North Coast lawmaker seeks allowance for cannabis sales at events

One California lawmaker has laid a path to help small cannabis businesses dig out of their market debacle by expanding the places where they can sell the plant.

Assemblyman Jim Wood, D-Santa Rosa, introduced a bill Feb. 23 that authorizes the state Department of Cannabis Control to open the door for mom-and-pop cultivation operations to expand where they sell beyond retail stores to events, like the annual Emerald Cup, California’s showcased cultivation fair.

AB 2691 would essentially allow for growers with marijuana sprouting on less than 1 acre to sell their harvests at events. The law spawned from the licensing program established in 2018, two years after the passage of Proposition 64, currently prohibits the selling of the product at venues. The ballot measure legalized cannabis for recreational use in California for adults.

“The bulk in my district are growers who’ve been stymied by the fact that not as many retail operations were up and running like they thought would be. That makes it harder to sell,” Wood told the Business Journal.

Genine Coleman, executive director of the Origins Council trade group, called the bill “a lifeline for thousands of small family cannabis farms across California struggling to bring their products to market and achieve profitability.”

Wood said the proposed legislation represents a culmination of talks with cannabis groups trying to climb out of major market disruptions caused by an oversupply of product leading to a plummeting of the wholesale price. Legal cannabis operations statewide have called on the state to eliminate the cultivation tax, provide a holiday on the excise tax and a devise a plan to open more retail outlets to counter a flourishing illicit market.

Time is of the essence.

Some growers are hurting so much from bad market conditions they have discovered it makes more budgetary sense to back off from growing on their land until the current environment changes.

The assemblyman, like his counterpart Sen. Mike McGuire, D-Healdsburg, said when it comes to helping, the legislative members’ hands are tied by regulations. Changes to Proposition 64 would require a two-thirds vote in the Legislature, and the amendment must be deemed as “furthering the intent” of the tax-based measure. Otherwise, an overhaul may end up in court.

“It’s more complicated than what people expect,” Wood said.

In the meantime, Wood supports McGuire’s latest bill, Senate Bill 1074, which shifts the cultivation tax burden to excise point-of-sale transactions. The cultivation tax would be eliminated as of July 1.

Further, Wood said “no mechanism” exists in which growers wanting to take a break from paying taxes and letting their land go fallow may do so without paying their license dues. Even if they’re not growing, under the rules, they would still need to pay their dues.

What would it take to change the language to allow farmers to get a break on paying for their licenses while their plots are fallow?

“Any changes to regulations require rulemaking. A fallowing program would require regulations that outline the specifics of the program,” state Department of Cannabis Control Director Nicole Elliott told the Business Journal.

Starting Jan. 1, growers are paying more, $10.08 per dry weighted ounce, up from $9.65. The hike in rates has prompted at least 10% to 15% of growers to fallow out their land, International Cannabis Farmers Association Senior Adviser Sam Rodriguez estimated.

Rodriguez believes there’s partly a connection between the 7.5% drop in total tax revenue the state collected for the fourth quarter compared to the previous three months. Some farmers are not growing, others are not paying and more are delayed in paying.

The California Department of Tax and Fee Administration reported it collected $308.5 million in total tax revenue for the fourth quarter, still $3 million more than the same quarter in 2020. Of the 2021 total, $38.9 million was gained by cultivation practices. The third quarter brought in $42.8 million from growers.

But Rodriguez believes the drop in tax revenues closing out last year represents a tip of the iceberg for what’s about to come. The Marin County advocate hinted the tax collections could drop by 20% as the number of fallowed acres catches up to tax demands because there’s a lag time before they’re collected. Fewer acres mean fewer dollars brought in.

“That’s serious. But the good thing is, farmers were able to lock in their prices (up to this point),” he said, adding those not willing to pay represents a small fraction of growers.

“There’s a tiny percentage. Most are not willing to take a risk of not paying tax,” he said.

Still, industry stakeholders believe there’s a breaking point.

CannaCraft Chief of Government and Consumer Affairs Tiffany Devitt said overall the cooperation of Mother Nature made for “a good harvest,” even at a lessened quantity.

Although the Santa Rosa-based company is a large-scale producer and distributor, it grows the plant in Lake County. CannaCraft benefits from small growers developing a variety of strains.

“More farms give us more strains, and we support biodiversity,” she said of Wood’s bill. “That said, while we support it, we don’t think it’s the problem solver at the macro level. We need more retail jurisdictions.”

One small grower in Mendocino County expressed relief over the possibility of having yet another avenue from which to sell product — especially in places that eliminate more hands in the pie.

“It is imperative that small cannabis producers be able to get our products directly into the consumers’ hands,” said Blaire AuClair of Radicle Herbs and Folk Life Farm.

CEO Eric Sklar of Fume, a Napa Valley cannabis producer is convinced any relief needs to go beyond one or two legislative proposals.

Regarding Wood’s bill, every change makes a difference though.

“A lot of farmers can’t make it doing this. It’ll help, but it won’t change the whole dynamics and solve the whole problem,” he said. “We need to lower or eliminate the tax and eliminate the illicit market. This should be a lesson to most municipalities that refuse to allow for it. They need to pass something.”

Otherwise, the Proposition 64-spawned tax system should have taken the roles and decisions away from the local counties and cities, he implied.

“It just should be statewide,” he said.

Susan Wood covers law, cannabis, production, tech, energy, transportation, agriculture as well as banking and finance. For 27 years, Susan has worked for a variety of publications including the North County Times, Tahoe Daily Tribune and Lake Tahoe News. Reach her at 530-545-8662 or susan.wood@busjrnl.com.