The cannabis industry isn’t what it was cracked up to be in California.
With bigtime dispensaries like MedMen going down, legal grow operations not raking in the amount of money they were projected to, and a thriving illegal market—what gives?
Hey, word on the street is that it’s still illegal at the federal level, which makes it hard to beg and borrow, but not steal. However, even with an influx of national and international cash, the industry would still be uber-regulated, over-taxed, and on thin ice with many cannabis businesses simply trying to stay afloat.
Everyone saw dollar signs when pot was first legalized. Those days have slipped away.
Santa Barbara County, which was a pioneer in grow operation proliferation and raked in the corresponding tax money that came with the industry’s rapid expansion, is once again rethinking that revenue stream. While the county has pocketed $50 million in gross receipts taxes from growers in the last five years, that funding is drying up, county staff doesn’t believe growers are being honest in their estimation of their crops’ value, and there might be a new ballot measure to contend with in November.
If you ask 5th District Supervisor Steve Lavagnino, the county shouldn’t reinvent the wheel and be “the first person in the pool,” again.
“There was no model to work from. We were the first one’s on the boat,” he said of the 4 percent tax on growers’ gross receipts (revenue) that the county implemented in 2017. “It’s been proven out over the five years we are one of the top counties in revenue, and I don’t want to mess with it.”
It’s actually the second highest cannabis tax collector in the state, pun intended. So why mess with it? The county wants more dough, duh.
The issue is that the revenue source isn’t as predictable as the county wants it to be. If county-based growers can’t sell all of their product, or if cannabis flowers sell for less one year than the next, or if growers decide not to grow at all—the county’s gross receipts tax doesn’t bring in as much money. The other problem is that the county doesn’t seem to trust that growers are being honest about their revenue, staff believes that growers should be valuing their product higher than they are.
To combat the latter concern, the county Treasurer-Tax Collector’s Office recently established an auditing system—and the first round is expected to be finished this year, so it hasn’t really been tested out yet.
What are the options? Taxing per square foot of cannabis, which isn’t necessarily working in other counties because the cannabis industry is in a state. It’s not making the money everyone thought it would, and growers are on the struggle bus. A hybrid model suggested by 3rd District Supervisor Joan Hartmann, which would combine gross receipts and a square footage tax and ensure that the county at least always makes something it can pocket.
Nothing can really happen without voter input, though, because it’s a special tax. So even if the Santa Barbara County Board of Supervisors decides to revamp the cannabis tax program it’s been making minor tweaks to since 2017, county voters will have the ultimate say.
Stay tuned for the debate and possibly a ballot measure.
The canary is delinquent on birdseed taxes. Send help to [email protected].
