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Faced with mounting cries of protest from struggling cannabis farmers, the Humboldt County Board of Supervisors on Tuesday will consider the prospect of implementing a Measure S tax relief program.

If approved by a majority of the board, the program could allow qualifying cultivators to have their 2021 and 2022 excise tax bills postponed, reduced or even waived entirely, though details of the plan have yet to be worked out.

Such a program could also wind up costing the county millions — or even tens of millions — of dollars, potentially forcing departments to enact hiring freezes, eliminate staff positions and cut back on services, including some aimed at helping cannabis farmers.

Measure S taxes, which were approved by voters in 2016, get assessed to licensed cultivators based on the size and type of their grow operations, ranging from just over a dollar per square foot of canopy if the plants are grown outdoors to $3.255 per square foot if they’re grown inside, under artificial lighting. Mixed-light grows, meanwhile, get taxed at $2.169 per square foot.

While voter-approved taxes can’t be raised without going back to the voters for approval, the text of the county’s cannabis cultivation tax code specifies that the Board of Supervisors may repeal or amend the taxation code “in a manner which does not result in an increase in the amount of the tax or broaden the scope of the tax imposed herein.” In other words, the board could implement this tax relief program without consulting the electorate.

In recent years, and especially over the past six months or so, many of the county’s 900-plus permitted cultivators have been clamoring for tax relief, both online and in public, as wholesale prices plummeted to all-time lows, largely due to overproduction in the state’s legal cannabis marketplace.

While some have questioned how the county’s hundreds of small-scale growers can expect to succeed in the face of airplane-hangar-sized grows being approved in other counties, state and local leaders have been sympathetic. The board’s Cannabis Ad Hoc Committee, which is comprised of Second District Supervisor Michelle Bushnell and Fifth District Supervisor Steve Madrone, have heard the cries for help, and this program is their attempt to offer some.

“Many cultivators have voiced concern that they will not survive current conditions,” the staff report for tomorrow’s agenda item says. “The Cannabis Ad Hoc Committee is concerned about the long-term viability of the Humboldt County cannabis industry, particularly those smaller farms who may have fewer financial resources.”

The proposal being forwarded by the ad hoc committee would allow “qualifying cultivators” to apply for a partial or complete waiver of two years’ worth of excise taxes. The report doesn’t spell out the exact criteria for growers to qualify but says it would be based on “need and actual profit or losses incurred for tax year 2021 and 2022.”

The program would also allow qualifying growers to postpone paying their 2021 and 2022 tax bills — which get assessed after each year is over — until 2024, at which time the bills may or may not be waived. Also, county staff plans to explore the option of offering repayment plans, though the staff report notes that they need to do “additional research to ensure [any such plan] meets legal and system constraints.”

Of course, the county tax bill is hardly the largest expense for local cannabis farmers struggling to gain a foothold in the market. The state’s own cultivation tax, which is calculated based on weight rather than canopy size, costs licensed growers roughly three to six times more than Humboldt County’s cultivation tax, according to calculations that were based on figures from a 2013 Washington state study. (The math is a bit squishy due to the variability in plant density, yield and other factors.)

But, as noted by Humboldt County Growers Alliance Executive Director Natalynne DeLapp in this week’s North Coast Journal cover story, state taxes are a lot harder to get repealed or modified. While both Assemblymember Jim Wood and Senator Mike McGuire have indicated that they’re willing to sponsor cannabis tax relief legislation, success on that front is far from assured.

“Without relief at the state level, the entire burden for relief for the cultivators falls on the county and its residents,” the county staff report laments. 

That could wind up being a heavy burden indeed. The county collected $17.5 million in Measure S tax revenues in 2018 and again in 2019. It collected $10.3 million in 2020, though it billed for $19.4 million, much of which may still come in.

While cannabis tax revenues are expected to drop steeply during the current fiscal year, this tax relief program being proposed could easily cut $12 million per year out of the county’s General Fund balance, according to the staff report. With labor costs rising, such a significant budget cut would force the county to consider painful options including staff layoffs, an immediate hiring freeze for all General Fund positions and/or reductions in certain programs and services, “particularly those that are directly funded by Measure S, such as Project Trellis.” 

Humboldt County Economic Development Director Scott Adair on Monday said it’s not all bad news on the cannabis front. For example, his agency just wrapped up a contract with College of the Redwoods to provide no-cost businesses education services for industry professionals participating in the Project Trellis-funded Local Equity Program. Cannabis business owners who are not enrolled in the county’s equity program can still take the classes at a reduced cost, Adair said.

And on Friday, Adair and his staff learned that Humboldt County is eligible for another $3.4 million in state equity funding for Project Trellis. The equity program aims to provide business support services to local cannabis entrepreneurs who’ve been negatively impacted by the War on Drugs. 

Adair said the news came with “great timing [considering] how desperately the cannabis community needs assistance right now.”

Economic Development Coordinator Peggy Murphy said CR will be offering courses on such topics as human resources, business planning, grant writing and cannabis marketing. Classes will meet Wednesdays from 6-8 p.m., she said. Anyone with questions is encouraged to reach out to the department (scroll to the bottom of that linked page) for details. There’s also more information on the county website, here.

Adair said it’s difficult for the slow-moving mechanisms of county government to meet the needs of an industry for which the market conditions can change so rapidly. “So we’re constantly having to pivot or change course,” he said. But Project Trellis has provided services to more than 200 cannabis professionals, he added. 

A Project Trellis update is also on Tuesday’s board agenda, and it will include an update on a county-led marketing initiative that has become mired in controversy. With the cannabis tax relief program under consideration, the marketing initiative could wind up being scrapped altogether, Adair said.

Regardless, you should expect a lot of passionate testimony from the local grower community on Tuesday.

“We’re expecting tomorrow to be somewhat tumultuous,” Adair said. “I think it’s going to be a fairly powerful, maybe even emotionally energetic meeting.”