California, Sonoma County see fewer cannabis growers licensed
Nearly 20% of California cannabis growers’ licenses have fallen off the map in a year, sounding alarm bells among stakeholders and sparking one North Coast senator to propose financial breaks for small growers.
Of the 8,380 active cultivation licenses recorded at the start of 2022, the state has lost 1,623 between then and now — 19.4%. That’s the second-largest decline of any of the industry categories, according to the California Department of Cannabis Control, trailing only the cannabis testing labs renewal rate of 26%.
Humboldt County grower and activist Nate Whittington said he’s not surprised. Along with managing three farms in Meyers Flat, Ferndale and Bridgeville, Whittington also runs a dispensary in San Francisco.
“I think this is just the beginning,” he said, further predicting: “I bet those numbers will go as high as 70%. We haven’t hit bottom as far as cultivation.”
Whittington points to the surge in provisional licenses (temporary versions while seeking regulatory approvals) as one reason for the high statistic.
“You can’t get around CEQA,” said Whittington, referring to the California Environmental Quality Act that monitors water quality among other ecological issues.
At least Whittington’s crop is reaping double the wholesale rate from one year to another — on the high side at $700 per pound. But the industry isn’t what it was.
According to a recent report from the Northern California data publishing firm Leafly, the wholesale value of cannabis plummeted from $1.6 billion in 2021 to $1 billion in 2022.
Many factors have made life more difficult for growers — from regulatory hurdles and a plummeting wholesale price due to steep competition, accentuated by a thriving illicit market, and fewer places to sell a glut of product.
McGuire expresses irritation
Frustrated by these trends, California Sen. Mike McGuire, introduced Senate Bill 833 in February to provide tax relief to small growers with less than an acre.
The bill heads to the Senate Business and Professions Committee next week.
“It’s frustrating. What the hell were we thinking?” the Healdsburg Democrat said, referring to when the state established the tax structure.
“And now, the tax hasn’t adapted to the downturn in the market. What I said early on is that it was going to be a rocky decade. We have to be an engaged partner.”
McGuire labels the system that imposes cannabis licensing fees stacked on separate taxes as “insult to injury,” because it’s the only agricultural crop required to pay so much. One survey released in March 2022 by the National Cannabis Industry Association indicated that about a quarter of cannabis businesses were profitable.
Growers stood at ground zero of the turmoil that some fear may ignite a chain reaction across the industry. After all, from July 2021 to April 2023, according to the California Department of Cannabis Control:
- Testing labs lost 35% of their licenses
- Distributors lost 14.6%
- Manufacturers lost 19.1%
- Retailers lost 11%
California voters legalized adult recreational cannabis in 2016 with passage of Proposition 64, laying the groundwork for a multifaceted taxing mechanism over a year later that allows the state and local governments to collect.
Sonoma County also hangs in the balance
Locally, 40 local cannabis cultivation permits are no longer active and $125,000 in fees are delinquent, Sonoma County reported for fiscal year 2021-22. In March 2022, supervisors reduced the county’s cultivation tax rates by nearly half until the end of June in the hopes the industry plights calm.
It’s difficult to pinpoint one single reason for the industry unrest. Still, most industry watchers agree, it’s been rough.
Cannabis is taxed throughout the supply chain. And with only about a third of cities and counties labeling it legal and, with heavy competition — including those growing it illegally -- the glut of available product has flooded the market, driving wholesale prices down.
Tack on the weather, changing regulations and minimal or no profit, and some growers threw in the towel. Estimates from grower groups claim about half has fallowed their land to wait out the turbulence.
Coming off a year in which McGuire advanced legislation to end the cultivation tax as we know it, the cannabis-friendly lawmaker whose district involves the Emerald Triangle anchored by Humboldt County is back with SB833. The proposed law seeks to require the state to establish a cannabis licensing program that would allow small farms to suspend paying licensing fees while they’re not growing pot.
State cannabis regulators are already making changes to the rules to try to ease the bureaucratic burden. But they also warn the decline in licenses may worsen before it corrects as the industry ponders whether the collapse was rock bottom.