Humboldt County’s Cannabis Tax Could Force Legal Cannabis Farmers Out of the Business, Says Attorney ED Denson

Marijuana leaf

[Stock photo by Kym Kemp]

Southern Humboldt defense attorney, Eugene “ED” Denson is worried that marijuana farmers seeking to comply with the County’s cannabis tax rules are in serious jeopardy of losing their property. He filed a lawsuit against Humboldt County on behalf of Humboldt Cannabis Taxpayers Association, HUMMAP, Humboldt Voters’ Association, as well as Jane and John Doe with his co-council Frederic Fletcher of Eureka on May 14 in the Superior Court of California County of Humboldt.

Denson says he is interested in this case because as an attorney he feels strongly that people in authority need to be the first ones to follow the law. Denson said he was active with COG (Citizens Observation Group) and CLMP (Civil Liberties Monitoring Project) in the 1980s during the CAMP (Campaign Against Marijuana Planting) days because he felt strongly the rules of law were being broken by the authorities.

Furthermore, Denson said he has defended illegal cultivators for 20 years and that the community at large and his clients face more danger under legalization and regulation than ever before, and that this illegal tax is harming his clients, the economy, and the community. Denson avowed, “The County has done more damage than CAMP did.”

Denson explained that the cost of the new tax could force people out of their properties. Just when the price of cannabis has free-fallen to the point where it is barely profitable to produce, legalization has landowners investing tens of thousands of dollars to meet compliance standards for roads, buildings and grow sites. Simultaneously, the County is, he contends, unfairly and illegally, imposing a very large tax on the opportunity to grow cannabis.

Sean Quincey at the County Administrative Office said that between July of 2017 and April of 2018 Humboldt County received $4.4 million from the Cannabis Excise Tax. The Humboldt County Treasurer’s Office said that $9.3 million dollars will be billed for the 2018 Cannabis Excise Tax with half due on May 31, and the other half due at the end of November 2018.

The merits of the lawsuit filed May 14th primarily surround the changes the Board of Supervisors approved to the Measure S Cannabis tax.

In November of 2016 Humboldt County voters approved a tax on cultivation under Measure S which was adopted into the Humboldt County Tax Code as Ordinance 2567, but then in June of 2017, the County Board of Supervisors amended the language of Measure S and created Ordinance 2575. The changes made to Measure S as it was interpreted into Ordinance 2575 create the primary problem says Denson.

The lawsuit alleges the County broadened the scope of the tax in a number of ways. These include

  • by changing the person taxed from being the cultivator to being the property owner;
  • broadened the scope of the tax from the actual area under cultivation in a year to the total square feet of cultivation possible under the permit;
  • increased the time the tax is imposed from the time cultivation begins and ends in a year to the entire year in which a permit is valid;
  • amended the tax to be collected more often than the voters approved;
  • and the lawsuit further charges that the county amended Measure S to allow taxation of permit holders not complying with federal law.

Measure S, which the voters approved, says the tax shall apply to “each person engaged…in cultivation,” where Ordinance 2575 says “each property owner whose property is subject to a commercial cannabis permit” must pay the tax. The complaint contends this puts a tax on landowners whose tenants may be the cultivators.

The Complaint argues that by making this change, Ordinance 2575 brings Proposition 218 into play. The lawsuit says the California Constitution, as amended by Proposition 218, requires a two-thirds voter approval for taxes on a “parcel of property or upon any person as an incident of property ownership except outside the context of assessments specifically authorized.” Measure S, it says, did not pass by a 2/3 majority.

Measure S said that the

Area of marijuana cultivation is the physical space where marijuana is grown and includes without limitation, garden beds or plots, the exterior dimensions of hoop houses or green houses, and the total area of each of the pots and bags containing marijuana plants on the premises.

Ordinance 2575 reads, “‘Cultivation area’ shall mean the cultivation area stated on the …permit issued….” and Ordinance 2575 reads “whether or not marijuana is actually grown on such property.”

The complaint contends that this verbage changes the cultivation area from that which is actually cultivated to the maximum amount of cultivation a permit holder might potentially undertake. Because the tax is based on a square foot basis, this broadly increased the tax amount according to the complaint.

Measure S said the tax begins to accrue on the date on which a person “becomes engaged…in marijuana cultivation.”  Meanwhile, Ordinance 2575 reads, “for purposes of this Chapter, taxes shall be owed for each and every year in which a commercial marijuana cultivation permit is issued…regardless of whether or not marijuana is actually grown on such property.”

