California County Mulls Reduction To Cannabis Cultivation Tax

Amid declining revenues and plunging prices, officials in one California county are considering a proposal that would ease some of the financial stress currently felt by area cannabis cultivators. 

The Press Democrat reports that officials in Sonoma County, California on Tuesday recommended that the “Board of Supervisors approve new tax rates based on a model that would reduce the tax burden for most cannabis growers.”

“Reduced tax rates may be in store for struggling cannabis cultivators and manufacturers in unincorporated Sonoma County, driven in part by decreasing prices affecting the industry…Under the proposal, cultivation tax rates would be reduced from $0.75 per square foot to $0.69 per square foot for outdoor cultivation, $3 per square foot to $2.51 per square foot for mixed light cultivation and $12.50 per square foot to $7.58 for indoor cultivation,” the newspaper reported

“The tax rate for manufacturers would also drop from 3% to 1.5%, while retailers would see an increase from 2% to 3%. The proposed changes come as the county sees a decline in the number of cultivators, dwindling prices driven in part by a glut of product and competition from large-scale growers and a projected long-term decrease in industry-driven revenue for its cannabis program.”

It isn’t the first time that officials in Sonoma County, located in northern California, have moved to alleviate the burden shouldered by local marijuana farmers. 

Last year, the county’s Board of Supervisors approved a tax reduction for certain cannabis growers. 

The North Bay Business Journal reported at the time that the board “voted 4 to 1…to change how the tax on cannabis cultivation is set, lowering the amount some growers will pay while raising it for others,” which ensured that “cannabis growers in the county’s jurisdiction will be taxed based on which of the size of their operations categorized into three different methods, calculated on a gross receipt tax rate of 2.5%.”

James Gore, chair of the Sonoma County Board of Supervisors, told High Times in 2022 that he favored the tax reductions because it was “in line with the market impacts that cannabis producers are encountering right now with a precipitous drop in wholesale price-per-pound.” 

“The reason that this was justified, merited, warranted is that our cannabis tax, like many other jurisdictions, was based on coverage—square feet. It was intended to be one and 5% of gross receipts, but when you have a drop in wholesale price, and you’re still taxing based on square footage, all of a sudden that potential 3-5% grows into not just 15 or 20—but upwards of that,” Gore said.

“We were putting people out of business with our policy, so this is the right thing to do,” he added. “The reduced cultivation tax rates are needed to account for changes in the market and our Board’s policy direction. The revenue surplus in our cannabis program will support operational costs for two years as we transition to a new tax model and policy framework. We’re committed to getting this issue right for Sonoma County, and that means continuing to work between neighborhoods and industry advocates, learning from other counties, and finding local solutions that are fair and sustainable for both communities and the environment.” 

McCall Miller, the cannabis program coordinator for Sonoma County, said that the reason behind latest tax change being considered this week “is to remain responsive to market changes and whatever those market changes entail.”

Per the Press Democrat, “Sonoma County is seeing a decline in cannabis cultivators.”

“The moves came under mounting pressure from cannabis industry representatives, who pressed for greater relief from taxes and fees they said were squeezing smaller operators out of business or into the illicit market…There are five manufacturers, six retailers and 75 cannabis cultivators in unincorporated Sonoma County, according to Miller,” the outlet explained. 

“In May 2023, there were 155 cultivators operating in unincorporated Sonoma County. Dropping prices may be one of the factors driving out cultivators, Miller said. But, she added that some cultivators have also said the county’s permitting process and backlog of applications is another factor.”

According to the Press Democrat, the county’s “cannabis tax revenue is projected to decrease from $1.6 million this fiscal year, to $1.4 million in fiscal year 2024-2025.”

“Factoring in departmental costs, the county’s long-awaited environmental impact study, launched in mid-2021 to streamline permitting and other costs, the program’s end balance is expected to decrease from around $3.7 million this fiscal year to about $2 million by fiscal year 2026-27, according to a staff presentation,” the paper reported. 

“The industry has struggled to compete with the illicit cannabis market that has undercut legal cultivators in price and fueled the supply glut,” it continued. “The recommended tax rate changes are based the results of an annual analysis completed by HdL Companies, a consultant based in Brea, California.”

The post California County Mulls Reduction To Cannabis Cultivation Tax appeared first on High Times.


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