More changes could be coming to the local cannabis industry.

The Santa Barbara County Board of Supervisors voted Tuesday to look at a hybrid taxation model. It would charge cultivators a base rate per square foot, or 4% of their gross receipts, whichever amount is larger.

Voters would have to approve changes to the tax structure, and the supervisors directed staff to bring back potential ballot language at a June meeting.

County voters previously approved a 4% gross receipts tax for cultivation, and different rates for other cannabis-related businesses.

The supervisors deliberated on the issue for hours during Tuesday’s meeting and tried to reach agreement on a plan, since it takes a four-fifths vote to put a measure on the November ballot.  

They want to get tax compliance from operators and a more predictable flow of revenues.

The hybrid option would get every licensed operator to pay a minimum amount of tax, and that would be enough to fund program administration, enforcement, and education costs, said Brittany Odermann of the County Executive Office.  

“We’ve seen little or no payment of taxes by some of our outdoor licensed operators,” Odermann said.

Greenhouse and indoor growers, who are concentrated in the Carpinteria Valley, paid 82% of the cannabis cultivation taxes collected by the county last year – about $4.47 million.

Indoor, greenhouse and mixed-light growers can harvest multiple times a year. They typically produce better quality and higher value cannabis than outdoor growers, Odermann said.

Because of that, in a hybrid tax model, most indoor operators would pay 4% of their gross receipts (the same as the current rate), Odermann said, basing estimates off last year’s numbers. Most outdoor operators would pay the base tax.

Industry representatives opposed any changes to the tax structure.

CARP Growers members have paid the county tens of millions of dollars in taxes since the system was created, Peter Dugre said during public comment.

Keeping the existing tax model is the best way for the county market to remain competitive in the years to come, he said.

Michael Palmer, a Carpinteria-area grower, said the square-footage rate would have to be about half the proposed amount to be viable.

Micah Anderson said his Cuyama-area cannabis farm made a business plan based on the existing 4% gross-receipts tax model. They’ve spent millions of dollars going through the licensing process, and this is expected to be its first year operating, he said.

It’s a 186-acre project, which is 8 million square feet – that would be a $2 million bill at the proposed $0.25-per-square-foot tax rate.

Board Supports Hybrid Model, Lowering Square-Footage Rates

California counties have different approaches to cannabis cultivation taxation, with some doing square footage and some doing gross receipts. None is doing a hybrid model, Odermann said.

Supervisor Joan Hartmann envisioned the hybrid option at a previous meeting, and made the motion Tuesday for the proposed ordinance: a base rate of 10 cents per square foot for outdoor and $1 per square foot for non-outdoor cannabis cultivations. That’s lower than the staff proposal.

There would be maximum amounts of 75 cents per square foot (outdoor) and $2.50 per square foot (non-outdoor). The supervisors could change the rates every two years, with a four-fifths vote.

If the board wants to get the hybrid tax model on the November ballot for voters to consider, it will have to move fast and approve the language by early July, according to staff.

All of the supervisors approached the issue wanting to create fairness within the industry, and to make it easier to enforce compliance.  

Some outdoor operators are paying one-sixth of what others are paying per square foot, based on past tax payments — “something’s wrong there,” Supervisor Bob Nelson said.

Supervisor Laura Capps said the public has seen a lack of fairness for years, with nuisance issues and underreporting on tax reports, and the county should do something.

“We can do better,” she added.

Supervisor Das Williams said the base rate is meant for tax compliance, and the gross receipts is meant for generating revenue for the county.

Supervisor Steve Lavagnino, the only one who voted against the motion, said it’s important to make sure indoor and outdoor growers are all paying their fair share. He added that the county has a system in place to verify the payments.

“I am confident that we are deriving more compliance; I’m not confident we have 100% compliance,” Treasurer-Tax Collector Harry Hagen said at the meeting.

Last year, the county had 12.2 million square feet (about 280 acres) of outdoor cannabis cultivation, and 3 million square feet (about 68.8 acres) of greenhouse and indoor cultivation.