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Wednesday, October 5, 2022

Sonoma County Supervisors Consider Cannabis Tax Review

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The Sonoma County Board of Supervisors has indicated an interest in offering tax breaks to local cannabis growers, who have joined the growing chorus of complaints from industry advocates about what they call an excessive tax burden.

The board on Tuesday asked employees to draft a resolution to defer the tax the province imposes on cannabis growers for a quarter, meaning the growers will have to pay that premium at a later time.

Supervisors hope that the postponement – due to come before the House vote on January 25 – will allow time to explore more long-term tax-exempt options.

“People are hurting, and as other industries are being affected by epidemics or fires, we have taken steps to mitigate the need for and support this industry,” Supervisor Susan Gorin said. “So I think we need to do that as well.”

Like their counterparts across California, Sonoma County cannabis growers and other players in the industry are demanding exemptions from state and local taxes that they say are driving legal growers out of business.

Local farmers have ramped up their campaign against local regulations and taxes for months, but the recent increase in a statewide agricultural tax has ignited the fires.

The state taxes farmers by the ounce. Jurisdictions and localities also charge a point-of-sale excise tax of up to 15%.

Additionally, Sonoma County taxes local farmers at different rates on a square foot basis for outdoor, indoor, and mixed light crops. Cities can also add their own taxes.

Assistant District Administrator Christina Rivera informed the council that a cannabis grower with a specialist outdoor cultivation permit that uses 5,000 square feet to grow 200 plants will pay approximately $41,000 in annual taxes between the state and county.

Rivera said county taxes from that total come to about $8,500.

The average annual tax revenue collected by the county in recent years from cannabis operators was $2.5 million, according to a task force report.

This total did not include revenue from penalties for violating the law, which James Gore, the chairman, has asked employees to provide for future meetings.

The bulk of the county’s tax revenue goes toward its cannabis program, a regulatory regime clogged with a cumbersome licensing process and ordinance that the county has struggled to untangle.

Within its jurisdiction, Sonoma County has about 170 cannabis growers, five dispensaries, and five manufacturers, all of whom pay taxes, said Eric Roser, the auditor, controller, treasurer and tax collector for the county.

While supervisors David Rabbit and Chris Corsi are open to farmers’ requests for relief, they particularly emphasized the need to first ensure that the county will be able to cover the costs of cannabis regulation if the council pursues more long-term relief measures.

Rabbit reminded the board that the county is also willing to fund an outside advisor’s long-awaited comprehensive environmental review of its cannabis law.

Several marijuana growers in Sonoma County and industry advocates who took part in Tuesday’s board discussion said growers couldn’t keep up with rising costs and were therefore either selling to corporate operators or going black market.

“If you are going to continue to treat us like criminals, the industry will continue to go back to the black market and these people will never go back to the legal market,” said Vince Schulten of Sebastopol-based Hessel Farmers Grange.

Sonoma County resident Rachel Zirdt is concerned about how the county will compensate for the reduced cannabis taxes, and said she doesn’t want her tax money to support the local industry.

“Sonoma County is probably not the right place to grow cannabis at this point,” Zirdt said.

While supervisors are open to exploring local tax-exempt options, they also turn their eyes to the state, where the bulk of the tax burden lies.

State Senator Mike McGuire, D-Healdsburg, said he plans to introduce legislation this year to repeal the agriculture tax and introduce a higher selective tax that includes farmers.

McGuire argued that it was unfair that cannabis growers would have to pay a flat tax rate per ounce after experiencing significant price drops in 2021 due in part to the influx of black market products.

“We all have a role in how we got to this particular point, and there is certainly a lot of blame to take with all levels of government,” Rabbit said.

Blame also lies with “those who promised the world within the industry,” he added. The problem already exists at the state level.”

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