Proposed Sonoma County cannabis regulation stirs fear, conflict

Barely a month after California voters passed Proposition 64 to legalize adult-use cannabis, Sonoma County supervisors plunged ahead with proposed regulations for the fast-emerging industry.

On Dec. 6, county staff suggested taxes, permits and regulations that would affect any legal cannabis operator in Sonoma County. Supervisors first moved to reap revenue from the pot industry. Voters will be asked March 7 to tax growers based on the number of square feet under cultivation outdoors or indoors.

The tax would apply to medical and non-medical cannabis. Initial taxes proposed are 50 cents to $3.50 a square foot for outdoor cultivation, $1.88 to $18.75 for indoor cultivation and $1.08 to $10.80 for mixed-light cultivation. Non-payment would be grounds for permit revocation or prepayment. Support businesses in the cannabis industry, such as manufacturers that extract concentrated products, would be taxed on gross receipts starting at 5 percent.

A Santa Rosa-based attorney who represents growers and others in the cannabis industry spoke to the board about the tax, requesting that they consider lower rates.

“These businesses are facing a very steep tax rate,” said Julie Mercer-Ingram, who leads the CannaLegal practice for Beck Law. “We are very concerned for our clients.” She estimates the tax at 70 to 120 percent. “It starts at the federal level,” she said, under Internal Revenue Code Section 280e, which disallows cannabis operators from deducting ordinary business expenses.

Prop. 64 adds another layer of state taxation. With a third taxation layer by the county and cities, cultivators may opt to remain illegal and seek to avoid all taxes, she said.

The county health department will take a key role in governing the emerging industry, especially as cannabis-based foods, drinks and skin products go into production and reach the market. Cannabis manufacturing facilities, like food facilities, will have to comply with sanitation and hygiene standards. Cannabis must be stored and handled to minimize disease risks, such as mold. Product labels will need to accurately describe contents and, under Prop. 64 guidelines, not appeal to children. If a cannabis product is recalled, codes will be needed to track goods as they go into stores.

Health permits for dispensaries - and eventually retail cannabis shops - will require only sale of goods from permitted wholesalers. The health department suggested that manufacturers of edible cannabis products not also sell wholesale or retail food. No such business can offer coupons or give away free samples, the department suggested. Waste or unused cannabis product must be disposed of safely.

Edible products could not contain other potentially addictive substances, and must be homogenized so that the amount of THC, the main psychoactive component of cannabis, is consistent throughout a brownie, for example, and not concentrated in one bite. Each product would require a label with appropriate warnings, and lot numbers. The packaging would have to be opaque, resist tampering and not appeal to children.

For growing cannabis, the type of permits will likely depend on number of plants and acreage in a parcel. A cottage permit would allow up to 25 plants on parcels two acres or more. A specialty outdoor permit would allow 5,000 square feet or 50 plants on three acres or more. A small-outdoor permit would allow 5,001 to 10,000 plants on five acres or more. A medium-outdoor permit would allow 10,001 to 43,560 plants on 10 acres or more.

Local ordinances governing cannabis commerce will operate in a complex legal setting under state laws that still conflict with federal laws, where cannabis is considered illegal as a Schedule I drug. No one knows yet how the new Trump administration or attorney general will enforce federal laws prohibiting cannabis.

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