The High Cost of Cannabis is in the Taxes
Industry deserves common sense regulatory relief
By Peter Dugré Greenhouse cannabis farms lining Carpinteria Valley represent some of the most productive cannabis companies in the state of California. Yet, within the City of Carpinteria, cannabis users cannot legally shop for cannabis. The farmers operate outside of city limits in unincorporated Santa Barbara County — with many farms’ property lines doubling as the city boundary. Within the city, retail is banned along with growing personal-use plants outside in residential yards. The regulatory line between county and city serves as a stark representation of the patchwork rules regulating California cannabis since Prop. 64 passed over 5 years ago.
Valley. “It is currently $161 per pound. On a $1,000 pound that is 16 percent, but on a $500 pound it is 32 percent. This is a tremendous burden not only on the farmers but on the whole industry which is trying to compete with illegal operators who pay a 0 percent tax rate.” Contrast the cannabis cultivation tax with other crops, and you find that not only is cultivation tax nonexistent anywhere else in agriculture, many crops actually get tax relief and subsidies, because agricultural returns can fluctuate so greatly that farmers need subsidies to stabilize their businesses and survive lean years.
Limited access is one flaw in the regulated cannabis market. The other is over-taxation. When wholesale cannabis prices plummeted in summer of 2021, market instability became more pronounced, leading the cannabis industry and some lawmakers to seriously question whether regulated California cannabis needs some life support in the form of commonsense regulatory relief in order to develop beyond its formative years.
Of course, the state cultivation tax is only the tip of the iceberg. State annual cultivation licenses for 10,000-squarefeet of greenhouse space cost $11,800 per license. There’s a 4 percent Santa Barbara County cultivation tax applied to gross sales from farms on top of the state tax. Cannabisproducing counties like Monterey and Humboldt have recently reduced or eliminated county cultivation taxes in order to fix the market. Representatives in those counties One part of the solution would be eliminating the state realized that any percentage of zero is still zero, and cultivation tax, a flat tax unique to the supply chain in the building a budget based on inflated cannabis taxes was cannabis industry not sustainable for neither the government nor the farms. “The worst of the taxes for the whole industry is the cultivation tax. It is weight-based, so as cannabis prices compress the tax rate increases as a percentage,” said Graham Farrar, Chief Cannabis Officer at Glass House Group, a vertically integrated company operating two farms in Carpinteria
Santa Barbara County has yet to adjust its tax system, which in addition to the cultivation tax, applies a 1 percent tax to distributors, 3 percent to manufacturers and 6 percent to retailers on gross sales. Continued on Page 10 Spring 2022 Cannabis by the Sea
7
