Cannabis Industry

Responsible Person Liability in California’s Cannabis Industry

When the business can’t pay, the state looks to you.

California’s legal cannabis industry has never been for the faint of heart. Between compliance rules, high taxes, and constant regulatory change, even honest operators can find themselves on the wrong side of the California Department of Tax and Fee Administration (CDTFA). When that happens, the CDTFA often takes an aggressive next step—personally assessing the individuals behind the business under what’s known as Responsible Person Liability.

If you’ve received a Dual Determination Notice, Responsible Person Letter, or CDTFA Tax Collection Notice, you may already be at risk. This isn’t just a business problem. It’s personal.

How Responsible Person Liability Works

Under California law, when a business fails to pay its sales or cannabis excise taxes, the CDTFA can hold individuals responsible if they had control over collecting, reporting, or paying those taxes. That includes:

• Owners, corporate officers, or managing members
• CFOs, controllers, and bookkeepers
• Compliance or finance managers
• Anyone with authority to sign checks or tax returns

The CDTFA doesn’t have to prove bad intent—it only needs to show that you had the power to pay but didn’t. Once the agency decides you’re “responsible,” it can assess the full amount personally against you—plus penalties and interest.

Cannabis Businesses Are Targeted

Cannabis companies are uniquely vulnerable because of how California’s regulatory system works:

• Frequent Entity Turnover – Many licensees operate under new entities or ownership structures, leaving unpaid liabilities behind.
• Cash-Based Operations – Limited banking access means recordkeeping is often incomplete, making it easier for CDTFA auditors to assign blame.
• Layered Management – Investors, managers, and brand operators all share control, creating a wide pool of “responsible persons.”
• High Tax Burden – With excise, cultivation, and sales taxes stacked on top of local assessments, falling behind is common—and dangerous.

Once a company’s license lapses, dissolves, or transfers, the CDTFA almost always looks for individuals to pursue next.

Real-World Example

A cannabis distributor closes after falling behind on excise tax payments. The CDTFA determines the entity owes $275,000. When the company can’t pay, the agency issues Dual Determinations against the CEO, CFO, and the bookkeeper—each personally liable for the entire amount. Their personal assets, wages, and bank accounts are now at risk, even though they never took a dime for themselves.

This is not a hypothetical. It’s happening across California every day.

How to Protect Yourself

If you’ve received a responsible person notice—or if your cannabis business is winding down—there are steps you can take to protect yourself:

1. Don’t ignore CDTFA correspondence. Every notice has strict response deadlines. Missing one can make the assessment final.
2. Document your role. Show who actually controlled the company’s tax decisions and finances.
3. Get representation early. These cases often turn on technical details about control, timing, and corporate structure.
4. Negotiate strategically. You may qualify for penalty relief, installment plans, or offers in compromise.

Why Experience Matters

Attorney Steve Baghoomian has spent over a decade representing California cannabis operators and their officers against CDTFA and local tax agencies. He understands the intersection of cannabis licensing, taxation, and enforcement—and how to keep the state from crossing the line between corporate liability and personal responsibility.

The CDTFA doesn’t stop when a company fails. That’s when they come after people.

If you’ve been named in a Dual Determination or are worried your company’s tax problems could become your own, contact Baghoomian Law today for a confidential consultation.