Melinda Burns
By Melinda Burns
Against a backdrop of sinking cannabis tax revenues, the county Board of Supervisors took steps this month to get tough with growers who fail to report their revenues from cultivation or pay their quarterly taxes on time.
At a June 6 hearing, the board unanimously proposed that the county should not renew the business licenses of growers who miss even one quarterly deadline for tax reporting. The deadlines include a 30-day grace period. Since business licenses are valid for one year only, late filers would eventually be forced to shut down.
To date, the county has never failed to renew a single cannabis business license. The supervisors are set to vote on an amendment to the county’s 2018 cannabis ordinance on a first reading on June 27 in Santa Maria.
Brittany Odermann, deputy County Executive Officer, brought the suggested cannabis tax reporting penalties to the board for discussion at the request of Supervisor Joan Hartmann, whose district includes the Sta. Rita Hills west of Buellton, where outdoor cannabis has moved into wine country; and Supervisor Laura Capps, who represents the Goleta Valley and is a newcomer to the board. Both had been meeting with county staff to design the proposal.
“I’ve been working on this since I started, and I was really getting so frustrated that it’s unpredictable when people pay and how much effort has to go into getting them to abide by the ordinance,” Capps said last week.
In the 2019 board elections, Capps ran and lost against Supervisor Das Williams, a chief architect of the cannabis ordinance and a resident of Carpinteria. The county has approved 33 industrial-scale cannabis greenhouse operations just beyond the city limits of the small beachside community during the past five years.
“I think the changes are long overdue, but here we are,” Capps said.
By some estimates, the prices for legal cannabis in California dropped 50 percent between 2017 and last summer. Amid an oversupply of wholesale product, customers are flocking to the black market, where prices for cannabis are 30 to 60 percent cheaper. In a sign of the failing economics of pot, four North County growers withdrew their county business licenses and abandoned their operations this spring.
The county projected $16 million in cannabis tax revenues for the 2022-23 fiscal year but collected only $4 million during the first three quarters, Odermann told the board. By the end of this month, the total for the fiscal year is projected to be just under $6 million, just enough to cover the $5 million cost to the county this fiscal year for cannabis enforcement, tax collection and legal counsel.
The county’s cannabis ordinance sets a four percent tax on gross receipts from cultivation; but every quarter, some growers don’t report or pay on time. County auditors must track them down, and it’s hard for budget analysts to predict how much money will be coming in.
Growers who are delinquent and make a late payment are presently required to pay 10 percent of the tax in addition to the tax. Some simply opt to pay the fees, Odermann said. The current ordinance does not penalize growers with zero revenues who fail to file quarterly reports on time or don’t file at all.
Of 69 growers countywide, 33 reported and paid their third quarter taxes and 24 reported zero gross receipts, or total revenues, Odermann told the board. Twelve failed to submit a timely third quarter tax report, she said. Of those, three turned it in late; two were operating but did not file a report, and the rest had withdrawn from the business license approval process or surrendered their license.
In an interview, Odermann said it was not clear how much additional tax revenue the proposed new penalties might bring in. More likely, she said, they would force growers on the margin to withdraw altogether.
To identify growers who may be underreporting their cannabis revenues — a potentially more serious problem than late filers — the county relies on data from the state Cannabis Track-and-Trace system. Cannabis and cannabis products must be tagged or labeled by each grower; the system tracks their inventory and movement through the cannabis supply chain from cultivation to sale.
This fiscal year, tax revenues from what the board calls its “cannabis program” were earmarked for such services as libraries, parks, trails, open space, long-range planning, Mixteco translation, election administration, capital projects and deferred maintenance.
Given the $10 million shortfall in the cannabis program for 2022-23, the board authorized the use of $8 million in non-cannabis tax revenues from the county’s general fund to cover those services, voting during budget hearings that began in April and concluded last Friday. Carryover cannabis tax revenues from previous years will make up the difference.
