Consensus was reached on most aspects of a taxation program for all cannabis operations in the county at the end of a six-hour Board of Supervisors special meeting Thursday in Santa Barbara.
The all-day meeting was devoted entirely to dealing with the many facets of cannabis regulation necessary to prepare for the state licensing program that will launch Jan. 2 and the expiration of the county’s urgency ordinance in March 2019.
Supervisors spent the first four hours hearing from a consultant and county staff how other counties have been dealing with the legalization of cannabis and some of the options available here for taxing various types of operations as well as licensing, permitting and enforcement.
“For the first time, we have fully developed regulations at the state level for you to work with,” said Mark Lovelace, a former two-term Humboldt County supervisor who now works for HdL Companies consulting firm.
California issued revised regulations for permitting and licensing Dec. 7, finally giving the county a solid idea of how its ordinances must be configured to dovetail with the state regulations, but that only gave county staff five days to revise options and recommendations for Thursday’s special meeting.
Supervisors also heard comments on the issues from more than two dozen people. Residents were looking for relief from such problems as odor and traffic generated by existing operations.
“I’m asking you to consider asking growers to post a bond … to cover the cost of enforcement ahead of time,” said Renee O’Neill of Tepusquet, speaking from the supervisors chambers in Santa Maria.
She strongly recommended the board adopt suitable zoning regulations, prohibit growers from hauling in water, enforce traffic laws for drivers, apply strong penalties for violators and encourage the “good actors.”
“Taxation is a critical issue when it comes to enforcement,” said Dave Cleary, also of Tepusquet, who didn’t believe the state would be effective in that regard. “I think we’re going to end up counting on you a lot.”
Ben Williams, headmaster of Cate School, said the boarding school has been part of the Carpinteria community for more than 100 years and weathered the Depression and world wars, but trustees see cannabis as the worst threat yet.
“We oppose any cannabis cultivation in Carpinteria Valley,” Williams said. “We se cultivation in the valley as the greatest threat to our school in history.
Others were more supportive.
Joe Armendariz, representing the Santa Barbara County Taxpayers Association, said the county’s “draconian regulations” had destroyed the greenhouse industry and incentives for the cannabis industry to expand should be considered carefully.
“I suggest you make cost recovery the only fundamental objective,” he said of the county’s tax proposals.
Andy Caldwell, executive director of the Coalition of Labor, Agriculture and Business, agreed county regulations had “put the kibosh” on greenhouses as well as short-term rentals and the oil industry and said the board could be setting up the cannabis operations to succeed or fail.
“I’m concerned about you guys getting dollar signs in your eyes,” he said, referring to potential taxes and fees.
Bruce Watkins noted Santa Barbara County lies 2½ hours north of Los Angeles, which he said is the largest market for cannabis, and bans in other Southern California counties have left Los Angeles, Santa Barbara and San Luis Obispo counties to serve that market, which the supervisors should take advantage of.
“You have agricultural resources, you have the perfect microclimate for low-cost production of a high-dollar product,” he said. “You have branding panache. You can offer the most highly prized appellation.
Cannabis business owners urged the board to delay a decision on tax rates or adopt rates as low as 1 to 2 percent on gross revenues to help them be successful and compete not only with operations in other counties where taxes and fees are lower but also the black market, which has no taxes or fees.
“We do want to be taxed,” said grower Michael Smith. “We do want to be contributors (to society). But you can’t destroy the industry in the process.”
Elizabeth Rogan of the Cannabis Business Council said the organization didn’t support the proposed high tax rates because they weren't sustainable and because the county rate added to the state tax rate plus a 15-percent excise tax could cumulatively tax the industry at 40 percent.
“Many (operators) may not seek licensure or will move somewhere else,” she said.
Supervisors wanted to make sure taxes would be high enough to cover the costs the county is facing for not only making sure permitted businesses are operating legally but also taking enforcement action against illegal operations and additional staffing for impacts on public health, mental wellness and environmental protection.
“My job is not to make sure all cannabis businesses survive,” said 1st District Supervisor Das Williams. “My job is to develop policy that’s good for all of the county. Some of you will go out of business. That’s not our fault.”
Fifth District Supervisor Steve Lavagnino agreed: “Our job is not to encourage and make (the industry) grow. Our job is to provide a level playing field. … There is a premium to do business here. The cost is high to do business in this county.”
Second District Supervisor Janet Wolf said the county should adopt a tax rate and get its ordinances together before doing anything else, and she indicated the testimony of residents would affect her vote on tax rates.
“I give great weight to those comments,” she said.
Third District Supervisor and Board Chairwoman Joan Hartmann favored a graduated tax rate but said the staff should go back to the industry and find out what they think about the rates and what they need.
“I think we should support locals before we invite a lot of people from outside,” she said, so the county registry of operators would be important in regulation decisions.
“We’re probably going to make some compromises up here no one wants,” said 4th District Supervisor Peter Adam. “But we’ll come up with something.”
In the end, supervisors reached consensus on holding a tax election next June, having the same tax rate for both medical and recreational marijuana operations, taxing the product based on gross revenue, having no sunset clause, conferring with the tax collector on the collection frequency, having the tax apply only to the unincorporated areas and having the regulations become effective only if the tax measure is approved.
Opinion seemed to be split on using the staff’s recommended tax rates of 2 percent for nurseries and distributors, 4 percent on cultivators and 6 percent on manufacturers and retailers.
They almost reached consensus on having the cumulative total of local and state taxes no more than 30 percent and only tax cannabis at the point where it has the most value in a vertically integrated operation.
Adam predicted the price of cannabis will eventually fall to $50 a pound, so he recommended basing the tax on that value.
The staff is scheduled to present the board with a proposed tax schedule at its Jan. 9 meeting.