Cannabis tax relief is not warranted!

The Cannabis industry has come to the Board of Supervisors asking for tax relief. The industry claims the recent drop in prices makes their cultivation taxes unaffordable. Taxes are not their real problem and tax relief in not the real long term solution. In reality, their problem is not a tax problem but a supply-demand problem which is now correcting itself and prices are rebounding!

Low prices were temporary, never as bad as stated and are now increasing due to a balanced market

During your 4Q21 meetings, the industry pointed to $300 a pound price as being unworkable. But a January 7 2022 pricing study prepared by the industry (Cannabis Benchmarks) points to a much higher average price. It is true some sales were in the $300 range, but the California average outdoor price was $562, Greenhouse $704, and indoor $1368! Looking back to 2020 and early 2021, when the industry experienced records sales, record production, and high prices, you didn’t hear of taxes. It wasn’t until the Fall 2021 harvest flooded the market, depressing prices that the industry started to panic. Looking forward, on March 18, 2022 MJBusDaily reported the supply/demand is now balancing out, and accordingly California wholesale prices are now rebounding, with quality buds selling in the $750 - $1,100 price per pound range (up from bottom hit in Nov 2021 of $400). Both the Benchmark report (page 10) and the MJBusDaily report are attached. The Cannabis industry is experiencing normal economic growing pains. They over-produced, driving down prices. Now supply/demand is coming into balance and prices are going back up!

The financial health of the industry is much better than the industry wants you to believe

The North Bay Business Journal on Feb 14, 2022 reported the North Bay Credit Union attributes its record growth to cannabis banking. So much so, they will be doling out a special dividend back to growers. Record deposits from cannabis sales plus a dividend! All this money flowing in from pot, yet the cannabis industry claims they don’t have the money to pay their taxes. The cannabis industry claims one thing but their bank deposits say another. The Press Democrat reported on Feb 12, 2022 Lagunitas has teamed up with CannaCraft, a Santa Rosa-based cannabis production company, to produce a cannabis infused beer. Note 56 permits of the 104 permits granted a 5 year extension, or 54% were pulled by CannaCraft related business entities. This does not sound like a distressed company, or a company that would be impacted by low wholesale prices since its own production is used in retail sales.

Why special treatment for just this one industry? And a bad precedent

Over the last few years, Sonoma County businesses and residents have felt the financial hardship of fires, drought, and Covid, none of these of their own making, yet no one has their hand out for tax relief. The cannabis industry by their own doing (by their own success) is now looking for special treatment.

Special treatment for this one industry will again be discussed by the Board in March when County staff provides data on the finances of the cannabis program. Taxpayers should not be forced to subsidize this industry. Tax breaks should not be awarded to an industry whose own success created their troubles, and which the market is now sorting out. Further any tax break sets a bad precedent for future governance.

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