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%.