April 28th 2025 Newsletter - 4th Tax reduction provided!

April 28th, 2025

Dear Neighbors,

By the County’s own admission, its commercial cannabis program is running in the red with no chance of ever paying for itself.  This means we, the taxpayers, are subsiding this commercial industry now and in the indefinite future.  That contradicts all the promises made by our Supervisors.

Financial Review of Sonoma County’s Cannabis Program

How did the BOS decide on the providing the latest 53% tax reduction?

County staff hired an independent consultant HdL to survey local growers, who continue to report price reductions as the industry deals with oversupply and competition.  As County Staff agreed, the foundation of the survey was defective because only 20% of growers responded, and none of the information on price reductions was verified.  County Staff and HdL provided the following cautions to the BOS on approving any tax reductions:

• “It should be assumed that operators’ participation is likely because of the incentive to encourage the County to adjust the cultivation tax rates”.
• “The information was self-reporting with no independent verification.”
• “We do not have any data to inform us as to why prices for local growers would have fallen later and by more than average prices statewide.”  “The statewide average prices fell by a more modest 16%”, versus the 53% provided by the growers.
• The Staff presentation clearly pointed out the program is running at a significant deficit, with revenue in the $700K-$1m range (depending on taxing options presented), with expenditures in the $1.7m-$2m range.

With no reliable evidence to support a reduction, and considering the undisputed fact the program is losing money, why did the BOS vote to compound the problem with yet another massive tax reduction? What was their logic?  Supervisor Hopkins said it did not make sense to continue a tax that is not able to cover the cost of its own collection. “The reality is we tried something and honestly what I’m seeing is that it’s not really working,” Hopkins said.  In conclusion, common sense isn’t too common.

Statewide Problem

The same economics are now playing out at the State level.  Proposition 64 was sold to the voters as a tax windfall, designed to generate revenue from cannabis taxes for drug research, treatment, law enforcement, health and safety grants, youth programs and preventing environmental damage.  In 2021, the State's cultivation tax was cancelled, thereby eliminating the funding source that supported child/youth services. Seeing their programs in jeopardy, over 100 child/youth advocate groups cried out to the legislators who then agreed to backfill this funding with General Fund monies.  With California facing a significant deficit, these child/youth programs are again at risk.Cannabis industry passing the blame (and buck):The “Industry” claims the problems are taxes, regulations, and the illegal market, rather than these growers oversupplying the market, thereby driving down prices.  During the first few years after legalization, the growers first to market enjoyed high prices, high profits and paid their taxes without complaint.  What has transpired in the last few years are the normal growing pains of any new industry.  Many more growers entered the market, growing significantly more cannabis, at significantly lower prices, and supplying both the legal and illegal markets. Moreover, during this time, their taxes have decreased.  This competition has exposed the inefficient growers.Independent analysis confirms the real problem:These problems were highlighted by the consultant HdL, hired by our BOS to help them update the tax plan.  Looking at the larger California market HdL’s 2022 report  pointed out:

• "The cannabis cultivation market in California has far exceeded its saturation point and that there is not enough room for those growers already licensed, much less new entrants...."
• “The 20 largest cultivators in California are capable of producing over 2.6 million pounds of cannabis per year, which is more than enough to supply the entire statewide demand.”  (There are over 8K cultivators)
• "Outdoor cultivation has struggled to find a place in the cannabis market. Many outdoor cultivators have been unable to sell their product at all."
• "Any change to the basis or rate of the county’s cultivation tax is unlikely to make a difference in which businesses succeed or fail.  The current reduced tax rates are on par with or below common tax rates found elsewhere in the state, including Santa Barbara County and Ventura County, which are both home to some of the largest operators in the state. These businesses appear to be operating comfortably and out competing growers from elsewhere in the state despite a somewhat higher tax burden. We believe that factors such as proximity to markets, cultivation infrastructure, operating efficiencies, producing under contract and distribution agreements are more indicative of business success than tax rates, alone".

Back to Sonoma County’s cannabis program finances: The County Cannabis program is not financially sustainable.  

The Staff report projected annual costs in the $1.7m-$2.3m range with tax revenues of $700K annually (down for the $1.8m revenue being projected just 2 years ago!).  The fund balance will be depleted by FY 2026/2027.  That assumes the same level of growers and cannabis pricing, which now is very questionable considering competition throughout the State and the latest tax revenue outlook.  The current outlook for FY 2024/2025 confirms this troublesome trend:

• Revenue estimate based on BOS approved reduction: $705K, or ~ $295K /30% below staff projection.
• Projected program DEFICIT based on BOS approved reduction: $1,010,890
• Tax delinquencies for current year: 17% of current growers.

The cannabis industry does not generate enough tax revenue to pay for its direct program costs, let alone achieve the goals of Measure A.  Further, the County projects this deficit will continue for years to come.  We, the taxpayers, will be on the hook.  Despite the repeated tax reductions to support a failing industry, Supervisors Gore and Hopkins went so far as to suggest eliminating the cannabis tax all together.  No more inconvenient discussions, problem solved. No other businesses receive this same indulgence. They sink or swim on their own. Why is cannabis treated differently? Why doesn’t our BOS work to implement the intent of the law instead of undermining it?

WHAT CAN YOU DO?

If you are concerned about Tax Breaks for Cannabis Growers only, phone the Supervisors switchboard (707-565-2241) and/or email (see addresses below) and tell the Supervisors you want them to keep their promise to the voters of setting a tax rate sufficant to fund essential county services. Your family’s health is more important than catering to a failing and harmful commercial industry.

1. Become fully aware of the cannabis ordinance changes at the County’s website that impact your property;
2. Visit Neighborhood Coalition Sonoma County to learn more ways you can get involved and help protect your neighborhood
3. Make a donation You can donate online , or you can mail a check to:
   
   Sonoma Neighborhood Coalition
   PO Box 1229
   Sebastopol, CA 95473
   

Our campaign to preserve what we all hold near and dear needs your support. Your tax-deductible donation will fund technical experts and our legal team that are critical to our effort to require the County to protect our environment, children, and the health and safety of our neighborhoods.

The Neighborhood Coalition is a 501(c)(3) nonprofit organization, volunteer-based, dedicated to advocating for proper cannabis and land-use policies that benefit the community. All donations support these efforts.

Thank you for your support and donation.
The Neighborhood Coalition team


Board of Supervisor’s emails
1st District:
Rebecca Hermosillo
Rebecca.Hermosillo@sonoma-county.org

2nd District:
David Rabbitt
David.Rabbitt@sonoma-county.org

3rd District:
Chris Coursey
district3@sonoma-county.org

4th District:
James Gore
District4@sonoma-county.org

5th District:
Lynda Hopkins
Lynda.Hopkins@sonoma-county.org

Please send a copy of your letter to sonomaneighborhoodcoalition@gmail.com

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