Sonoma County Board of Supervisors approves tax reduction for cannabis cultivators, manufacturers

Cannabis cultivators and manufacturers operating in unincorporated Sonoma County will see a tax cut later this year under changes approved Tuesday by the Board of Supervisors.

The unanimous vote followed a discussion that highlighted concern the county is running out of money to cover its oversight of cannabis businesses. County staff recommended the rate reduction in light of declining prices affecting the industry.

“Originally this was going to be a cash cow and now it’s not, and that’s true for everyone,” said Supervisor David Rabbitt, the board chair, referring to sluggish cannabis business statewide.

Under the new tax rates, which will take effect in July, cannabis cultivation tax rates would be reduced from $0.75 per square foot to $0.69 per square foot for outdoor cultivation, $3 per square foot to $2.51 per square foot for mixed light cultivation and $12.50 per square foot to $7.58 for indoor cultivation.

The tax rate for manufacturers would also drop from 3% to 1.5%, while retailers would see an increase from 2% to 3%.

It is the third rate reduction the board has passed — including a temporary reduction in 2022 — since first establishing rates in 2017, a year after California voters legalized cannabis for nonmedical adult use.

Industry representatives and local operators have loudly called for greater relief from taxes and fees they say are squeezing smaller operators out of business or into the illicit market.

Tuesday, local operators re-upped those calls, urging the board to cut their taxes, if not wipe them out entirely.

“The overhead and keeping a business alive in this day and age is extremely difficult and these taxes are also extremely difficult to maintain,” said Eli Buffalo, founder of Moon Valley Cannabis, an indoor cannabis grower in Sonoma Valley.

The struggles are playing out as Sonoma County sees a sharp decline in cannabis growers. There are five manufacturers, six retailers and 75 cannabis cultivators in unincorporated Sonoma County, according to county data. In May 2023, there were 155 cultivators operating in unincorporated Sonoma County.

Declining prices — a function of the supply glut and heavy competition from large-scale operators — and the county’s permitting process and backlog of applications, are among the factors that cultivators say are driving them out, according to McCall Miller, the county’s cannabis program coordinator.

Between the county’s declining cannabis tax revenue and costs including departmental expenses and the county’s long-awaited environmental impact study, the program’s end balance is expected to decrease from around $3.7 million this fiscal year to about $2 million by fiscal year 2026-27, staff told the board Tuesday.

Supervisor Lynda Hopkins raised the possibility of bringing the cannabis tax rate discussion back to the board during upcoming budget talks.

The tax was not generating enough revenue to put toward other needs as the county initially hoped, Hopkins said. She wondered if the tax was “not even covering the cost of collection, is it worth it to really collect that tax at all?”

You can reach Staff Writer Emma Murphy at 707-521-5228 or emma.murphy@pressdemocrat.com. On Twitter @MurphReports.