Cannabis tax revenues for the 2023-24 fiscal year are projected to be $7.5 million, the CEO’s office said. That will cover the anticipated $6 million cost of the cannabis program next year, plus $1.5 million in ongoing deferred maintenance projects. An additional $3 million in carryover cannabis tax revenues will fund a number of one-time projects in the coming fiscal year, including an employee housing study, park restroom upgrades, development of a utility-scale solar ordinance and lighting upgrades at the county Courthouse.
Melinda Burns is an investigative journalist with 40 years of experience covering immigration, water, science and the environment. As a community service, she offers her report to multiple publications in Santa Barbara County, at the same time, for free.
Wow — $5M for enforcement, seems like a lot of money and doesn’t appear to be working.
I’d get rid of the enforcement department so any money that is collected can be used for actual programs that benefit the residents. $5M for most Santa Barbara businesses would represent 50+ employees. Really does seem bloated.
Reminds me of the campaign the city did years ago — The city put homeless donation boxes in stores and restaurants and asked people to donate instead of handing money to the homeless. At the end of the year they hadn’t collected enough money to pay to collect the money.
Due to low demand and competition several cities in CA have done away with the marijuana tax, I think that would make sense in Santa Barbara as well.
Good example of my earlier post about our government having a spending problem not a revenue problem.
Absolutely, it is a spending problem – not a revenue problem. Seems very apparent across all government levels these days.
5:42 – Yes, especially after the Repugnicons gutted revenue. Oh, but that does make it a revenue problem, doesn’t it?
Duh, bro, who is surprised that tokers miss a deadline?
The “novelty” certainly has worn off of the weed industry. I remember years ago when Coors beer was not distributed east of the Mississippi (ahhh…plot of ‘Smokey and the Bandit”….breaker breaker….Bear in the Air!). People where it was not legally sold/distributed would pay big bucks or ask folks to deliver it to them. I actually delivered four cases of Coors to Nashville in the summer of 1977 in a beat-up VW bus. Just like I was jonesin’ for Victoria beer….now it’s everywhere. Try and find Indio beer….cannot find in Cali….but Arizona….yes, no problem. Anyway, sooooooo much weed, and demand is waaaaaaay down. Give-away prices in Oregon, Zs of flower at the Farmacy below $100……yeah, a glut of weed out there.
That’s a wonderful way for society to evolve to: the other article from today explains how half of high school graduate can’t READ !!!!! But there is POT everywhere and the State views this a a terrific “revenue” source!
Bravo! It’ll get better and better!
Pot is just as good a revenue source as is legalized betting or the lottery. Why can’t we just tax the rich and even things out? The lack of revenue is pretty clearly a consequence of tax breaks and lower rates and other schemes allowed the uber wealthy and their heirs and businesses.
If you taxed 100% of the wealth from all 500+ billionaires in the US you’d get enough money to run the government for about 6 months. We don’t have a revenue problem we have a spending problem.
RHS:
Legalized betting or the lottery does NOT fry your brain the way POT does!
We just about after 50 + years managed to get a lot of people off smoking with its horrendous, about 1 in 2, horrible lung cancer death and now States which think so highly of themselves and how they “do good to humanity” are switching whole new generations to a brain debilitating (but tax producing) and highly addictive fad!
I will pull back a little on the comment about not being proven to debilitate your brain. It’s been shown and can definitely decrease cognitive function over time, but again…… nothing as bad as what it already legal: booze, opioids, Adderall, etc.
FOND – have you ever researched anything you say? I ask, because it’s nearly always 100% false.
“brain debilitating” – aside from use in children (which is not legal even in CA), it’s not been proven to “debilitate” or even “fry” your brain. It certainly can cause some users to become lazy and forgetful and can have long term effects on cognition in some users, but it’s hardly “debilitating” in the sense that alcohol or other legal drugs are.
“highly addictive fad!” – Cannabis is not “highly” addictive at all. It can be habitual, but it’s not physically addictive like tobacco and alcohol (or even coffee).
I can not imagine any business setting up a structure that has $5M of cost for enforcement and collection on $16M of projected income. Sounds more like bloated bureaucracy than a revenue stream.