Sonoma County cannabis: industry will tank without tax breaks
Two Sonoma County cannabis industry groups say that without tax reform at the state and county levels, their faltering industry could collapse.
The Cannabis Business Association of Sonoma County (CBASC) and the Sonoma Valley Cannabis Enthusiasts (SVCE) called on the Sonoma County Board of Supervisors to implement resolutions that would result in immediate tax relief reform at both the county and state levels.
The resolutions would eliminate state cultivation tax and suspend Sonoma County collection of cultivation taxes for a predetermined period of time. Sonoma County is one of five counties being asked to participate in a multi-county effort to seek state suspension of cultivation taxes.
Unlike other agricultural products, cannabis cultivation is taxed before production. California’s current cannabis cultivation tax is $9.65 per dry-weight ounce for cannabis flower; $2.87 per dry-weight ounce for leaves; and $1.35 per dry-weight ounce for cannabis plants. A sales report from industry analyst BDSA showed that legal sales in California fell by more than 11% year over year with a nearly 8% drop since August of this year alone.
“Our industry is in deep trouble,” said Erich Pearson, CBASC co-founder and CEO of SPARC, which operates a biodynamic cannabis farm in Glen Ellen as well as dispensaries in San Francisco and Sonoma counties. “We’re impacted on several important fronts. Our industry is taxed like no other, we have few retail outlets available to us, the illicit market continues to boom, and we face unparalleled regulatory hurdles.”
“Frankly, what we’re experiencing is a market collapse,” he said.
Sonoma’s Michael Coats, president of SVCE, agreed. “We have to give our farmers a break,” he says. “Sonoma County has the promise, the land, the weather — it has everything we need to have a healthy and robust agricultural movement that will bring tourists and keep us on the map as a desirable place to visit. But none of that matters unless we’re able to protect our farmers.”
Left to local jurisdictions, retail roll-out for legal cannabis has been slow. California has just 823 licensed dispensaries to serve over 29 million possible adult customers. The Sacramento Bee reports that third quarter sales this year brought the state $322.34 million in tax revenue, of which $42.41 million was from the cultivation tax alone.
Yet Politico reports that the true value of California’s cannabis market is closer to $1 billion per month, of which only one-third is legal. The rest is reportedly sold across the country on the illicit, or “traditional,” market.
“Every licensed cultivator is in dire survival mode,” says local cannabis regulatory attorney Joe Rogoway, who helped draft the two resolutions to be presented to the Sonoma County Board of Supervisors on Dec. 7. “Right now, there is an imminent risk of licensed cultivation collapsing in Northern California. Licensed cultivation businesses cannot maintain profitability, or even break even, under the current tax regime which is forcing many to go out of business.”
The entire point of Prop. 64, he said, was to create a robust legal market. “But ironically, because of extreme over-taxation on cultivation and municipal prohibitions on retail businesses, parts of Prop. 64 are actually crashing the legal market and undermining the core premise of legalization.”
Elimination, or at least suspension, of cultivation taxes is one of the things that urgently needs to happen, according to the cannabis groups. “Through this pair of resolutions,” Rogoway said, “our Supervisors can blunt the precipitous demise of legal cannabis farming and stop a very problematic displacement of local business owners out of the regulated marketplace.”
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I have another idea. Why do we not have more dispensaries in both the city of Sonoma and the unincorporated areas of Sonoma County? The growers would then have more retail outlets to sell to. This would also make it easier for consumers to buy legal cannabis and over time could eliminate the illicit market. It is interesting that the owner of SPARC who did not want one more dispensary in the city of Sonoma would bemoan the fact that there is no one to sell what he grows to, except himself.
Basic economics says you get less of what you tax. Economics of behavior says if the penalties for buying illegal drugs are negligible to nil, people will favor the black market (in this case to the tune of 66%). Put California property, energy and water costs with the highest tax rates in the country and it is not difficult to understand why people and businesses vote with their feet. Cannabis is one symptom of many of a dying state.
The Sonoma Valley Cannabis Group (SVCG) wholly supports efforts to bring cannabis tax reform to the County and State. “…ironically, because of extreme over-taxation on cultivation and **municipal prohibitions on retail businesses**, parts of Prop. 64 are actually crashing the legal market and undermining the core premise of legalization.”
Even more ironic is that, while feigning support for embattled cultivators against NIMBYism in the county, sparc’s owner hides behind the skirts of “local control” when it comes to supporting a second dispensary in our own backyard of Sonoma. sparc has been lobbying against a second dispensary since last January.
sparc asked for and was granted by the Sonoma City Council what amounts to a de facto moratorium on bringing a second dispensary to Sonoma. There is the appearance of a statutory monopoly that protects sparc from competition. It’s an embarrassment for the city and smacks of complicity.
“Local control” is one of the main reasons we’ve had to fight this battle for proper access to medical cannabis. Meanwhile, both patients and recreational consumers pay a price. Principle succumbs to profit.
Three words: grow your own!