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As new California bill seeks cannabis tax breaks, youth groups appeal to state to keep funding

While California Sen. Mike McGuire introduced a tax relief bill Tuesday intended to help the cannabis industry survive a potential market collapse, youth and social justice groups across the state, including the North Bay, countered it with a letter requesting the taxes remain for their own survival.

The letter signed by 152 children’s advocacy groups claims that if state lawmakers “lower, suspend and/or eliminate the tax rates approved by voters in Proposition 64, we will see an immediate, negative impact on thousands of children living in poverty and children of color across our state.”

Proposition 64 legalized adult, recreational cannabis use in California and established a tax system applied to growers and retailers.

Child care– and health care–related organizations statewide, including local signatories First Five Sonoma, First Five Marin and Napa County Office of Education, rely on $385.8 million in Prop. 64 funds to support their programs benefiting 21,486 low-income children.

Roughly $150 million of the annual funding for youth prevention services is earmarked in this budget for communities with people of color. Calls to First Five Sonoma and Marin managers were unreturned after a Youth Forward-led press conference call on Wednesday.

“We have a really big stake in this. We hear a lot from the cannabis industry but not from those who benefit from these taxes. This is near and dear to us,” said Mary Ignatius, a statewide organizer of Parent Voices, a parent-led grassroots organization tasked with making childcare accessible. Ignatius was joined by a panel of childcare advocates on the conference call announcing the release of the letter sent to Gov. Gavin Newsom, Senate President Pro Tem Toni Atkins and Speaker of the Assembly Anthony Rendon.

But cannabis operators, who sent out their own letter signed by more than 400 stakeholders to state leaders a few months ago, have complained about over taxation and the lack of local communities allowing for legal retail sales that compete head-to-head with the illicit market. Their letter asks for an all-out elimination of the cultivation tax, a three-year reprieve on the excise tax and a plan to open up more retail.

From cultivators and producers to distributors and retailers, companies rallied when the California Department of Tax and Fee Administration announced in December it would raise the taxes growers pay because of rising inflation. The state cultivation tax increased from $9.65 to $10.08 per dry weighted ounce this year. Meanwhile, the state also announced a $31 billion surplus in its budget.

What followed was a a tax revolt of sorts, with the industry reeling over high taxes and a plummeting of the wholesale price brought on by a glut of product flooding the market that descended its value .

McGuire is a Democrat from Healdsburg, whose district encompasses the Emerald Triangle — Ground Zero for the cannabis world in Humboldt and Mendocino counties. He proposes Senate Bill 1074, which would eliminate the cultivation tax as of July 1.

In turn, it would also increase the excise tax, or the levy placed on cannabis at the point of retail sales, to make up for that revenue. SB 1074 would take a two-thirds vote to pass in the Legislature. Phone calls to the senator on Wednesday were unreturned.

Dr. Lynn Silver, Public Health Institute program manager, contends cannabis businesses trying to circumvent their tax obligations are “violating the intent” of what the state voters passed in 2016 with Prop. 64. The pediatrician suggested the anti-tax movement is driven by large cannabis corporations “maximizing profits” at the expense of children’s programs.

“It’s time to put our kids first and say no to cannabis tax cuts. We need every cent of cannabis revenue,” she said, further accusing the industry of “crying wolf” when times get tough. “They’re hiding behind a smoke screen.”

But growers throughout the North Bay and beyond say it’s a do-or-die situation for them, with prices plummeting to three times less than what the market bore over a year ago. Many are concerned the high taxes will put them out the business.

“There probably needs to be immediate tax relief to stabilize the industry. We’re not against taxes,” said Marley Lovell of Esensia Gardens in Mendocino County. “But we need to find middle ground. It’s been a really tough year.”

California Cannabis Industry Association Executive Director Lindsay Robinson agreed, calling the funding youth organizations get as “extremely important” to keep programs functioning.

“We know how vital these funds are. But when the legal businesses fail, the funding will dry up,” she said.

Then, the state is back to square one, with a flourishing illegal market benefiting from a legal industry collapse, she added.

Robinson explained that if the market is stabilized with a temporary reprieve and retail outlets expand, then the opportunity to benefit from the quantity of operators paying into the pool helps spread the wealth.

“We hope the lower taxes will bring in more legal businesses,” she said. “We couldn’t agree more these funds are important (to youth programs). It’s not our intent to cut the funding.”

McGuire recognizes he’s in the midst of a balancing act in trying to maintain an industry in his district that is getting crushed. But by the same token, that assistance shouldn’t come at the expense of childcare funding, he explained.

“I can’t say this clear enough — all existing program commitments, including early education and childcare, will be funded at the same level via this legislation and budget investment,” the senator said.

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 her at 530-545-8662 or susan.wood@busjrnl.com

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