In an effort to ensure tax compliance among cannabis businesses, the Oregon Liquor and Cannabis Commission (OLCC) imposed a new rule in June mandating a tax compliance certificate with all cannabis recreational retail license renewals. This rule, which came into effect for those licenses expiring on or after September 15, impacts over 820 Oregon cannabis licensees. It’s important to state that this regulation doesn’t extend to processors, cultivators, wholesalers, or other cannabis licenses, though any business non-compliance could affect a marijuana retail license.
Given the considerable challenges faced by retailers due to declining prices, decreased demand, and competition with illegal cannabis businesses, this requirement could pose an additional barrier, potentially forcing some out of the market and reducing competition.
Despite the Beaver State being an early adopter of adult-use cannabis sales in 2015, the subsequent years have seen dramatic swings in the market. Prices have fallen from a high of $10 per gram in 2016 to around $4 per gram in 2022, accompanied by a drop in sales, even as cannabis production rose. The number of retail licenses also increased, further pressurizing retail prices.
The situation is further complicated due to extensive illegal growers and retailers. The OLCC, which oversees Oregon’s approximately $1 billion legal cannabis industry, estimates that the number of illicit operations is double that of legal ones. This illegal market can afford to keep their prices at least 20% lower due to the absence of any fees or taxes, leading to a vital pivot point where consumers choose to purchase illegal over legal products.
The economic strain has resulted in unpaid cannabis taxes, making the cannabis industry one of the worst for tax compliance among Oregon businesses. According to the Oregon Department of Revenue, unpaid cannabis point of sales tax by retailers is around 9%. Further, many cannabis businesses have also fallen behind in other taxes including local cannabis tax, state corporate income tax, gross receipts tax, and employer taxes.
In response to this situation, Gov. Tina Kotek (D), in early 2022, directed the OLCC to make state tax compliance a retail license renewal requirement calling for equal rules for all businesses. Thus, the tax compliance certificate was introduced, a document from the DOR verifying tax and fee compliance for a business or individual, including every applicant listed on the application, thereby making the new rule more comprehensive in its reach.
The process of obtaining tax compliance certificates can be done online or by mail at no cost. But this process becomes more complex for retail cannabis businesses with multiple applicants on their license. One small consolation for these business units is that if a single applicant is non-compliant for tax purposes, they can remove that applicant from their license.
Surmounting pressures from price compression, increasing regulatory compliance and now the tax compliance certificate requirement propose challenging times ahead for Oregonian retail cannabis businesses. To mitigate these barriers, the state advises businesses unable to afford immediate renewal to enter into a payment plan with the Oregon Department of Revenue as soon as possible.