Cannabis Taxes Cut

Written by Neil Farrell

Neil has been a journalist covering the Estero Bay Area for over 27 years. He’s won numerous journalism awards in several different categories over his career.

August 11, 2023

County Supervisors have done something unimaginable to many folks — they cut taxes.

Supervisors in June reset the annual Cannabis Business Tax (CBT) rate for grow operations in the unincorporated areas of SLO County, rejecting the staff’s recommendation to leave the new rate at 8% of gross sales even though it was slated to rise to 10% as outlined in the original Cannabis Ordinance that was passed about 5-years ago.

On June 6, Supervisors asked for an agenda item to come back discussing the cannabis tax rate, which started at 4% of gross receipts in 2018. 

Under the law it was scheduled to increase every year by 2%, maxing out at 10% by July 1, 2023. It was 8% during the past year, a number that was reached after the annual rate hike was suspended in FY 2021-22 at 6%. 

The next year (2022-23), it rose 2% as scheduled and was supposed to go to 10% on July 1. But though rate hikes were written into the law, they apparently aren’t etched in stone. 

“The County Board of Supervisors,” reads the County report on the matter, “may act to maintain or reduce the tax rate increase prior to the July First date.”

Though it seems a tiny issue, the money raised differs dramatically with the percentages.

In the current County budget, revenues from this special tax were estimated at $645,000 based on 10% of $6.45 million in annual sales. 

Supervisors were told that if the rate stayed at 8%, the revenues based on the same annual sales, would drop to $516,000 or $129,000 less to the County General Fund.

At 6% the money drops to about $387,000 on the same sales volume. 

Testing labs that ensure the quality of retail marijuana products are exempt from the County’s cannabis taxes.

The County’s rate drop is part of a recent trend by state and local officials after industry leaders decried the amount of taxes that have been foisted on the relatively new industry as too high and preventing the industry from thriving. 

Supervisors tried to help a cannabis industry that’s fallen on tough times, due in part to high taxes, local opposition to projects, and the increasing presence of black market marijuana.

It was thought that if marijuana was legalized, regulated and taxed, it would eliminate some of the problems that stem from having such a valuable cash crop be totally illegal. 

Efforts to legalize marijuana started in the 1970s when simple possession of under an ounce was reduced to essentially a traffic ticket that carried a fine but no jail time.

It’s now been over 25 years since the “Compassionate Use Act” (Prop. 215) was passed by voters in 1996 approving the possession and use of medical marijuana.

The recreational use of marijuana became legal in 2016 with the passage of the “Adult Use of Marijuana Act” (Prop. 64).

Marijuana, cannabis, pot, weed, no matter what name one calls it (the evil weed?), marijuana has been an integral part of California’s agricultural industry since the mid-1970s and with more than $11 billion in estimated crop value, it is the most valuable crop grown in California. 

With legalization, it was anticipated the legal crops in the state would reduce the illegal marijuana markets, but it hasn’t. Among the reasons for this is the extensive regulations the State put on the industry including having to review any proposed grow operations under the California Environmental Quality Act (CEQA) for impacts to the environment.

With this onerous regulation, the State and local agencies had allowed “provisional” (temporary) permits to be issued while the paperwork was being completed for a permanent license to grow.

As of July 2019, there were just 205 growing operations statewide that had full licenses and over 1,600 still using provisional permits. SLO County has yet to approve any permanent grow permits.

And while the County has only allowed grow operations and has not yet licensed any retail pot stores in the unincorporated communities, cannabis retailers have found the going tough all over SLO County. 

Recently, 805Beach Break in Grover Beach, the first cannabis retail store to open in SLO County, closed its doors.

In San Luis Obispo, the largest city in SLO County, the City is just now taking applications for a third cannabis store to open. 

Though one of the smallest cities in SLO County, Morro Bay continues to have two retail pot stores, though the second one to open — the Natural Healing Center or nhc — has changed owners twice now and is currently owned by Glass House Brands. The other store is owned by Perfect Union.

That follows a trend that has seen small, entrepreneurs who opened the first retail stores being bought out by larger companies with stores scattered all over California and in other states as well.

And marijuana continues to be banned by federal law, so the billions in cannabis being grown in California and exported to other cannabis-friendly states for retail sales, is totally illegal to do under federal law.

Also, Mexican drug cartels have set up illegal growing operations in remote areas of the state like rural Riverside County, seeking to blend in with the legal grows but escape scrutiny and taxation by the government.

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