Measure S Cannabis Tax Modification Is Topic of Special Board of Supervisors Meeting – Monday Morning

Adobe People Farm in the permitting process in 2016. [Photo by Kym Kemp of her family garden]

Last week, Southern Humboldt’s Supervisor Michelle Bushnell recused herself prior to the discussion regarding Measure S.  With the controversial conversation about Measure S resting in the hands of the other four supervisors, Southern Humboldt growers must turn their appeals to the other four Supes. It is expected that the Board will decide on Monday during this specially set meeting which cannabis taxes will be forgiven and to what degree.  

The staff report states that the board should “develop a Cannabis Excise Tax Suspension/Reduction Program” as well as “direct the [County’s Chief Administrative Officer] to draft a resolution for final review and approval establishing and documenting the program as directed by your Board.”  The proposals on the table for the Supes to consider are clearly laid out in two differing options in the staff report.  

• Option 1 is a 50% reduction. “An equal percentage of waived excise tax for all cultivators.” 

Option number 1 is described as “[I]ncorporating the 31% delinquency allowance, a 50% reduction in all tiers results in an estimated revenue reduction for Tax Year 2021 of 66%, or $13 million. A 75% reduction in all tiers results in an estimated revenue reduction of 83% or $16.5 million, inclusive of the 31% delinquency allowance. Please note that to create a consistent basis for comparison, estimated current billings are based on the current permits for a gross revenue amount of $19.9 million. A 100% reduction in all tiers for Tax Year 2021 simply reduces revenue to $0 and no allowance is necessary for delinquent taxpayers.”

• Option 2 is a tiered reduction of 50%, 25% and 0%. “A stepped reduction to each cultivation tier (Outdoor, Mixed and Indoor).”

The second option is described as “[I]ncorporating the 31% delinquency allowance, a 50-25-0% reduction in the tier steps results in an estimated revenue reduction for Tax Year 2021 of 58% or $11.5 million. A 75-50-25% reduction in the tier steps, results in an estimated revenue reduction for Tax Year 2021 of 75% or $14.9 million.” 

At last week’s meeting it was revealed that the four largest permitted farms in the county had not yet paid the 2021 tax, while roughly 80% of the smaller permitted farms had already paid the tax.  While there was some speculation as to why this may be, it was understood by the Supes that across the board for outdoor, mixed light or sungrown cannabis, fair market prices were not competitive enough to keep locals afloat, while an abundance of product has consistently made matters worse in a buyer’s market. 

Graphic included in the staff report for Monday 7, 2022 Board of Supervisors meeting. 

The Board could, according to the staff recommendations, “direct staff to re-evaluate the evolving changes in the cannabis market and the impacts to both cultivators and the county’s financial status prior to Tax Year 2022.”  The report also states, “Staff recommends delaying action on Tax Year 2022. The current market situation developed quickly, in just a few months and is likely to continue to evolve over the next 6 to 10 months. The CAO’s recommendation is to provide no retroactive waiver of the 2nd installment of Tax Year 2020, to reduce the Tax Year 2021 excise tax by either 50% for all tiers or apply the 50-25-0% tier steps, and to return to your Board in later this year with an evaluation of the implemented tax reduction program in order to consider whether additional adjustments are warranted.” 

The Supes will also need to consider feedback as to the county budget, which now relies on the cannabix tax infusions to fund many programs county-wide. For instance, in considering retroactively suspending or reducing taxes of the tax year 2020, the report advises, “Suspending or reducing the tax assessments for Tax Year 2020 is also problematic because 41% of cultivators have paid in full, 31% paid the first installment (due Mar. 15, 2021) but not the second, and 28% paid nothing towards the assessments for 2020. To uniformly administer such a waiver, refunds or credits would be necessary for cultivators who have already paid. With cannabis excise taxes collected through Dec. 31, 2021, at only $2.3 million, a refund of just one of the Tax Year 2020 installments would result in payments or tax credits of $3.65 million and create a negative revenue total for FY 2021-22 of an estimated $1.3 million and potentially make budget adjustments necessary immediately.”

Measure S funds are combined into the general fund, and so “the source of revenue is tracked but the activities are not tied to the revenue source.”  These funds are not earmarked for specific projects, although are expected to be routed to particular community projects such as Project Trellis, and other Cannabis-related business and entrepreneurial activities. Although detailed tracking of Measure S funds is not done, county staff has, “for information and budgetary purposes, identified certain funds that have been budgeted and available because of the additional revenue including Measure S.”   

Marijuana buds in a legal garden.
[Photo by Kym Kemp]

Having been advised by county council as well as her own legal counsel, Bushnell decided to take the recommended course of action and remove herself from the meeting due to her personal conflict of interest in having a permitted cannabis farm in Southern Humboldt. 

Supervisor Bushnell received pushback from Sohum farmers dismayed at the idea that the supervisor they considered most qualified to represent them would not be weighing in on the matter.

Supervisor Rex Bohn – who, like Bushnell, has extensive local history in the cannabis community – spoke at last week’s meeting while discussing Measure S, stating he was in favor of forgiving taxes “next year” if current taxes due were paid up in full.

While Supervisor Bushnell acknowledged last week that her representation of the cannabis community was a priority for her, she also indicated that she needed to eliminate the possibility that a vote on the Measure S tax modification could be overturned due to her involvement – which would prolong the process and inevitably cause additional strife for cannabis farmers. Executive Director of the Humboldt County Grower’s Alliance, Natalynne DeLapp criticized the decision by Bushnell, saying in part, “…it is because you are a farmer, because you’ve been doing great work for the 2nd District, and because the farmers throughout the county go to you for representation, that not having you as part of the discussion–as their representative was such a loss (and frankly came as a surprise to all of us).”  At the time of publishing, under short notice, Supervisor Bushnell was not available for further comment. Additionally, an attempt to reach DeLapp of HCGA for comment was also unsuccessful on short notice.

Measure S taxation timeline included with the staff report for the Special Meeting, Monday 7, 2022.

For clarification, the tax year 2022 is billed in February, of 2023, with the first installment due in March of 2023, and the second installment then due October.  The previous year’s taxes work the same way.  Taxes for last year, 2021, would be billed this month, in February of this year with the first installment due next month, in March, and then the second payment due October later this year. 

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