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.”

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Officials in Sonoma, California moved this week to provide tax relief to the area’s cannabis cultivators, another decision driven by the continued economic struggles of the state’s legal marijuana industry.

North Bay Business Journal reports that the Sonoma County Board of Supervisors “voted 4 to 1 on Tuesday to change how the tax on cannabis cultivation is set, lowering the amount some growers will pay while raising it for others,” making it so 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%.”

The change will take effect in July, per the Journal, which noted that cannabis growers “will pay [a] rate of $0.75 per square foot for outdoor operations; $12.50 per square foot for indoor cultivation, and $3 per square foot for mixed-light cultivation where a combination of artificial and natural light is deployed.”

This week’s vote comes almost a year after the Sonoma County Board of Supervisors slashed cannabis cultivation taxes by nearly 50%.

James Gore, the chair of the Sonoma County Board of Supervisors, told High Times last March why he advocated for the new tax alignment. 

“This tax reduction is in line with the market impacts that cannabis producers are encountering right now with a precipitous drop in wholesale price-per-pound,” Gore said at the time. “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 explained that the previous “tax policy did not fit the scenario of what was going on.”

“It was ultimately voted on 5-0 but there was a lot of dispute in the discussion. There were some who didn’t want to back off of the tax,” Gore said. “In the meantime, we’re going to be moving into a gross receipts model. So it will take us a while to settle on how to do that effectively. So that means, as it should, that it fluctuates up and down with market conditions. That is the ultimate goal.”

“We were putting people out of business with our policy, so this is the right thing to do,” he continued. “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.” 

This week’s vote by the board was in the same spirit, with the North Bay Journal reporting that the move came “after months of heavy pressure from cannabis industry representatives, who have complained that layers of local and state taxes have hampered businesses in California’s legalized market.”

Legal cannabis industries across the country have fallen on hard times, as customers increasingly turn to the illicit market for cheaper prices, while growers and operators participating in state-sanctioned programs are often burdened with onerous taxes and regulations.

A survey last year from the National Cannabis Industry Association found that only 37% of cannabis operators nationwide are profitable. In California, it was only 26%.

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Cannabis farmers in California are burdened with high taxes, but Sonoma County farmers will have some relief at the local level by slashing cultivation taxes nearly in half.

The County of Sonoma Board of Supervisors announced in a March 17 press release that they recently agreed to amend the Cannabis Business Tax ordinance to reduce the fiscal year 2021-2022 cannabis cultivation tax rates by 45% through June 30, 2023. 

The reduced rates will be applied retroactively—going back to July 1, 2021, with the goal to ease financial hardship for local cannabis operators. 

The projected loss in revenue from the tax reduction will be offset by a current and projected county cannabis tax revenue surplus that exceeds program operating costs. Taxes collected in fiscal year 2020-2021 from 183 cannabis operators totaled $3,634,230—compared to $2 million in estimated annual operating costs.

On April 5, county staff plan to present an amended ordinance reflecting the temporary tax drop, as well as a resolution extending the January 31 and April 30 due date to May 31 for cultivation tax payments. The due date for all cannabis taxes was previously extended from January 31 to April 30.

Supervisor James Gore, Chair of the Board of Supervisors, pushed for a new tax structure at a recent board meeting.

“This tax reduction is in line with the market impacts that cannabis producers are encountering right now with a precipitous drop in wholesale price-per-pound,” Gore told High Times. “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 mentioned some examples of people selling flower at $300-400-per-pound, but he’s also hearing stories of people selling for a lot less than that. 

“Our tax policy did not fit the scenario of what was going on. It was ultimately voted on 5-0 but there was a lot of dispute in the discussion. There were some who didn’t want to back off of the tax,” he said. “In the meantime, we’re going to be moving into a gross receipts model. So it will take us a while to settle on how to do that effectively. So that means, as it should, that it fluctuates up and down with market conditions. That is the ultimate goal.”

“We were putting people out of business with our policy, so this is the right thing to do,” said Gore. “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.” 

The Press-Democrat reports that there are 171 farmers that fall under the county’s jurisdiction, and they are taxed at different rates on a per-square-foot basis for outdoor, indoor and mixed-light crops.

Only 37% of participating California cannabis growers said they were profitable, according to a survey of 396 U.S. growers conducted by the National Cannabis Industry Association.

On January 1, California Department of Tax and Fee Administration’s tax hike on dry-weight flower took effect—ushering in the latest blow to cultivators. The rates rose by almost five percent, reaching over $161 per pound. It prompted leaders in the industry to rally at the state Capitol in a bid to save the industry. After releasing a state budget proposal for the 2022-2023 fiscal year, Governor Gavin Newsom acknowledged that regulatory changes are needed to sustain California’s legal cannabis industry while curbing the illicit market.

The changes occur after public feedback lamenting the state tax burden on the cannabis industry. The Board is committed to supporting state cannabis tax reform, as well as Senate Bill 1074, which would discontinue the state cannabis cultivation tax and increase the state cannabis excise tax. The Board predicated its support for both efforts on the state’s ability to maintain state tax revenue funding for children’s programs.

Tax relief wasn’t the only item on the agenda. The Board of Supervisors also approved a resolution of intention to adopt a cannabis program framework based on 16 guiding tenets designed to inform the preparation of General Plan amendments and the Environmental Impact Report required to update the Cannabis Land Use Ordinance and related regulations. 

On June 8, the Board directed staff to complete a comprehensive update of the cannabis program based on community feedback. So far, there have been eight public workshops, 12 small group outreach sessions and a countywide survey to gather input.

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