Ahead of Emerald Cup Harvest Ball, cannabis growers raise alarm over taxes, regulations
About 30,000 cannabis enthusiasts are expected to trek through the Sonoma County Fairgrounds next weekend for the revamped Emerald Cup Harvest Ball, a celebration all about the plant that has been a social, regulatory and business fixture for decades in Northern California.
Those pot lovers will learn about new, innovative weed strains, while some of the old guard will stick with such standbys as Blue Dream and OG Kush. Admission for the event starts at $75 for a single-day ticket and members of the hip-hop group Wu-Tang Clan will perform.
“The response has been amazing for an event we are doing … with the aftereffects of the pandemic,” said Kenneth Loo, spokesman for the Harvest Ball. “I think it really does show the resilience of this community.”
The event comes as acceptance of marijuana continues to poll strongly. Legalization is favored by a record high 68% of U.S. residents, according to a Gallup poll taken last month. Passage at the federal level is closer than it has ever been with Senate Majority Leader Charles Schumer sponsoring legislation that would remove all federal prohibitions on marijuana.
Yet many in the business are having a hard time celebrating in a year where cannabis prices paid to growers have plummeted by as much as 50%, as illegal pot from states including Oregon and Oklahoma has flooded the market. And those same growers and others in the business contend they are hemorrhaging money under a tax and regulatory regime that makes it difficult to eke out a living.
“There’s going to be a great weekend for a lot of growers,” said Hezekiah Allen, the former head of the California Growers Association who now lobbies for the industry. The Harvest Ball will feature 27 small growers from across the state who will be able sell their crop to visitors through a special distributor established just for the event, as state law does not allow them to sell directly to consumers.
But, Allen conceded: “It will be a little too late for a lot of them.”
In response, local cannabis business leaders on Wednesday called on the Sonoma County Board of Supervisors to first suspend local cultivation taxes and adopt a resolution calling on the California Legislature to eliminate the cultivation tax at the state level.
“Our industry is in deep trouble,” said Erich Pearson, founder and chief executive officer of Sparc, which operates a biodynamic cannabis farm in Glen Ellen, a manufacturing facility in Santa Rosa well as dispensaries in San Francisco and Sonoma counties. The company is vertically integrated from the seed to the sale, like Apple is in the tech sector. He also serves as co-founder of the Cannabis Business Association of Sonoma County.
“We’re impacted on several important fronts. Our industry is taxed like no other, we have few retail outlets available to us, the illicit market continues to boom, and we face unparalleled regulatory hurdles. Frankly, what we’re experiencing is a market collapse,” Pearson added.
Unlike any other agricultural crop, cannabis is extensively taxed at every part of the process. At the state level, growers face a cultivation tax that will go up on Jan. 1. For example, cannabis flower will go from a $9.65 tax to a $10.08 tax per dry weight ounce; the tax on leaves will go from $2.87 per dry ounce to $3; and fresh cannabis plants will face an additional levy from $1.35 per ounce to $1.41. The state also imposes a 15% excise tax on cannabis.
Altogether, the state collected almost $817 million during the last fiscal year. In contrast, state excise taxes for beer and still wine are at only 20 cents per gallon. There also is a federal rate on wine at $1.07 per gallon and beer at $3.50 per barrel though Congress last year permanently lowered the rates due to lobbying from the alcohol beverage industry. Yet the hops and grapes that go into those drinks don’t face their own special tax as opposed to cannabis products from drinks to gummies on sale at licensed dispensaries.
Then there are levies imposed at the county level, where the Board of Supervisors is struggling to write an updated permitting system for cultivation amid some rural residents’ concerns about the effects of nearby marijuana farms.
“It’s gonna be a free-for-all,” Ron Evenich, a resident near Petaluma, told the Argus-Courier earlier this year.
Growers are again taxed at different rates on a per-square-foot basis for outdoor, indoor and mixed light crops. There also is a manufacturing tax of 3% of gross receipts and a 2% tax for dispensaries. The overall total brought in $3.5 million last year.
Cities can also tack on charges. For example, Santa Rosa imposes a 2% tax of gross receipts or $5 per square foot for growers; 1% of gross receipts for manufacturers; and 3% for retailers of their gross sales. That was almost $1.9 million from all the combined taxes on an annual basis.