Fires destroy Sonoma County marijuana crop; millions in taxes at risk

Each day has been a marathon for cannabis entrepreneur Felipe Recalde since a massive fire destroyed entire neighborhoods in Sonoma County and Santa Rosa.

The Fountaingrove home he shared with his fiancee burned to the ground, taking with it the nerve center for several of Recalde’s businesses including documents with crucial financial and strategic information, tax records and whiteboards covered with plans.

Within a week of losing his home, he’d shifted his operations from Santa Rosa to San Francisco and began meeting with partners and investors to plot their next steps - including whether or not to move headquarters out of Sonoma County for several companies expected to employ dozens of people.

“A lot of people depend on me to land on my feet,” said Recalde, board member with the Sonoma County Growers Alliance. “I will put all my energy toward moving forward; I cannot look back.”

Destructive and deadly wildfires that erupted nearly simultaneously across the region Oct. 8 couldn’t have come at a worse time for the North Coast’s cannabis industry, which was in the midst of the outdoor harvest and also scrambling to secure the right to operate under new state and local laws governing cannabis.

Farmers were in the middle of trimming and drying outdoor crops and depending on the sale of those yields to help pay the steep costs of new local permits and state licensees to do business. Manufacturers, distribution firms and other types of businesses had just purchased and leased industrial spaces, hired employees and were wading through the local permitting process to launch.

Sonoma County was depending on these new businesses for millions of dollars in tax revenue - county staff estimated $3.8 million in taxes by June 2018.

Before Oct. 8, the cannabis industry that once operated in the shadows in Santa Rosa and Sonoma County was on its way to becoming an economic engine for the region that could rival the wine and beer sectors. Now, many in the industry have said that future is less secure.

“The cannabis program was finally starting to grow legs and take off. This will have a devastating impact,” said Tim Ricard, Sonoma County cannabis program manager.

County officials and industry leaders said it’s too soon to estimate the size of the financial loss.

More than two dozen cannabis cultivators and seven other businesses such as manufacturers and distributors have had crops, warehouses, products and essential company documents destroyed or significantly damaged in Sonoma County, according to reports from the California Growers Association and the California Cannabis Industry Association. Smoke and ash have many farmers concerned surviving plants have absorbed potential toxins.

Many, like Recalde, lost part or all of their businesses as well as their homes.

“I couldn’t imagine worse timing, right here just before the dawn of regulated commercial cannabis activity in the state,” said Hezekiah Allen, executive director of the California Growers Association. “We’ll need to see what’s in the smoke, how bad it is, if it can be remediated.”

In the Lovall Valley just outside Sonoma city limits, the Nuns fire burned about 80 percent of the cannabis plants grown by bio365, a live soil company that launched earlier this year. Farm manager Sebastian McIntyre said it was their primary research garden to test the quality of plants grown in their soils compared to competitors.

With a mandatory evacuation order, McIntyre was able to harvest about 40 plants and hang them to dry before fleeing the property, but when he returned he found they had been looted and the plants were gone.

“It was a feat to harvest them as the fire burned, and to lose them like that was really hard,” McIntyre said.

In Kenwood, Jay and Jennifer Michaels fled their home of nearly eight years as the western front of the Nuns fire burned into their Sonoma Valley community. They lost their home and with it hundreds of thousands of dollars worth of inventory, including cannabis-infused massage oil and anti-fungal sprays for gardeners. They also lost an entire crop of proprietary strains of cannabis created to mimic wines famous in the valley with names like Merlow Kush and Cuvee Kush.

The couple stayed behind evacuation lines to help a neighbor harvest sangiovese grapes.

“Even though we’ve lost everything, there is still opportunity to work with others. I’m hopeful,” Jennifer Michaels said.

Wednesday night, the Sonoma County Growers Alliance raised $45,000 for its members who lost homes, crops or other aspects of a business in the fires at an event held at 2 Tread Brewery at the Santa Rosa Plaza. Several public officials spoke and promised to help the fledgling industry take hold. Much of the burden will be felt by county and city permit departments, as well as the agricultural commission, the main agencies handing out local permits. A business must have local permit before getting a state license, available in 2018.

Sonoma County Supervisor Shirlee Zane addressed the crowd of about 50 people and promised the county was committed to helping the industry thrive, particularly since the businesses do not qualify for federal aid. Tuesday, the board voted to offer some deadline extensions for cannabis operators to pay taxes.

“I know the fires happened at the worst time,” Zane said. “So many of you have worked so hard to get into place (to receive county business permits) … I want to acknowledge that.”

“The federal government will not assist you … but we will,” Santa Rosa City Councilman Chris Rogers told them. “You will help us rebuild and rebuild us stronger.”

The impact to the cannabis supply will likely be local and not make a significant dent in the statewide supply, Allen said. California’s 2017 cannabis crop was anticipated to hit 15 million pounds, mostly produced in Northern California, according to the California Cannabis Industry Association.

Many cultivators, like the Michaels, were finishing up final harvests before county rules kick in requiring they change locations. Ricard said he believes cannabis cultivators along the Mark West Creek and Highway 12 corridors - an area representing 40 percent of the outdoor and greenhouse cultivators trying to get permits with the county - were heavily impacted by fire.

“Everything we’d harvested to date was gone,” said Erich Pearson, executive director of SPARC dispensaries in San Francisco and Sonoma County.

Pearson’s organization was mid-harvest during the first year at a farm in Glen Ellen, an old turkey ranch off Highway 12.

The wind woke him up before dawn Oct. 9, and by the time he woke up neighbors in his Trinity Road community and got to the farm, flames were destroying drying and trimmed plants in the barns and smoke singeing plants still ripening in the dirt.

Pearson said some plants were untouched by fire, but like many farmers he is uncertain whether potential toxins from smoke and ash can be removed from the plants. Some extraction methods may remove impurities, but Pearson said “we have to do a lot more homework on this.”

Tawnie Logan, board chair for the Sonoma County Growers Alliance, said she and her fiance will be testing already harvested cannabis as well as plants that remained in their field near Healdsburg to start developing an understanding of what can be salvaged. It’s a similar kind of analysis being done by grape growers who had fruit on the vines when the fires erupted.

“This is a massive, massive setback,” said Logan.

Competition for housing will be a major factor for the cannabis industry, with a young workforce less likely to be homeowners and less likely to have insurance, said Nick Caston, board member of the Sonoma County chapter of the California Cannabis Industry Association.

“Honestly, the housing and employment disruption will be insane for every industry,” Caston said.