Measure S said the taxes would be collected “biennually” which is every two years. However, under Ordinance 2575 it is being collected biannually which is every six months.

And lastly, Measure S said the tax would accrue, “On the date on which a person becomes engaged in legally authorized marijuana cultivation in accordance with the applicable provisions of this Code and all other applicable State and Federal laws and regulations.” Ordinance 2575 reads, “…taxes shall be owed for each and every year in which a commercial marijuana permit is issued….”

The complaint contends this “vastly expanded” the scope of the tax without voter approval.

The lawsuit filed by Denson and Fletcher states the remedies are to refund the taxes already collected, and place the revised tax scheme before the voters for approval. And Denson says he believes the County may possibly owe, an additional amount equal to the tax collected, to the State of California under Government Code 53728 which reads, “If any local government…imposes any tax without complying with the requirements of this Article, or in excess of its authority…the amount of property tax …. shall be reduced by $1.00 for each $1.00 of revenue attributable to such tax for each year that the tax is collected.”

Denson described how the issue arose late last year. Denson said he’d been advising his clients on Measure S as he had read it during his preparation for the election. Something came up that required detailed attention and when he looked at the tax code, it wasn’t as he remembered it. That flustered him. He said, “I thought perhaps my memory was slipping.”

Denson said it took some digging to find the original Measure S and that he had to go to the Elections Department to get it. When he did find and read it, he was relieved to know his memory was okay, but he was upset to see that the Board of Supervisors had violated, in his opinion, Proposition 218 and other laws that say changing an approved tax in ways that expand or increase the tax mean that the new version must go back before the voters.

When asked why HUMMAP, the Humboldt Cannabis Taxpayers’ Association, and the Humboldt Voters’ Association are interested in filing suit, Denson said that the actual persons who feel strongly enough to file the suit did so from within these larger groups to purposefully hide their identities for the time being. Denson said that people feel very vulnerable that the County might send out extra inspectors and find a reason to revoke or deny their permits or applications for a permit. Two individuals are named as plaintiffs as John Doe and Jane Doe.

Humboldt County’s County Council, Jeff Blanck, said in a phone conversation, “We don’t think the lawsuit has merit. In addition to the applied challenge, they are also making a facial challenge…” When asked for an explanation, Blanck said that according to their complaint, the language regarding compliance with federal law as approved by the voters in Measure S would make Measure S void on its face.

Blanck said the applied challenge is the lawsuit’s allegation the County is applying Measure S wrong. Blanck said, “We are not. We are complying with the voters’ intent. The fact that it needs to be interpreted is not illegal.” Blanck emphasizes that his office has not finished reading and developing its response to the suit, but that these are his initial points.

When asked about the unpopularity of a tax on the permit instead of a tax on the production, Blanck said this was passed before the State initiated its Track and Trace system when the County was asking, ‘How do we determine what someone has actually grown?’ Blanck likens Humboldt County’s Cannabis Tax to a business license tax differentiating it from a production tax.

The County still has two weeks to file a response to the lawsuit.

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71 comments

  • Yes, the tax was arrived at arbitrarily; almost like a whimsical decree from the throne of King George. It has the color of extortion too. Worse still, where is the auditing of all that $$? Where is it? And I mean every last dime of it.

    Yes, authorities should follow the law. Now we may see why they don’t want Paz getting the “boring” (crucial/pivotal) position of holder of the microscope on public pools of cash.

    This case is a case to watch.

    • The case to watch would be the feds tearing our county a new one for receiving all of those illegal drug funds while working with growers to keep producing more illegal drugs! Every dollar taken in by the county that relates to commercial cannabis is 100% without a doubt laundered drug money or money paid with intent to produce and distribute drugs.

      • [edit] Cannabis is legal in over half of the us. It cures cancer. [edit] That said, they should just stop regulating and taxing it altogether… free it from red tape and the real crooks-corrupt crony capitalists and insider shills.

  • How is it that the goddamned supervisors think they can change the language of a voter approved ballot measure? The state legislature can’t do this. It is illegal. VOTE!
    SAY NO TO CORRUPTION! Tell Ryan Dumberg and Virginia Basshole to go !

  • Where were the self-appointed pot peeps when all this happened?

    –face the more danger under legalization —

    /\Kym tiny typo ./\

    Not that u will see my comment since (Lord knows why) you have me in a wing in commenter jail so harsh I can’t even edit my own comments anymore!..Lol

    Still reading your posts, but admittedly way less as it is impossible to actually be a participant when my comments sit in detention for ages ! 😉

    • You apparently have the same ip address as several other commenters so it may not have been you. To be honest, I can’t remember why this ip was put on moderation status. I’ll try taking it off moderation and see what happens.

