R6) Discussion and Possible Action Regarding a Recommendation from the General Government Committee Related to Delinquent Cannabis Business Taxes
(Sponsor: General Government Committee)
As part of my work with the Department of Agriculture, I regularly assist with collecting past-due device registration invoices from cannabis businesses. This requires extensive research, as many businesses close, change ownership, or become difficult to contact without providing updated information. I have spent significant time reviewing documents, researching license information through the Department of Cannabis Control, and attempting to locate responsible parties. When ownership changes or prior owners cannot be identified, it creates a substantial barrier to collecting outstanding balances. Without reliable contact information, collection efforts are often delayed or unsuccessful.
Thank you for being willing to discuss the Cannabis Taxes items R6 and R7 in tandem, as they are related and should be evaluated together, since R6 is retrospective and R7 is about the future.
With one exception, we agree with the recommendations expressed by the Tax Collector's memos, especially related to delinquent taxes. We also agree with their assessment that the minimum tax true up requirement can be easily removed, and we are glad to know County Counsel's interpretation is that the Board of Supervisors can perform this action. Going forward, taxes should be collected on actual sales.
BUT we'd like you to consider amending the recommendations. Our additional request today is to create a tax moratorium for 2027 for all cultivation taxes, while you focus on collecting delinquent taxes.
We understand that the County is in a budget crisis, but we also all know that cannabis has been over-taxed over the past decade. Just last week Sonoma County removed cultivation tax completely. Humboldt County did the same earlier this year, and Trinity reduced their tax by 80%. The State has also removed the cultivation tax.
Cannabis is the only crop in California that has a tax attached to growing it. At the same time, small farms are struggling to get their products to market in our overly restrictive supply chain. Unfortunately, the State's regulations for our industry relegate most Mendocino cultivators to wholesale, even when they offer individually branded, retail-ready products, they cannot sell them themselves, since there is still no real farm direct to consumer pathway. And that is not likely changing much, if at all, in California, with the newly implemented Federal direction of Schedule 3. By the way, if the U.S. government moves toward considering cannabis as medicine, generally speaking, medicines are not taxed.
But 2.5% on wholesale prices is still a high tax. Especially on a product that the County realizes a tax on again at in County retailers. Approximate but realistic numbers as an example: A retail eighth-ounce sold to the customer for $30 (tax included), is first purchased, often on a 30-90 term basis, by retailers from farmers for $10. Obviously, the farmer pays for the associated costs of cultivation, like soils, nutrients, and fees to County P&B, State DCC, Water Board, etc. But small farms are also financially responsible for harvesting, trimming, testing, packaging, labeling, an additional percentage to the distributor to transport the product from the farm to retail, and taxes. After all of that. we are lucky if we see less than a $1 profit in the present market conditions. It's nearly unworkable. Something's got to give...
The cannabis industry remains in an uncertain flux across the board, and locally, is in a free fall. You cannot squeeze blood from a stone. If you want to support your legacy cannabis cultivators, like you say you do, please consider our ideas to allow the fiscal equalization to sort itself out. A tax moratorium for 2027 will help those in delinquency catch up and give those of us who have paid taxes all along a much needed break, while stimulating economic activity in our county. If you adopt Tax Assessor's reccomendations with this additional amendment, by 2028, it will be clear who is still in operation and the cannabis program tax budget will be back in balance. We can all begin again from there...
As part of my work with the Department of Agriculture, I regularly assist with collecting past-due device registration invoices from cannabis businesses. This requires extensive research, as many businesses close, change ownership, or become difficult to contact without providing updated information. I have spent significant time reviewing documents, researching license information through the Department of Cannabis Control, and attempting to locate responsible parties. When ownership changes or prior owners cannot be identified, it creates a substantial barrier to collecting outstanding balances. Without reliable contact information, collection efforts are often delayed or unsuccessful.
Dear Supervisors,
Thank you for being willing to discuss the Cannabis Taxes items R6 and R7 in tandem, as they are related and should be evaluated together, since R6 is retrospective and R7 is about the future.
With one exception, we agree with the recommendations expressed by the Tax Collector's memos, especially related to delinquent taxes. We also agree with their assessment that the minimum tax true up requirement can be easily removed, and we are glad to know County Counsel's interpretation is that the Board of Supervisors can perform this action. Going forward, taxes should be collected on actual sales.
BUT we'd like you to consider amending the recommendations. Our additional request today is to create a tax moratorium for 2027 for all cultivation taxes, while you focus on collecting delinquent taxes.
We understand that the County is in a budget crisis, but we also all know that cannabis has been over-taxed over the past decade. Just last week Sonoma County removed cultivation tax completely. Humboldt County did the same earlier this year, and Trinity reduced their tax by 80%. The State has also removed the cultivation tax.
Cannabis is the only crop in California that has a tax attached to growing it. At the same time, small farms are struggling to get their products to market in our overly restrictive supply chain. Unfortunately, the State's regulations for our industry relegate most Mendocino cultivators to wholesale, even when they offer individually branded, retail-ready products, they cannot sell them themselves, since there is still no real farm direct to consumer pathway. And that is not likely changing much, if at all, in California, with the newly implemented Federal direction of Schedule 3. By the way, if the U.S. government moves toward considering cannabis as medicine, generally speaking, medicines are not taxed.
But 2.5% on wholesale prices is still a high tax. Especially on a product that the County realizes a tax on again at in County retailers. Approximate but realistic numbers as an example: A retail eighth-ounce sold to the customer for $30 (tax included), is first purchased, often on a 30-90 term basis, by retailers from farmers for $10. Obviously, the farmer pays for the associated costs of cultivation, like soils, nutrients, and fees to County P&B, State DCC, Water Board, etc. But small farms are also financially responsible for harvesting, trimming, testing, packaging, labeling, an additional percentage to the distributor to transport the product from the farm to retail, and taxes. After all of that. we are lucky if we see less than a $1 profit in the present market conditions. It's nearly unworkable. Something's got to give...
The cannabis industry remains in an uncertain flux across the board, and locally, is in a free fall. You cannot squeeze blood from a stone. If you want to support your legacy cannabis cultivators, like you say you do, please consider our ideas to allow the fiscal equalization to sort itself out. A tax moratorium for 2027 will help those in delinquency catch up and give those of us who have paid taxes all along a much needed break, while stimulating economic activity in our county. If you adopt Tax Assessor's reccomendations with this additional amendment, by 2028, it will be clear who is still in operation and the cannabis program tax budget will be back in balance. We can all begin again from there...
Thank you,
Laura & Marty Clein