Amid the cannabis glut, growers are pulling out Part

1 Of 2

BY MELINDA BURNS

Editor’s Note: Part 2 of “Amid the cannabis glut, growers are pulling out” will run in CVN Vol. 29, No. 34.

In a sign of the economic times, four growers who had obtained zoning permit approvals to plant 163 acres of outdoor cannabis in the North County withdrew their applications for business licenses in April, effectively abandoning their operations, county officials said.

Those withdrawals were on the minds of county supervisors during recent budget hearings as they wrestled with the ongoing decline in cannabis tax revenues. They want to boost revenues even as they acknowledge that higher taxes could force out more growers.

“I want to see us come up with something that’s fair, just and predictable, as much as we can,” said board Vice Chair Steve Lavagnino of Santa Maria, a chief architect of the county’s 2018 cannabis ordinance. “We’re in a downturn, no doubt, and we’ve got to weather it.”

The prices for wholesale cannabis flower in California have plunged by half from their peak of $1,400 per pound in 2020 to about $660 now. The state is believed to be producing three times as much pot as residents can consume –much of it grown in Santa Barbara County – effectively fueling the black market where, by most estimates, two-thirds of the sales are taking place.

Statewide, county officials said, the number of active cannabis cultivation licenses has fallen by 20% since early 2022, as a host of provisional licenses expired and were not renewed.

The largest of the cannabis withdrawals in Santa Barbara County last month was submitted by SFS Farms OPCo l at 4874 Hapgood Rd. west of Buellton. In 2021, amid bitter opposition from vintners, the board approved a zoning permit for 87 acres of cannabis on the property. But the project never got off the ground.

Since the county started tracking withdrawals last fall, growers have walked away from plans for about 285 acres of cannabis, said Sydney Pettaway, a business specialist with the County Executive Office.

“It’s unfortunate; we’ve lost a lot of operators who wanted to pursue their business licenses,” she said. “It’s been tough. You never want to see people fall out that way.”

For other growers, the withdrawals may represent an opportunity. To replace those who walked away this month, the county has offered new acreage to eight growers on the waiting list for eligibility under the county’s 1,575-acre cap on outdoor cannabis, mostly in the North County.

The county is considering changing the way it taxes cannabis operations, like those pictured, to include a formula based on the square footage of the “canopy,” or area, of marijuana plants under cultivation. Any new tax proposal would go to the voters next year.

In addition to the North County withdrawals, Yamaoka, a proposed threeacre greenhouse operation at 1552 Casitas Pass Rd., has been removed from the county’s eligibility list for greenhouse business licenses, Pettaway said. The operator had made no progress on the business license application and did not respond to the county’s requests for information, she said. The county’s 186-acre cap on greenhouse cannabis has not yet been filled.

“We had high hopes”

At budget hearings last month, the county supervisors tackled more fallout from the market decline as they looked for ways to extract more cash from the industrial-scale cannabis that they paved the way for, five years ago.

Cannabis has been, at best, a volatile revenue source for the county. This year’s tax revenues from cannabis, estimated at $6.7 million, will be coming in nearly 60 percent below the county’s $16.3 million projection for fiscal year 2022-23, records show. Last year’s revenues fell well short, too, because of the glut on the market.

Next year, the county is projecting $7.5 million in cannabis revenues, a slight increase based on a few new pot shops that are expected to open. But that’s less than half the revenue peak of $15.7 million in 2020-21.

The expenses alone for what the county calls its “cannabis program” come to nearly $6 million annually, including law enforcement, permitting and tax collection.

“We had high hopes for the cannabis tax as a way of growing the pie, and that’s a big question now,” said Supervisor Joan Hartmann, who represents the wine country west of Buellton, where residents have clashed with growers over the pungent smell of pot at harvest time. “We’re trying to find an alternative, so that we don’t have to have service-level reductions.”

In that vein, the supervisors on April 21 discussed how a potential library tax and increases in the local sales tax, hotel bed tax and Montecito flood control assessments might help the county keep pace with growing labor and operational expenses in fiscal year 2023-24 and beyond. Any formal tax proposals would appear on the November 2024 ballot, at the earliest.

For now, the board authorized the “swap” of $7 million in non-cannabis monies from the general fund to pay for libraries, long-term planning, and park and trail improvements – expenditures that had been previously earmarked for cannabis funds.

Still, as Lavagnino pointed out, cannabis taxes have brought in $50 million since 2018. That’s more than any other tax program aside from property taxes. (This fiscal year alone, property taxes are projected to bring in $262 million, or 77 percent of the county’s $340 million general fund.)

Melinda Burns is an investigative journalist with 40 years of experience covering immigration, water, science and the environment. As a community service, she offers her report to multiple publications in Santa Barbara County, at the same time, for free.