I’ve heard some of my critics; I’m “obsessed with economics” and economic development, and that I would support any business or any industry and at any cost to our quality of life or social fabric. It turns out this isn’t true. Indeed, it turns out I’m less than enthusiastic about the proposition of Santa Barbara County becoming the greenest economy in California. Not the greenest in terms of clean technology and the environment, but the greenest in terms of our newest emerging local crop: marijuana.
It is more than a little ironic that those who normally question the relevance or importance of what a legal conforming industry or project will generate in revenue, seem to be all in when it comes to the opportunity to license and regulate pot growers in Santa Barbara County. Why? Because of how much local revenue these growers might potentially generate to the county’s general fund. Huh?
Look, I appreciate how much revenue pot production might generate for the county. Indeed the numbers, depending on the size of the tax instrument the Board of Supervisors ultimately places on the ballot and county voters approve, are actually pretty remarkable. We are talking potentially tens of millions of new dollars per year to the county. Discretionary dollars. Dollars that can be used on public safety, roads, parks … cannabis festivals. However, even though this column isn’t about oil, I do take issue with the moral equivalency to the local oil industry this new groovy industry seems to be enjoying currently.
For example, in the Dec. 14 special hearing on the tax options and regulation of local pot farms, Supervisor Das Williams called out those of us who continually advocate for local oil and gas production by suggesting that local pot growers have the potential to generate more property taxes for the county than do local oil and gas projects. This of course assumes local pot growers reach their potential and produce 3.7 million pounds of marijuana annually and how the county taxes it … on a gross receipts basis? per ounce? per square foot? Other assumptions include the current and future market value of the reefer. Is it worth $1,000 per pound? Or is it closer to $500 an ounce, as some growers suggest?
But consider a few important differences between these two (now competing) economic sectors. According to the staff report yesterday, Santa Barbara County pot growers could produce 3.7 million pounds of marijuana annually. However, Santa Barbara County residents consume (smoke) less than 1 million pounds annually. The rest of the marijuana being grown in the county will make its way out of the county, indeed probably out of the state, and in some cases out of the country. In effect, we would be exporting an alternative and what is widely accepted to be a dysfunctional lifestyle to other communities. Think globally act locally indeed.
Oil, on the other hand, is almost the complete reverse situation. In Santa Barbara County, motorists consume approximately 146 million gallons of gasoline annually. This amount of gasoline greatly exceeds what we actually produce in our county. Local environmentalists who vigorously protest local oil production because of the environmental impacts, even though the impacts are now mitigated to the point of almost 100 percent, seem casually oblivious to the idea of importing the oil they habitually use from other countries, even though those countries are widely known to ignore most of the environmental impacts from oil production. Think locally act globally?
So consider this new economic development strategy: Permit, license, and tax marijuana growers and distributors even though local demand falls far short of the potential local supply, which then means the excess local supply is exported to other jurisdictions throughout the country that will then need to deal with the negative social pathologies associated with chronic drug use— i.e., additional law enforcement, incarceration, public and mental health services, as well as addressing various local neighborhood complaints and nuisances—but without the necessary money to do it. Our county’s commitment to neighborliness leaves a lot to be desired.
By the way, much of the revenue generated to the county from pot growers will be used for our own law and code enforcement, permitting, compliance, and inspection staffing needs. This is estimated to cost county taxpayers approximately $4 million a year starting next year. But this shouldn’t be too big of an issue if the county taxes the pot industry 2 percent of gross receipts. That would generate $8 million to the county, netting the county roughly $4 million after cost recovery. If the county taxes the operators 4 percent, the county would receive approximately $16 million a year, netting the county $12 million after cost recovery. Should the county go for broke and tax the pot growers 8 percent of gross receipts, the county would receive a very impressive sum of $24 million in annual revenues, netting the county $20 million.
There’s one problem however, if the county taxes the growers at a rate that renders them uncompetitive against their competitors in other counties, these operations will go up in smoke.
Moreover, if the county taxes the growers’ gross receipts at a rate that actually allows them to remain viable, the cost of their product might still be high enough to drive a lot of their customers into the arms of their competitors in Northern California, or into the shadows of the black market where they have blissfully done business for decades. The reality is this emerging 21st century, “don’t worry be happy,” industry isn’t the slam dunk economically that some of its vocal proponents are suggesting. There are many known problems, and there are undoubtedly some unknown problems. After all, we don’t know what we don’t know.
Yes it’s true there are some economic multipliers that will likely occur from more pot farming in the county, mostly direct multipliers. Hot Cheetos, pizza, and Lucky Charms sales will likely skyrocket, resulting in significant additional sales tax revenues for the cities and county. But the negative multipliers still seem to outweigh the positive multipliers, and so it seems to me the best course for the county is to size a tax instrument on these new operations that achieves full cost recovery and not much more, lest future boards be seduced by the pot of green gold at the end of the groovy rainbow.
Joe Armendariz is a former two-term member of the Carpinteria City Council and the executive director of the Santa Barbara County Taxpayers Association and the Santa Barbara Technology and Industry Association. The opinions expressed here don’t necessarily reflect those of the organizations he represents. Send your thoughts to [email protected].
