Cannabis taxes cause Sonoma Valley grower to reconsider industry
On a pitted mountain road in the Mayacamas Mountains, Doug Gardner strolls through a cemetery of flower beds on his farm, where he’s had to uproot hundreds of cannabis plants in order to avoid a $100,000 cultivation tax.
Youth Forward, an advocacy group for California’s youth, held a virtual press conference on Wednesday to oppose cuts to the cultivation tax for cannabis growers, which they say would harm minority communities and children’s education. Growers, on the other hand, say such taxes have stifled the emerging industry so invasively, it’s pushing farmers into the black market.
“My revenue is... basically after taxes, I got nothing this year,” Gardner said about his first harvest in 2021.
Gardner’s property was scorched from the 2017 Complex fires, he said, burning over 40 acres. But in the aftermath, he planted an acre of cannabis. Yet when it came time to reap his crops, he found that the cultivation tax he would be levied, which assesses a tax rate based square footage -- ranging from $1.12 to $12.64 per square foot of crop in Sonoma County -- was too burdensome to continue for another year.
“In terms of production, I'm very proud of myself. I've never cultivated before, I've never really grown anything before,” Gardner said. “If my cannabis is then not selling for $300 a pound, it makes more sense for me to cut down every single one of my plants.”
But speakers at the Youth Forward press conference said a tax cut for cannabis growers would not only be giving a booming industry favoritism -- but it would also be an insult to the communities most harmed by the criminalization of marijuana and the Drug War, said Marianna Hernandez, a prevention manager at Community Coalition, which promotes racial and economic justice. Proposition 64, the ballot measure that legalized marijuana in California, says revenues from the tax must be spent on “youth programs, environmental protection and law enforcement,” with an emphasis on racial equity.
“I'm here today to ask that Governor Newsom, Senate President Pro Tem Atkins and speaker Rendeon to reject the proposed tax cuts presented by the cannabis industry. Approving the proposed tax cuts would have significant and negative impacts on low income Black and brown communities,” Hernandez said.
“To now strip the community of the resources coming from the tax revenues is, quite frankly, an insult,” she added.
Whether the tax is cut or remains, Erich Pearson, CEO of the cannabis dispensary brand SPARC, said he’s not worried about his business, which will have three stores in Sonoma County by summer. That includes the Highway 12 location that will mark Sonoma’s first dispensary in city limits, set to open on April 20 — a nod to the cannabis “holiday” 4/20. However, the cultivation tax, he said, is causing the industry to consolidate and push out small-time farmers and people of color.
One of the main drivers putting small-time producers out of business is Proposition 64, Pearson said, which “set tax rates for cannabis at the state level and gave cities and counties the authority to impose local taxes on top of the state tax,” according to a cannabis tax report by Youth Forward.
For small-time farmers like Gardner, the cost of operating, cultivating and preparing the product for consumers leaves him with next to nothing. And that’s without factoring in his own time and labor put into the growing process.
“I can only do it unless I'm guaranteed a profit of $100,000 at least, so I can pay the tax,” Gardner said. “And it's like, if I don't see that profit, it made more sense for me to literally cut them down because a lot of these plants... I'm not going to harvest them because I'd have to pay somebody to harvest them.”
On Jan. 25, the Sonoma County Board of Supervisors extended the deadline for cannabis tax payments to April 30. But the extension’s deadline coincides with the next financial quarter’s deadline, so both cannabis taxes will be due on the same date.
Legalizing marijuana in California unleashed an untapped billion dollar industry. And state lawmakers hoped that taxes on the new industry could address goals such as education, substance abuse resources and youth programs, particularly in the communities that were most affected by the War on Drugs, which led to a disproportionate number of arrests of people of color.
“These revenues from the Prop 64 cannabis tax played a critical role in repairing the harm caused by the War on Drugs,” said Eric Morrison-Smith, the communications coordinator for the San Diego Workforce Partnership, a workforce training organization focused on equity and inclusion. “Any reduction in these revenues will directly harm to communities most in need of support, and deepen racial and economic inequities caused and sustained by the policies and practices such as the War on Drugs.”
But high cannabis taxes, Pearson said, paired with a crash in the price of cannabis due to an unstable, emerging market, have caused small-time growers to get out of the business or sell their product on the black market instead of remaining legal.
“The reason for the problem is a lot things, but primarily, excessive regulation and taxation of cannabis,” Pearson said. “In California, that makes it very difficult for legal businesses to compete with the illicit market, which has no regulations and taxes.”
The question facing lawmakers is whether they trust the legal cannabis growers claims: Will easing the tax burden on legal growers help crackdown on the black market?
“I don't care about paying the tax, to be honest. I just wish everyone was paying. But right now 66% to 75% of the cannabis produced in California is done on the black market,” Gardner said. “And if the state or county wants their money, they should be cracking down on the illegal market really hard.”