      Also thanks for the tip, I’ve edited the post and updated.

  • Ok they signed up with the government. What did they expect? Why were they doing it in the first place? This is so silly.

    • I really have respect for Ed Denison, but it waivers now. All these “hippies” playing the man’s game.. guess most of em are just sheeple anyway. And really, Ed represents some of the biggest growers who have cause all the problems.. so awesome

      • Just another business now...and yet...

        The goal posts were moved several times during the process. As far as the “Man’s game” really, few other businesses is held to the same standards, especially farming type business. It hasn’t been all that bad: one of the good things that is coming out of the process is a comprehensive archeaological survey of private land.
        “…taxes shall be owed for each and every year in which a commercial marijuana permit is issued….”… Problem is, The county is trying to not issue the permit; every week, one more question, every time my permit gets passed on to another person they have to add some condition to it, even though it’s been through the wringer since August of 2016, yet I recieved the tax bill for 2017. We signed their “conditional permit” on the last day of December 2017, then got the bill for the whole year, we still don’t have a complete permit according to the Planning deprt. Maybe they’re understaffed after losing one to arrest for taking bribes!

        • Okay good for you. You made money growing for years and now wanna chime in about the system . Such a joke.

          • One Has to Enjoy Gardening! No Joke!

            I never got rich, but I have been able to invest in equipment to make it easier, and to get work doing custom hire stuff, and trucking, and to generally diversify. My productivity has been good for the county’s tax base, and the local economy. I always enjoyed growing weed, and like to smoke my own homegrown! So, Nah, just another farm product, no better, no worse than coffee, wine, or ‘backy. I’m just providing feedback from inside the process, for all the angry confused armchair quarterbacks. So yeah I’m ready to chime in anytime to help you understand the world around you!
            something to think about though, especially if you just hate the Devil-Weed: I’m spending money to meet conditions mostly based on environmental concerns, paying the taxes, while the State isn’t quite ready to force the buyers to obtain legal weed. Then at the same time, growers who are ignoring the new laws altogether, or just submitted lame incomplete applications, are getting a free pass. There is a definite dis-incentive right now to be “legal” in weed growing. If that 100 pds was in the (not yet ready) State track and trace program, it wouldn’t have been in ND.

            • Maybe Humbolst BOD and Planning dept should be charges as well. They have given permission to cultivate and are NOT enforcing track and trace. So many people with permits selling black market.

        • Did you grow in 2017? If so, STFU. If not, ask for your money back.

      • Ed was great back in the CAMP days. I got some training from him in Citizen Observation Group when we were trying to force CAMP to behave professionally at least…I will always respect Ed Denson for his actions through those years….But yes, since the greenrush hit hard about 15 years ago he took a stance that bothered me. The biggest threat we then had was huge growers doing terrible things for big bucks. And Ed was flying the same flag about protecting “their right to grow medicine” and such malarkey. During that epic drought these were the same growers who took MORE water to make MORE money in their selfish quest. And then when compliance and selling-out oops I mean “legalization” became the game these selfish greed growers were the ones with the major funds to get permits. He likes those growers. I do not. I never will. I saw it all go down. I won’t forget.

  • Y’all have been screaming for legalization for over 40 years. Did you actually think the prices and profits would remain high and taxation would not occur?

    • They been screaming legalization for all this time , and they are so stupid to think that the prices would remain . Better have filled that pickle barel up nicely lol

  • Where do you think all the growers with the huge beautiful grow doser trucks went? Notice how many are not around anymore?
    Its because all the money in cannabis is leaving here. Other communities are looking at what they can do to cash in on the huge cannabis market and welcoming it with open arms while humboldt is unfairly regulating and unfairly fighting against it that were just causing ourselfs problems in the long run. Let marijuana be! We had it decriminalized because we dont want regulation. Its time to end this war on weed.

    • “War on Weed” created the huge profits in the first place. The government gives and the government takes away. Now it’s got to the taking away part.

    • Wrong. People are absolutely crushing it right now under the protection of the county. The county atvthis point is doing ZERO to keep people legal. Ask a permit holder if they are track and trace. Ask a grower that has been given an interim if they’ve signed it. Ask the same growers if theyvolan on signing it after growing a thousand pounds plus this year without paying any taxes.

  • Where did my comment go?
    Comment and it just disappears. Wtf?

