Challenges loom after passage of Sonoma County cannabis tax

Setting fair and stable tax rates and assisting about 2,000 displaced marijuana growers were among the issues facing Sonoma County a day after voters approved a cannabis business tax that will initially raise more than $6 million to cover the costs of regulating the newly legal pot industry.

A whopping 72 percent of voters approved Measure A on Tuesday, allowing the county to collect up to 10 percent of the revenues from marijuana growers and other businesses, including dispensaries and manufacturers of an increasing array of cannabis-based products.

The local vote followed California’s passage of Proposition 64, legalizing adult use of marijuana in November, and the Board of Supervisors’ adoption a month later of zoning rules that allow commercial pot cultivation on agricultural and industrial land outside the county’s nine cities.

But the critical details of cannabis regulation have yet to be determined as the county enters what Board Chairwoman Shirlee Zane on Wednesday called “uncharted territory.”

“Today is the beginning of phase two,” Zane said, referring to the term county officials applied to what comes after the zoning measure and taxes are in place.

With the tax revenue stream assured - more than $6 million a year is expected at initial proposed rates - the county plans to begin accepting permit applications July 1 from growers and other businesses, enabling them to line up for licenses that are supposed to be available from state regulators Jan. 1, 2018. Had the tax been rejected by voters, the county said it would indefinitely postpone the permitting process.

In early April, county officials intend to present the supervisors with details on a permit process that responds to the industry’s request for an accessible system, said Sita Kuteira, a county administrative analyst.

“The plan is to try to make the process as easy as possible,” Kuteira said.

The intent is to enable small operators to obtain permits without the cost of hiring consultants, she said.

All growers will have to meet “tough environmental standards” to ensure the impacts of their farming are addressed, Kuteira said.

Ease of permitting is “the biggest question” going forward, said Tawnie Logan, executive director of the 260-member Sonoma County Growers Alliance.

Meanwhile, the county needs to set tax rates that “strike a fair balance,” Zane said, between covering the county’s costs without crimping the cannabis industry’s move into legal daylight.

A county staff report estimated the cost of adding staff to multiple departments, including agriculture, health, county counsel, emergency services, planning and code enforcement at $3.9 million to $5.7 million - to be covered by both permit fees and Measure A taxes.

Zane acknowledged the industry’s request for “tax stability,” but said the county is “not ready to make a promise as to what that rate will be.”

Nor does the county know how many cannabis business permits will be requested, Kuteira said.

Financial estimates have been based in part, she said, on a state survey in July that found 791 licenses would be sought in Sonoma County. There are about 9,000 people, including about 5,000 growers, in the county, according to the alliance.

While the initial tax rate of up to 5 percent of cannabis business revenues is anticipated to generate $6.3 million a year, the maximum 10 percent rate would generate $15.6 million.

Cannabis businesses are uncomfortable with the prospect of unscheduled tax rate hikes that bolster the cost of compliance, Logan said.

“Operators need assurance that there is stability in the tax rate for the next couple of years,” she said.

A top priority for her group is finding a way for about 2,000 small growers who have been displaced from the county’s rural residential areas outside the cities.

Logan said there need to be “pathways for success” for these growers, such as allowing co-operative farms on agricultural and industrial property and the possibility of allowing cultivation in some residential areas, known as inclusion zones.

“I think we need to prove that cottage cultivation can be compatible (with neighborhoods),” she said.

Co-op growing and inclusion zones are allowed under the zoning code, Kuteira said.

Supervisors last year prohibited cultivation in rural neighborhoods after residents complained bitterly of the onslaught of illegal grows.

Logan also called for formation of an advisory committee, including industry members, to help shape cannabis policy, and Zane said there will be such a panel.

“We know there are going to be concerns about what we do next,” Zane said.

You can reach Staff Writer Guy Kovner at 707-521-5457 or guy.kovner@pressdemocrat.com. On Twitter @guykovner.