Sonoma County shifts cannabis tax rates, easing burden on some growers

Sonoma County’s Board of Supervisors voted 4 to 1 on Tuesday to change how the tax on cannabis cultivation is set, lowering the amount some growers will pay while raising it for others.

The move comes after months of heavy pressure from cannabis industry representatives, who have complained that layers of local and state taxes have hampered businesses in California’s legalized market.

Under the change, starting in July, cannabis growers in the county’s jurisdiction will be taxed based on which of the size of their operations categorized into three different methods, calculated on a gross receipt tax rate of 2.5%.

Growers will pay rate of $0.75 per square foot for outdoor operations; $12.50 per square foot for indoor cultivation, and $3 per square foot for mixed-light cultivation where a combination of artificial and natural light is deployed.

This new rate schedule lowers taxes paid by outdoor growers while raising it on indoor cultivators, said Erick Roeser, Sonoma County’s auditor, controller, treasurer and tax collector. Small mixed-light operators would likely see an increase while large mixed-light cultivators would see a decrease.

According to the staff report to the board led by Roeser, the approved option retains the efficiency of the existing tax model based on square footage with an annual adjustment to account for changes to the market price of cannabis.

The vote came after about a dozen people attending virtually and representing themselves as growers voiced discontent over county taxation and faulted the county for not pursuing an even larger overhaul.

“It is very difficult for existing small cannabis farmers these days,” Vince Schloten, of Norcal Growers and Hessel Farms Grange, told the board. “If our crop is damaged or with mold, it is destroyed, and we have no revenue. Under the approved new tax plan we still have to pay tax on the square footage of our farm plot. Why not treat us like the rest of the agriculture community. The square-foot tax is bankrupting all of us."

He favored a gross receipt tax rate of 1.3%.

Before approving the plan, the board rejected a 3% rate, based on gross value of a grower’s crop.

Supervisors also rejected any extension of a 45% tax rate reduction that the board granted to growers last year.

The modified plan Tuesday drew a lone no vote from Supervisor David Rabbitt.

“I fear a trend toward using a tax base with revenues that can go away” said Rabbitt. “We thought legalizing cannabis would have us rolling in tax dough. Now we see several firms exiting this industry. In my view we moved too fast without having enough data or an environmental impact review as things were constantly changing.”

He cited, among other factors, the slumping prices for cannabis products, the bureaucratic impasse that has led many growers to bypass local permit applications and concerns about the conversion of farmland for cannabis production.

The county is nearing completion on its comprehensive study of cannabis regulation, which is expect to factor in tax strategy, he said.

“We need $2.1 million to cover the cost of the 15 full-time (positions) working on cannabis management and administration in different county departments, but we have only about $1.8 million,” Rabbitt said.

He was referring to the gap between tax revenue and cost of county oversight and regulation of the cannabis industry outside city limits.

The new system is expected to generate about $1.8 million, matching the estimated revenue for fiscal year 2023–2024 under the current tax structure, Roeser said.

Rabbitt seemed to signal his favor with the higher 3% rate for taxing gross receipts.

The new tax plan modifies a county ordinance adopted by the board on Dec. 13, 2016, the same year California voters legalized adult-use cannabis.

In recent years, however, growers have said the county’s glacial pace in approving permits for many, on top of the local and state taxes have proved crushing, especially amid fierce competition from the still flourishing illicit market.

Cannabis industry representatives spent a year or more lobbying the county to ease their tax burden, citing dire financial distress among their ranks.

There are 155 growers in the county’s jurisdiction outside of city limits, Roeser said. Of those, 130 are outdoor growers, 21 have indoor operations and four are mixed-light cultivators.

The new changes approved Tuesday are set to take effect at the start of the new fiscal year on July 1, Roeser said.