Distributors can play a variety of roles. The following is a brief break down of the different distribution models; NOTE: This is NOT legal advice; for accurate depictions of regulations, please consult the regulatory documents published by the state of California and / or consult your attorney.
Quality Assurance
- Once retail or commercially-ready products are ready to be tested by a Type 11-distributor, they must be held in quarantine in a separate location from rest of the inventory, while awaiting testing from a licensed testing facility.
- An agent of the testing lab will come onsite the distribution facility and pull random samples from each ready-batch to take for testing. Batches with passing test results may be sold.
- A distributor must ensure proper packaging and labeling (and potentially re-labeling) before sale to retail, delivery or micro-businesses.
- Distributors may purchase tests and charge a mark-up or require their producer client to purchase tests from labs directly.
Tax Collection and Remittance
- Distributors collect the Cultivation Tax (from cultivators or manufacturers) but do not have to collect right when material exchanges hands. It might be that distributors will take material on consignment, sell it, and then pay off the producer less their fees and cultivation tax owed.
- Distributors are responsible for collecting the excise Tax (from retail, delivery or micro-businesses) and remit those taxes. Excise tax is calculated as a % of invoice total.
Transportation
- Distributors are the only license types that can transport between licensees
- Type-11 distributors are the only ones who can deliver to a retailer and may sub-contract out to another Type-11 distributor.
- Type-13 distributors may transport between licenses or transport immature plants to a dispensary
- Distributors may end up handling a lot of cash as many sales are COD (cash on delivery)
- Distributors can charge for transportation by either charging a fixed fee, a fee per mileage, and/or a % of the invoice amount
Storage
- Distributors may provide storage-only services or have it as part of their overall offering of testing, storing and transportation
- Distributors can charge producers for storage by the space the inventory occupies
Sales & Marketing
- Type 11-Distributors may engage in sales and marketing on behalf of Producers, including purchasing and reselling from other licensees
- Not every Distributor buys and resells; many may strictly provide distribution-as-a-service and charge a fee accordingly
As you can see, distributors can play a variety of roles and are central to the cannabis supply chain. To learn more about taxation, please visit CDTFA's website.
