California County Reduces Cannabis Cultivation Tax Amid Falling Outdoor Flower Prices

Local officials in Sonoma County, Calif., have given preliminary approval to adjust cannabis tax rates for cultivators, manufacturers, and retailers in unincorporated areas.

Board of Supervisors to Review Amendment

The amended Cannabis Business Tax Ordinance is set for a second reading before the Board of Supervisors on April 30 after unanimous initial approval.

Changes in Tax Rates

The proposed amendment includes an increase in the cannabis sales tax from 2% to 3% for dispensary operations, along with reductions in cultivation and manufacturing rates.

Cultivators Voice Concerns

Several cultivators expressed concerns about the square-footage tax structure, arguing that it imposes unfair burdens regardless of cultivation output.

Max Rates and Market Evaluation

The county’s tax ordinance allows for maximum square footage rates, which are reevaluated annually based on market conditions.

Statewide Context

Sonoma County is among the 30 counties in California that permit various cannabis business types in unincorporated areas.

Projected Revenue and Program Costs

The proposed tax rate adjustments are intended to address the gap between projected tax revenue and the costs associated with managing the local cannabis program.

Implications for Retailers and Manufacturers

The 1% tax hike on retailers is expected to generate additional revenue, while manufacturers will see a decrease in tax rates.

Dispensary Landscape

While Sonoma County has 37 active dispensary licenses, only a handful are located in unincorporated areas.

Cultivation License Trends

The region has experienced a decline in outdoor cultivation capacity, reflecting broader trends in California’s licensed cultivation market.

Market Challenges

Factors such as taxes, price compression, and aggressive pricing strategies by large cultivators contribute to challenges faced by small cannabis businesses.

Feedback from Small Farmers

Small craft farmers express concerns about the sustainability of tax rates and the financial viability of their operations.

Sonoma County’s proposed tax rate adjustments aim to strike a balance between supporting local businesses and covering program expenses amid evolving market dynamics.