Nov 1st 2024 Newsletter - Cannabis deficit Cash Cow is dead
November 1, 2024
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Whatever happened to the “cash cow”?
The simple truth is the cash cow is dead. Cannabis revenue does not cover cannabis expenses. Will the taxpayers be left holding the dime bag? Already the Supervisors have reduced industry taxes three times and Supervisor Hopkins wants to eliminate industry taxes entirely. We’re not alone in raising the alarm about the economic folly of outdoor cannabis. On October 18th, a Sebastopol Times article by Ezra Wallach asked, “What Happened to the Stash?” Board Chair David Rabbitt agreed with that assessment in the April BOS meeting, admitting, “This was going to be a cash cow and it's not.”
Sonoma County’s outdoor cannabis cultivation policy is a losing proposition for the County. Napa and all other Bay Area counties limit commercial cultivation to highly profitable indoor operations. So why is our Board of Supervisors obsessed with promoting outdoor cultivation?
Reports demonstrate Sonoma County’s cannabis program is in a steep decline, now generating only one-third of the annual tax revenue it generated at its inception, dropping from $3.4m in FY 2017/18 to just $1.2m in FY 2023/24. In the past two years, the program has run an annual deficit of nearly $1m per year, with expenses exceeding tax revenue, with no improvement projected for the next fiscal year. The County’s own consultant informed the BOS that outdoor cultivation in Sonoma County was not likely to succeed economically. (See Key Facts, below.)
While taking up only 6% of the total cannabis footprint in the County, the County’s September 2024 Crop Report revealed indoor cultivation brought in almost 11 times more revenue per acre than outdoor cannabis cultivation. (See Key Facts, below.) The intangibles incalculably boost that huge profitability differential because indoor cultivation essentially is clean – it doesn’t import the societal costs of crime and public health risks which have proven to be unavoidable with outdoor cultivation.
These numbers are the County’s own calculations. The questions they raise should be as obvious to the County as they are to us. First, how can the County possibly justify its projection of a 15% annual increase in cannabis tax revenue when all the financial evidence says otherwise? Second, are the Supervisors proposing non-cannabis, general tax funds be used the use to subsidize this failing industry? The County’s approach is pure smoke and mirrors.
The Board of Supervisors is well aware of the fiscal problem
The April 2024 cannabis tax program review clearly revealed the current financial mess and yet, the Board remained unwilling to recognize the reality or to be held accountable for that reality. As reported by the Press Democrat in April 2024, cannabis taxes were not generating enough revenue to put toward other needs as promised by Measure A which allowed cannabis cultivation in the first place. So what was Supervisor Hopkins’ suggested solution? Astonishingly she suggested the elimination of the cannabis tax altogether even though doing so would require general taxpayer funds to cover the $623,600 annual gap for the enforcement costs, alone. In other words, she proposed that we, the taxpayers, subsidize these losing cannabis businesses. In the meantime, the headlines are filled with legitimate programs being cut or limited by the County due to funding problems. Something is very wrong with this picture and the thinking by Supervisor Hopkins.
An obvious solution exists. The hole in the cannabis tax bucket would be sealed if the County would prohibit outdoor commercial cannabis cultivation entirely and approve only indoor cannabis cultivation. That approach has proven to be profitable and workable in Colorado, Oregon, Napa and all other Bay Area Counties.
Key facts:
- The September 2024 Crop Report revealed a 31% reduction in outdoor cultivation acreage over the past three-years; an indicator that outdoor cultivation is not a viable business proposition for cannabis producers. Indoor cultivation, occupying only 6% of the total cannabis cultivation footprint, brought in almost 11 times more revenue value per acre.
- And, the 2022 economic analysis commissioned by the County, (HdL, FiscalAnalysis of the Commercial Cannabis Cultivation Industry) determined that any change in taxing is “unlikely to make a difference.” The report specially called out outdoor cannabis operations as unviable businesses that will never deliver the tax revenue that Supervisors promised.
What Can You Do?
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Sebastopol, CA 95473
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The Neighborhood Coalition team