  • The depth of the anger at getting caught in the maws of government matches the height of the glee of those who think they have avoided a disaster by keeping themselves illegal. Ha! On both your houses. Once the government scents tax money in the air, all will be eaten. Whether they offer themselves up or flee. The government wants money, needs money, to do the things demanded by the public. All those people saying something needs to be done. Money is needed to try whether government is successful or not in the end.

    The only way to keep money out of the hands of government is to do what you want for yourself rather than expecting government to do it for you. Be careful of what you ask for because even the asking costs money.

  • The system was designed for you to fail. Sorry. Hook. Line. Sinker. It’s a brilliant plan if you look at it from there perspective. They are laughing. Belive me…… all the way to the bank while your left scratching your head

    • Black Rifles Matter

      Only in Humboldt, Do lib pot growers cry kick and scream for legalization, then practically overnight, wake up crying about being overtaxed. Makes me enjoy this hot” covefee “ even more. Haha. Enjoying watching the “show”. Enjoying watching the prices of permitted farms plummet in price. Enjoying watching these marriages fall apart as well too. Good times in the triangle for sure.

  • poor big growers.. so sad

    boohoo.. u owe huge taxes cuz yall decided to get the biggest permit/grow u could get approved for.. thought u were gonna bust out thousands of lbs..there were choices on the size/amt of the permit cult. space.. the greedy growers made the choice to go big, flood the market and ruin it for everyone ..no one forced or tricked u n2 getting your permits early.. yall wanted to get a jump start on everyone else (like trinity where i live) getting your legal products out there first and u did but now that u cant sell u complain and blame the county. suck it up buttercup.. u made your bed

    • I don’t recall any big growers trying to push for legalization. Advocates maybe, but now cannabis has lost its medical merit I believe in the muddied world of recreational use and greed.

  • Oh, the government will reform itself in a bit. Once the huge profits are gone and the pot industry shrinks to conform with economic realities, the government will reduce it’s demand to match reality. But an attorney will still claim victory as it will always be for them if no one else.

  • My heart bleeds for the poor grower who has to pay taxes like everyone else now. Boofrickinhoo.

    • Ok, now you have to tell us what your job is!

      Part of the problem is that some ARE paying taxes, and meeting environmental conditions, and some are just avoiding it by doing nothing, or limping through the process, trying to go big on leased space, then splitting when it gets tough.
      “…pay taxes like everyone else now.” since when is paying taxes celebrated in the United States? Didn’t the richest in our country just get a huge tax break? Hey look it up for me: Where is Apple incorporated? How much do they pay in taxes in the US, as a percentage of their profits? What about President Trump? you don’t know because he proudly hid his tax returns! It’s hard to take anyone seriously getting shrill about such a micro sector of the economy, when you look at what “legit business” gets away with. Actually my money is on you being on the dole, and retired, or not making enough at your gas station job to even pay taxes.

  • keep,the eye in the sky on 24 hours and eradicate everything over six. The time has come for legal permitted xxxxxxx xxxx xxx axxxxxxxx.

  • Humboldt has the lowest cannabis taxes in the state. The Growers problem is they’re trying to produce on steep terrain that’s costly terrain for environmental compliance. Perhaps move to better ground.

  • Give it a couple years and we will be right back to the 80’s and 90’s. Nothing but illegal grows, the county spending millions on ‘trying’ to eradicate it and accomplishing nothing. If this county had any common sense, it could have banked a lot of tax dollars. Instead, it’s greed and want for power will destroy that opportunity. I’m finally agreeing with that term, “stupidvisors”.

  • Kym, can you link to the lawsuit filing, or otherwise provide a PDF of it?

    Thanks!

    Luke

  • Now pay me ( a lawyer) and I’ll help you out. LMFAO. Pay up suckers!

  • If they taxed what is actually grown, with no oversight, then everyone would report 1.5 pounds a year.

  • Operating a small business with the jack boot of the state of California on your neck has always been tough. Wait until that ADA lawyer shows up at their permitted grow checking on the heights of their bathroom sinks.

    • My favorite is the property tax on business equipment-
      “Unsecured Property Tax Bills are issued for:
      • Business Property (ex: equipment, machinery, computers, desks, etc.)
      • Boats
      • Boat Berths
      • Aircrafts
      • Aircraft Hangars
      • Possessory Interest for use of space (ex: horse stables, rental space in government buildings, etc.)
      • Improvements on Leased Land”

      I remember one owner of breeding stallion who was nabbed when he advertised. Boy, so many haven’t a clue. But they will learn.

