are not qualified expenditures because the wages of $60 per hour exceed 350% of minimum wage.

Example 4:

  • Employee is paid a salary of $60,000 per year for full-time work.
  • The employee is expected to work an average of 35 hours per week for that salary.
  • Employer pays $500 per month for this employee’s health insurance and $250 per month towards this employee’s pension, totaling $750.

The calculation is as follows:

Wages - 52 weeks x 35 hours per week = 1,820 hours per year. $60,000/1,820 hours = $32.97 an hour.

Employee’s health insurance and pension - $750 x 12 months = $9,000 per year. $9,000/1,820 hours = $4.95 per hour. Total paid by the employer is $37.92 per hour ($4.95 + $32.97).

Therefore, all wages and employer-paid health insurance and pension are qualified expenditures because they total under $54.25 (350% of minimum wage).

Contact

For questions regarding the HRCTC,contact us at:

FTBCannabis@ftb.ca.gov