California North Coast cannabis industry struggles with growing pains in 2022

Hurt by a glut of product, a robust illegal market, a lack of expected retail outlets and plummeting wholesale prices, California’s cannabis industry stumbled in 2022.

A survey by the National Cannabis Industry Association in March indicated that only 26% of 396 respondents said their crops were profitable in California.

Many growers cite the competitive weight of flourishing illegal grow operations, whose untaxed and unregulated product is profitable at a cheaper price.

Fed up with the current situation, the state’s growers rallied, demanding tax cuts and a level playing field, one in which black market growers have to pay the same rates to do business.

California voters legalized cannabis in 2016. By 2018, the state implemented a program that established its taxation and legal licensing procedures.

But in April of this year, the Institute on Taxation and Economic Policy, a national industry think tank, revealed that California was the most overtaxed state of those where the industry is legal. Through the end of this year, 21 states have now fully legalized adult cannabis use.

Frustrated California growers bemoaned the heavy layers of state and local regulations and taxes. Local jurisdictions including Sonoma County had imposed a tax of $1.12 to $12.65 for every square foot of planting space.

Many legal cannabis farms fallowed the ground to avoid the tax and tapped lobbyists to spur state lawmakers to help.

After a long battle, California Gov. Gavin Newsom signed a $308 billion state budget in June that included tax relief for the cannabis industry. A deal spearheaded by Sen. Mike McGuire, D-Healdsburg, eliminated the cultivation tax that growers pay to the state on the amount they grow. Also, the deal capped the excise tax collected on each product sold for a period of three years.

As the third quarter subsided, the cannabis harvest season showed overall production down, according to the farming advocacy group, Good Farmers Great Neighbors. The average price in Sonoma County was $570 a pound in 2021, at least 30% higher than this year.

“It looks like every farmer has taken advantage of the opportunity to go fallow,” farming advocate Sam Rodriguez said at the time.

Susan Wood covers law, cannabis, production, tech, energy, transportation, agriculture as well as banking and finance. For 27 years, Susan has worked for a variety of publications including the North County Times, Tahoe Daily Tribune and Lake Tahoe News. Reach Wood at 530-545-8662 or susan.wood@busjrnl.com.