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Looking back: Cannabis industry gets fired up over taxation

Growing pains — that’s likely how the California cannabis industry would describe 2021, which ended in an industry tirade over taxation.

From cultivators and producers to distributors and retailers, companies rallied when the California Department of Tax and Fee Administration announced in December it would raise the taxes growers pay because of rising inflation. The state cultivation tax is due to increase from $9.65 to $10.08 per dry weighted ounce next year.

In almost the same breath, the state also announced a $31 billion surplus in its budget. This coincided with cannabis dealers who witnessed market prices dip, often three times less than a few years ago.

Some warned the taxes, price decline and an illegal market would lead to market collapse.

The quasi revolt that started with one supplier pledging to withhold tax payments, local governments such as Mendocino and Sonoma counties promising to issue support and sympathy and California Sen. Mike McGuire, D-Healdsburg, proposing a bill to shift the amount growers pay to the excise tax has culminated in a letter sent to the governor and state Legislature. The petition asks for the removal of the cultivation tax and a three-year holiday on the excise tax paid at checkouts as well as an expansion of retailers to sell the glut of product on the market in which larger companies have squeezed the small farmers.

“This was a year that saw the plantations of agri business come online, with 50, 80 and 100 acres,” said Aaron Selverston, co-founder and chief revenue officer for Radiant Canna, a Santa Rosa distributor.

Selverston said these big cultivation facilities flooded the market, prompting a crash in August that drove the prices down.

“Legacy farmers built this industry,” he said, referring to growers with the same distinction as a master sommelier in the wine industry.

In a year which is the 25th anniversary of medical marijuana use being approved in the state, the pandemic fallout put dispensaries in the “essential category” prompting more attention on industry safety and standards.

“The only silver lining in all this is industry leaders are putting their foot down and telling Sacramento to do something to save this industry,” Selverston said.

Eli Melrod, CEO of the Solful dispensary group based in Sebastopol, said, the industry has two challenges, one being that only about a third of local jurisdictions across the state has set up a legal program to supply cannabis products.

“It’s been a historically challenging year for small farmers. It’s come to a head because of over production. There are people staring off a cliff,” he said. “We need to address the taxes, and we need more jurisdictions to allow it. Those are two issues that were major this year.”

Beyond the state

Meanwhile, the federal government teased the industry into thinking its classification of cannabis as an illegal drug might be changing. While that didn’t happen, states — the likes of conservative-leaning South Dakota and Oklahoma — saw voters give cannabis the legal thumbs up. About three dozen states have now signed on, legalizing cannabis for adult, recreational use at the ballot box.

But in even more government restriction, the federal ban prohibits interstate commerce that would allow ag-rich California to sell the multitude of products now available over its borders.

And 2021 was not the year the U.S. Congress moved on the SAFE Banking Act to allow banks to feel at ease in banking with the cannabis industry. Until it does if ever, cannabis operators are forced to drive around wielding enormous amounts of cash because traditional banks shy away from opening such accounts because of federal scrutiny. There are exceptions right here at home. The North Bay Credit Union established a complete cannabis banking division dedicated to doing business with hundreds of suppliers in the industry.

Latham Woodward, CEO of Sense Distribution in Santa Rosa, attributes the industry’s trials to a lack of understanding.

“I find this most offensive,” he said. Woodward singled out the lack of access to banking services and government “taxing us into oblivion” as examples.

“We’re being treated unequally under the law. This would not be tolerated for one minute in the wine business or one minute under the beer business,” Woodward said, calling 2021 “a year of reflection” for an industry witnessing tax revolts, a call to arms and consolidation within the supply chain.

International Cannabis Farmers Association Senior Adviser Sam Rodriguez characterized the year as one filled with “resilience, anxiety, exhaustion, frustration and anger.” Because in the end, cannabis farmers — considered “the bedrock of the industry” — strive to feel government is on their side.

“No California farmer should contemplate ending their dreams. The California ‘dream’ as a state of mind has been smothered by a dense fog,” he said.

Susan Wood covers law, cannabis, production, biotech, energy, transportation, agriculture as well as banking and finance. For 25 years, Susan has worked for a variety of publications including the North County Times, now a part of the Union Tribune in San Diego County, along with the Tahoe Daily Tribune and Lake Tahoe News. She graduated from Fullerton College. Reach her at 530-545-8662 or susan.wood@busjrnl.com

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