  • what did everyone expect? Did folks really believe the gov. was truthing you about what they have been against since day one, your the sheeple. And about all you folks getting edited in Kyms girls club,again,what do you expect, she does a great job, but the bottom line is. It’s her feed, she can do what she wants and does,just roll with it.

  • Al Capone: “They can’t collect legal taxes from illegal money.”

  • It seems to me that they are bringing big city government to small rural counties, when people moved to small rural counties to get away from BIG city government.

    The government has been as greedy as possible over mmj, but that will now be an excuse to introduce & execute all the crazy laws, taxes, fine & fees they possibly can on all home & business owners.

    I’ve never seen so many for sale signs, as mmj dries up businesses will suffer deeply, local nursery’s, hardware stores, grocery stores, and all that depend
    on donations.

    Sad!

  • Don’t worry just be happy😃😄😃😄

  • How can people be opposed to legal money entering our local economy. Legal income, fair employment standards, environmental safety, etc. Etc. YAYYYYYYYYY LEGALIZATION

    What business owner would not want lower taxes on their product? Most of the taxes were all based on an assumed higher price. The state and county calculated the how much they thought growers would make, based on higher prices, and wrote proposed taxes accordingly. That price changed. So there is one reason to lower the tax.

    That the taxes were changed without voter approval is outrageous. No taxation without representation, regardless of business. Imagine if this was a tax on another industry. Say fishing. People would be outraged at the significant increase that was NOT voted on.
    I guess people think all growers are made of money, so it is ok to ignore their LEGAL rights. Messed up.

    Then there is the corruption, active suits for fraud against planning department staff. Stealing from people trying to be legal.

    Wait to be corrupt Humboldt.😥. Nice of you to destroy the very people who have supported your businesses, while they try to become legal entities

  • JustWantToHeartheEndoftheStory

    My sides hurt from laughing. All that screaming and shouting for legalization, and now the growers are faced with what the rest of us have dealt with forever and a day, taxes and fees and permits. Funny funny funny funny….

  • The fact that the county council stated that the voters intent was up for interpretation has me in a chill. WTF? interpreting percentages, real numbers, established areas (highth,width,etc.) Is pretty scary. What next? Interpreting the real meaning of compliance? Oi-vey

  • Legal the first problem is with the definition of legal because it’s all illegal under federal law do you understand that we live in one country ????????????

  • Where does the money go from the Alder Point illegal grow? I think they found 3 million in cash. It would be nice if they took that money and tried to fix the environment that is being wrecked buy these illegal grows. They also burn the illegal marijuana. Why don’t they sell it to the dispensaries and use the money to help this area.

    • That was in shelter cove area, if anyone acually thinks the gov or county cares about the environment they are severely mistaken, it’s about money and control ALWAYS

      • For the law breakers too. Crooks don’t like losing intimidation displays or money either.

        • Yes absolutely, they fuck it up in the first place, it’s just funny that everyone thinks that any of them give a shit.

  • Growers habe been making anywhere from a very good living to multimillionaires over the past years. Then they came out and said “we want to pay taxes” and now that they are required to pay said taxes, they are bitching and moaning about it. Which one is it? Do you want to be legal and pay the damn taxes or not? If you cant make it in this market, then there ya go, you can’t make it.

  • Just another reader

    Welcome to the rest of taxpaying society, everybody else that works for a living pays almost half of our gross wages in taxes, kinda of a shocker if you haven’t paid taxes in a while!

  • Donald Trump: “Not paying taxes means I’m smart”

  • Humboldt County for years: “Growing weed is Illegal we will confiscate your money and property ”
    Humboldt County now: Growing weed is legal, but we will confiscate your money and then your property when you can’t pay onerous taxes”

  • A bigger point is being missed by most. This kind of re-interpretation of voter passed laws, and I’ll say laws in general, will first be used on the most vulnerable or unpopular and then applied to everyone else. It has been that way throughout history. Forget whether the growers are whining and have no business complaining. Consider instead whether apple and broccoli farmers should be paying large taxes for their crops in advance and charged crazy fees and fines for land they are not even growing on. This is one more goose step closer to the completed police state. The county, for now, is just trying it out on the growers.

    • Yes. The government is going to drag those illegal broccoli farmers out of the black market and into the open, charging them massive tax to have money to keep control of the huge profits in broccoli. Next will be broccolini! Then cabbages. Oh the horror…

  • Williston has been very good for Humboldt.

  • Pingback: Attorneys Say Humboldt Owes Pot Cultivators Millions - California Political Review

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