ON THE COVER
Cannabis in Crisis
Participants in a Jan. 18 rally calling on the Humboldt County Board of Supervisors to repeal Measure S pose for a photo outside the courthouse. Submitted
Behind the push to repeal the county’s Measure S and what it might cost
Caption Credit
By Thadeus Greenson thad@northcoastjournal.com
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o hear insiders tell it, Humboldt County’s cannabis industry can be likened to a small ship in rough seas. Battered by an onslaught of waves seemingly coming from all directions — taxes, fees, compliance costs, COVID disruptions and fierce market forces — the boat has capsized, leaving its occupants struggling to keep their chins above water as their legs grow numb and tired. Local growers are now clamoring for the county to throw them a life vest, asking the Humboldt County Board of Supervisors to temporarily repeal Measure S, the countywide cultivation tax approved by 66 percent of county voters in 2016. The hope, says Natalynne Delapp, executive director of the Humboldt County Growers Alliance, is not so much that the brief tax reprieve on its own would be enough to save the county’s 1,000 or so licensed farms, but that it would keep them afloat until reinforcements — federal legalization, state tax relief or a seismic shift in market forces — rights the proverbial ship. But the ask comes at a time when the county itself is taking on water. COVID-19 and the cratering cannabis economy have destabilized sales tax revenues, while the county’s well documented fiscal dysfunction — it has yet to close its books from the past two years due to ongoing turmoil in and around the Auditor-Controller’s Office — has cast a shroud over all its budgeting projections. Plus, the county just agreed to pay out its largest round of employee raises in recent memory — a minimum of 10 percent hikes across the board this year, with additional bumps in the coming two years — significantly increasing payroll expenses without a
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corresponding increase in revenue. All this leaves some asking whether the county is in a position to throw anyone a life vest, much less whether doing so would be enough to even temporarily buoy a drowning industry, while others ask if it can afford not to. “That’s a hard balance when you’re a supervisor who is directly responsible for fiscal surety throughout the county and also to your constituents, especially in the second district, where I have about 80 percent of the county’s cannabis farms,” says Second District Supervisor Michelle Bushnell. “My community is screaming that they’re not making it.” To hear DeLapp tell it, of all the challenges facing local growers, market forces have been the most severe. The bottom line is that the state of California has licensed far more cannabis cultivation than its market can sustain, with the state’s licensed farms producing more than 6 million pounds of cannabis, roughly triple the amount consumed. As a result, wholesale prices have plummeted, particularly for sun-grown cannabis. While the merits of sun-grown cannabis are sacrosanct in Humboldt County — where people point to its lower carbon footprint and higher percentages of the terpenes that many believe bring enhanced flavors, medical benefits and contribute to an overall entourage effect on potency — the market has been on a different page. According to Cannabis Benchmarks’ U.S. Cannabis Spot Index analysis, almost 65 percent of the cannabis flower sold legally in the U.S. for the week ending Jan. 14 was grown indoors, while only 6 percent was grown outside in the full sun. (The balance was grown in
NORTH COAST JOURNAL • Thursday, Jan. 27, 2022 • northcoastjournal.com
mixed-light or light-deprivation greenhouses.) This poses a disquieting trend in Humboldt County, where 95 percent of licensed farms are sun-grown or use light-deprivation greenhouses. The combination of industry-wide overproduction and consumer preference has sent the aggregate wholesale price of outdoor cannabis cratering, falling from up to $1,000 a pound around this time last year to less than $500 a pound currently. And that’s for farmers who can actually get their product sold, which DeLapp says is no longer a given. DeLapp says the problem really dates back to late 2020, when local farms harvested their crops in October and November. Typically, she says, the market contracts a bit in December, January and February, when the glut of fall harvests begins to ease, pushing prices up and giving farmers a second chance to move their product. But that didn’t happen in the first months of 2021, she says, as other regions already had fresh 2021 harvests coming to market. Local farmers started seeing their product sit with distributors, who were unable to move it to retailers, who preferred the fresh buds just making it to market. “A lot of the 2020 weed got returned to farmers because they just couldn’t sell it,” DeLapp says, adding that continued overproduction — much of it coming from the southern parts of the state — led to a “price collapse” in June and July. “We’re now looking at two harvest cycles locally with very, very reduced income.” DeLapp says local farmers have also had to navigate the same supply chain disruptions and labor challenges as other industries through the COVID-19 pan-
demic, but have had to do so without the federal aid and loans that have kept many small businesses afloat. Meanwhile, she says, state and local licensing fees and taxes haven’t relented. On the tax front, local growers face a state cultivation tax of $161 per pound on their harvest, regardless of whether it is sold or not, as well as the Measure S levy of $1, $2 or $3 per square foot of cultivated land for outdoor, mixed light and indoor farms, respectively, meaning a 10,000-square-foot outdoor grow would face a local annual tax bill of $10,000, while an indoor grow of the same size would face a levy of $30,000. The bottom line, DeLapp says, is most local farms are on the brink of insolvency. “The landscape right now is pretty bleak,” she says. “Because of the absolute collapse in the wholesale price of cannabis flower, the price to the farmer is often below the cost of production or maybe, sometimes, right at the break-even point, which means there’s no salary for the farmer. … I haven’t talked to a single farmer who says they’re doing fine, and we have 275 members. We did a survey recently and 88 percent said they are moderately to very unstable. We have members who have branded, packaged flower for sale at local dispensaries that are communicating with me that they’re not even sure they’re going to make it the next two months.” The Humboldt County Board of Supervisors is well aware of the challenges facing local growers. Back in October, the board gave growers a bit of a tax reprieve, agreeing to allow them to submit late payments on their October 2021 tax bills (Measure S is levied in two annual installments) until May 31. But with the second
