April 2022

Pot in Sonoma County

Pot growers, otherwise known as cannabis growers, just had their taxes cut in half.  Based on county figures, the cut amounts to more than $1.6 Million in forgone future county tax revenue through 2023 when the cut is set to expire. 

Erich Pearson is a board member of the Cannabis Business Association of Sonoma and also owner of SPARC, a Santa Rosa-based dispensary.  Cannabis growers say they face a heavier tax burden than other farmers.  They would like to be taxed the same as any other agricultural industry. 

The tax cut  was approved unanimously by the Board of Supervisors and will be retroactive to July 2021 and effective through mid-2023.  During that period county officials are expected to study the benefits and costs of taxing cultivators by gross receipts rather than square footage. 

Based on county figures, the cannabis fund is projected to have a $1.2 Million balance after the 45% reduction in the tax rate.  County staff had recommended a 10% reduction but all five Supervisors indicated they were comfortable with a larger reduction so long as the fund could continue to cover operational costs which includes permitting.

According to county figures, the county’s cannabis fund has amassed a surplus.  The current balance in the fund is $5.9 Million.  The basic annual cost of running the program was around $1.9 Million in this fiscal year.  $2.5 Million has been set aside for the upcoming environmental study and ordinance review. 

Apparently, the Supervisors were surprised to learn that fines paid by growers to resolve county code enforcement cases have been funneled into the county’s general fund which is the main source of discretionary funding.  Cannabis code enforcement cases generated nearly $600,000 for county coffers last fiscal year.  Supervisors Gore and Rabbitt debated if that arrangement needed to be changed.  Supervisor Rabbitt stated that Code Enforcement is not a moneymaker. 

Cannabis growers have called for the county to eliminate the cultivation tax altogether.  There is a statewide push from the industry to lighten the financial load.  Prices across the industry have dropped.

When voters legalized production and sales for adult use in 2016, it was expected that tax revenue would increase significantly.  However, a mega-boom in commercial cannabis has not happened.  One reason tax revenue has not been what was expected is due to the supply of cheaper black-market cannabis. Growers state that regulatory and tax costs are another reason they have not made the money they expected. 

Supervisor Chris Coursey stated that although he is supportive of a tax cut, government taxation is not solely to blame for financial challenges the cannabis industry faces.  He noted that market reasons are responsible for the bottom falling out of prices. Some county residents oppose any tax relief for cannabis operations.  They believe that the board should approve tax breaks for everyone. 

The board also stated support for Senator Mike McGuire’s bill, SB 1074, that aims to help small cannabis cultivators by eliminating California’s cultivation tax in favor of a higher excise tax that would include growers.  The support for SB 1074 stipulates that California does not reduce cannabis revenue it dedicates toward First 5, the state-chartered organizations that tackle local health care and social service issues related to early childhood.