Photo by CRYSTALWEED cannabis on Unsplash.
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Hoping to ease one of the numerous financial burdens buffeting local cannabis cultivators, the Humboldt County Board of Supervisors on Monday agreed to slash growers’ 2022 Measure S tax bills by a whopping 85 percent.
The temporary cut will offer some degree of relief for hundreds of local operators, but it’s also expected to cost the county close to $12 million in revenue, potentially leading to a hiring freeze and staff reductions.
Monday’s special meeting of the board served as a continuation of a lengthy hearing that took place during last week’s regularly scheduled meeting, where more than 60 people called in to plead with the board for tax relief. As with last week’s hearing, Second District Supervisor Michelle Bushnell recused herself due to a conflict of interest — namely, her own cannabis farm.
Nearly 60 people called in again today, though many were repeats from last week. While the tone and specifics of each caller varied somewhat, their requests were remarkably uniform, with many asking for the same three things:
- another extension on the tax payment originally due in October — from May 31 to Sept. 15,
- a 100 percent waiver on 2022 cultivation taxes (which are billed in arrears, meaning the tax is for growing done in 2021), and
- down the line, a total restructuring of the county’s cannabis taxation framework to create something more “fair and equitable.”
Quite a few callers described the scenario as an existential threat to their own livelihoods, if not to the entire storied industry of Humboldt County cannabis.
“You have to act and save the small family farms that we’re famous for … ,” said David Guyer. “You need to protect this unique brand.”
Natalynne DeLapp, executive director of the Humboldt County Growers Alliance, a nonprofit industry organization, said that by waiving all Measure S taxes this year, the county would be making a short-term investment toward a lucrative, long-term future for the industry.
A grower named Brian Roberts alluded to larger-scale challenges, saying farms in Southern California are three to five times larger than any up here and thus “are killing us.” Dispensaries, he added, are owned by venture capitalists who won’t buy flower that’s been grown outdoors. “This county is doomed if you don’t suspend this tax,” Roberts said.
Not everyone who called in was a licensed cultivator. The board also heard from owners of ancillary businesses such as consultants, soil purveyors, a tour operator and the director of the Southern Humboldt Business & Visitors Bureau. All of them argued in favor of tax relief.
But if anyone thinks the entire county agrees with that stance, “you should have been in my pocket last week,” First District Supervisor Rex Bohn said after the public comment period. He and other supervisors said they’d heard from quite a few constituents who are not in favor of any tax breaks for the industry.
Bohn initially stuck with the position he’d staked out last week, calling for a full, one-year suspension of the county’s voter-approved Measure S tax, which charges growers an annual fee of one dollar per square foot of licensed cultivation area for outdoor grows (tier one), two dollars per square foot for mixed-light grows (tier two) and three dollars per square foot for indoor grows (tier three).
Before any of his fellow supervisors weighed in, Bohn made a motion to eliminate this year’s tax bills entirely and grant another extension for last fall’s tax bill. He also reiterated the need to meet an established county goal of offering tax incentives to growers who invest in sustainability measures such as water storage and solar energy — “all the touchy-feely stuff that really makes sense,” he said.
Fourth District Supervisor Virginia Bass asked her fellow supervisors if anyone wanted to second the motion, and when no one else did so, she went ahead and seconded it herself for the sake of discussion.
Third District Supervisor Mike Wilson asked staff to explain the budget consequences of the tax cuts under consideration. County Administrative Officer Elishia Hayes said a full suspension of the tax could necessitate a hiring freeze, though many positions across county departments are currently vacant. The “last-case scenario” would be staffing reductions, Hayes explained, though she said other cost-saving measures could be taken before resorting to that.
Wilson said he was reluctant to cut the 2022 tax bills down to zero because he suspects it would be difficult to start charging people again next year. He also expressed doubts about the prospect of creating an all-new tax structure considering the amount of work that went into drafting Measure S and the approval of voters in 2016.
He offered an alternative approach to Bohn’s — cutting taxes by 75 percent for the year, leaving growers responsible to pay the remaining 25 percent of what they’d otherwise owe.
Bass voiced concern about driving legal cultivators out of business and thereby encouraging more illegal grows.
Bohn observed that the county’s annual budget has been growing a lot in recent years, finally exceeding half a billion dollars for the current fiscal year. Maybe it’s time to do some belt-tightening, he suggested, though he also acknowledged that the issue is a big deal.
Fifth District Supervisor Steve Madrone expressed sympathy for the local cannabis industry, noting that, unlike other businesses, they weren’t eligible for CARES Act funding or even bank loans to see them through the thin times.
But he also said the county’s government is in the midst of a staffing crisis. After lengthy labor negotiations, the county recently offered improved benefits and higher wages for positions across county department, and Madrone said he doesn’t want to see the county move backwards on that progress.
Madrone added that while he supported Bohn’s call for an extension for last year’s tax bill, he couldn’t support cutting 2022 taxes altogether. He said he liked Wilson’s suggestion for 25 percent, though he apparently misunderstood Wilson’s position. We say that because later in the meeting he offered to compromise further by coming down to 50 percent. Evidently he’d been under the impression that Wilson had proposed reducing tax bills by just 25 percent when, in fact, he’d suggested only charging growers 25 percent.
There was a period of back-and-forth negotiating among the four board members present. “I feel like I’m doing an auction,” Bohn cracked at one point. He agreed to move from a 100 percent tax cut to a 90 percent cut, charging growers just 10 percent of their tax bill this year.
Wilson said he’d like to stagger the cuts by growing tier, offering a 90 percent reduction to growers in tier one (outdoor), a 75 percent reduction to those in tier two (mixed light) and half off for the few in tier 3 (indoor).
The county’s assistant chief administrative officer and chief financial officer, Tabatha Miller, crunched some numbers on the various scenarios, giving the supervisors estimates for the loss of revenue under each suggestion. With an estimated Measure S tax delinquency rate of 31 percent, Miller said Wilson’s tiered approach would likely generate $2.3 million in total revenue this year while Bohn’s 90 percent across-the-board cut would produce about $1.4 million.
“I’m just not willing to give up so much of the revenue,” Madrone said, “but I want to do something substantial to help the farmers.”
That’s when he voiced a willingness to come down to 50 percent. Wilson said he was definitely willing to go lower than that but said didn’t want to go much past the 25-percent mark.
Bohn, in haggling mode, then agreed to come up to 15 percent. He suggested that if growers can’t afford to pay that much then “we might as well nail up the coffin.”
There was some discussion about softening the blow to the county’s budget by reallocating a small pot of money that had been earmarked for a county-led cannabis marketing campaign. Putting those funds back into the general fund could save the county around $900,000, Hayes said, though the board agreed to postpone that decision to a later date.
With Madrone holding firm, it became clear that the other three participating board members were in enough agreement to pass the motion.
And indeed, the vote was 3-1 with Madrone dissenting.
In a social media post following the meeting, the Humboldt County Growers Alliance thanked Bohn in particular but also Bass and Wilson for their supporting votes. The post added a jab aimed at the Fifth District representative, saying, “Despite all the talk from Supervisor Madrone about supporting the industry, his goal was to maintain 50% of the revenue stream for the county—his was the sole dissenting vote.”
Here’s what the vote likely means for the county budget: Countywide, the total Measure S tax liability for last year’s crop was $19.9 million. Given the estimated 31 percent delinquency rate, staff initially expected to see revenues of $13.7 million this calendar year. After today’s vote, the county’s estimate drops to just $2.1 million.
Time will tell whether this tax relief allows more local growers to survive another year to pay taxes again in 2023.
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