Monterey County supervisors to adopt tax relief for cannabis growers

The Monterey Herald reports

SALINAS — Monterey County elected officials on Tuesday voted to deliver to cannabis growers and manufacturers another break in taxes as an industry glut continues to pressure prices.

Through an at-times complex and convoluted discussion Tuesday, the Board of Supervisors wrestled with providing relief to the county cannabis industry. But it was the details of how much of a tax reduction, how long a payment plan should last and whether to slap liens of errant taxpayers.

Ultimately the board, based on a concept introduced by South Monterey County Supervisor Chris Lopez, directed the Cannabis Program staff to come back later this month or in early December with a roadmap of how to tie a flexible tax rate to wholesale price fluctuations. If prices rise, so does the tax rate; if prices fall, the tax rate follows.

But Supervisors Luis Alejo and John Phillips said they would also be in favor of a reduction in Cannabis Program staffing to make up for county revenue lost because of a tax cut. Supervisor Wendy Root Askew said she was concerned about tax rates approved that are lower than what the voters decided in 2016 to permit commercial cannabis operations.

There were two segments of the local industry that were addressed with proposed tax cuts – cultivators and manufacturers. The number of manufacturers in the county is relatively small compared to cultivators, with less than 10% of the total revenue generated. For the manufacturing segment, supervisors reduced the tax from 3.5% to 1.5%.

Joann Iwamoto, the Cannabis Program manager, said manufacturing activities include processing activities such as the trimming and drying of cannabis plants, and distribution activities such as the storage, testing and delivery of cannabis goods between licensed operators.

Root Askew was the lone “no” vote on lowering the tax for the manufacturing sector, challenging some supervisors and industry members who addressed the board and said without a tax cut it would be difficult for the county to remain competitive.

Data shows the county is competitive, Root Askew said, and that reducing the tax from 3.5% to 1.5% is “not going to save the industry.” Her worry is that a reduction in tax would hit county revenue and in turn services to residents. The manufacturing tax reduction passed on a 4-1 vote.

Iwamoto explained to board members that the cannabis industry in California is over-saturated with supply, causing the price point for commercial cannabis production to fall roughly 62% since 2021. It could take anywhere from seven to 10 years for the market to stabilize. Some 15 businesses have closed since 2021, she said.

Board Chair Mary Adams voiced some frustration at the process. “We’re throwing a lot of spaghetti here,” she said. “We seem to be pulling numbers out of thin air, and that’s not the best way to move forward.”

Up until the price collapse in 2021, the industry has been lucrative for both growers and the county. Last year’s cultivation tax revenue for the county was estimated at just a little more than $19 million. Total production and value for cannabis cultivation during 2020 was calculated at $484.1 million and $618 million in 2021, according to the 2021 Monterey County Ag Report, an increase of $134.4 million from 2020.

Supervisors also approved a payment plan that would allow growers to pay back taxes until Sept. 30, 2023, before the payment plan would cease. But the key point will be what county staff brings back to the board outlining a tax base tied to price fluctuations.

Monterey County supervisors set to adopt tax relief for cannabis growers

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