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Santa Barbara Supervisors Move Closer to Adopting Tax Structure for Marijuana Operations

The Santa Barbara County Board of Supervisors has delayed a decision on a tax structure for local marijuana operations, and a proposal should come back to the board in January. 

The supervisors voted 4-1 last week, with Second District Supervisor Janet Wolf dissenting, to direct staff to talk to growers and retailers about taxing local operations. 

She said it was “beyond comprehension” to her why the county would sit down with industry representatives at this point to discuss a tax structure for marijuana operations. Wolf wanted to adopt a tax structure for the industry on Tuesday.

“It just doesn’t make any sense to me why we would want to wait again on something so important,” Wolf said. “(The industry) has had a really good seat at the table on this thing. When you look at our expenses, I think we need to move forward.”

Staff has spent the last year developing an ordinance to regulate cannabis operations in the county, after the state’s voters passed Proposition 64 in November 2016 legalizing recreational marijuana use.

Temporary licenses allowing individuals to open retail pot shops and cannabis lounges, where people can purchase and consume marijuana on site, are expected to begin being issued by the state starting Jan. 2.

“I feel like we need to make a decision today to move this process along,” Wolf said, noting there will be significant impacts locally after the state rolls out its permitting and licensing program in the new year. “(People) may think I am crazy or old-fashioned … but there is an impact to our community.”

A report presented by Santa Barbara County staff stated that statewide, there are 14,277 licenses being sought for marijuana operations in 2018, which translates into a potential to produce 30 million to 40 million pounds of cannabis. 

Of those licenses, 1,365 are anticipated for Santa Barbara County, with a potential for 3.7 million pounds of marijuana to be produced in the region, which is twice as much cannabis than what is currently consumed in California. 

Consulting firm HdL Companies produced an economic study for the county, and consultant Mark Lovelace, a former Humboldt County supervisor, said the free market will affect cannabis prices and profit margins for growers and retailers.

“We need to have a much more realistic picture of the size of the market,” Lovelace explained. “It’s going to be a buyer’s market, and that will be bad for cultivators. Retailers will be limited by the size of the market.”

However, Lovelace said there’s a lot of room for growth and innovation on the manufacturing side of the cannabis industry, and he urged the supervisors to consider the economic impact — job growth — of marijuana manufacturing locally when adopting future regulations.

“You really do have an opportunity to embrace this (new industry),” Lovelace added.

During his presentation, Lovelace also suggested the board implement a tax structure that keeps cumulative state and local taxes around 30 percent, and noted taxes are assessed at different points “along the food chain” in the industry.

His report showed that if the county adopted a 2-percent tax rate, around $8 million could be generated for the general fund. A tax rate of 4 percent could generate around $16 million, while a 6-percent rate could garner around $24 million.

Local cannabis business owners urged the supervisors to not adopt a tax rate during the special meeting, saying they wanted more time at the table to work with the county on an equitable rate.

Industry representatives also urged adoption of rates ranging from 1 to 2 percent of gross revenues, saying it would help create a robust local industry.

“We don’t support the proposed recommendation,” said Liz Rogan, a members of the Cannabis Business Council of Santa Barbara County. “We feel the rates are too high and not sustainable. Many operators are not going to seek licensure or will relocate elsewhere.”

Rogan urged the supervisors to stay in line with the cities of Santa Barbara and Lompoc when adopting regulations and taxes, noting both have worked with the industry to craft rules and fee structures.

County staff estimates it would cost about $2.4 million to implement a license, permit and compliance program for marijuana operations in the region, with the majority of the money being spent on enforcement, something that is lacking due to funding issues.

The majority of the supervisors said they wouldn't support the program if the tax didn't pass at the polls. 

“I can’t go to the public and say, ‘This is enough money for enforcement with 1 or 2 percent,” said First District Supervisor Das Williams. “I have to be able to look people in the eye in Carpinteria and say, ‘There is enough money for better enforcement, for more law enforcement and a better life after all of this. One or 2 percent means I am a ‘no.’ I am out of here.”

Staff is expected to return with a proposed tax structure for possible adoption at the board’s Jan. 9 meeting in Santa Barbara.

A proposed ordinance regulating marijuana operations in the county is expected to be presented to the board in February.

Noozhawk contributing writer April Charlton can be reached at [email protected]. Follow Noozhawk on Twitter: @noozhawk, @NoozhawkSociety, @NoozhawkNews and @NoozhawkBiz. Become a fan of Noozhawk on Facebook.

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