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High cannabis taxes have pushed growers away from the unincorporated San Benito County but the Board of Supervisors wants to fix that.
“Our tax rate presents a barrier for cannabis businesses to establish in our county,” San Benito County Principal Administrative Analyst Dulce Alonso told the board at its May 7 meeting. “We’ve heard from them that it’s too high.”
The county’s cannabis business tax was passed by voters in 2018 as Measure C.
It’s broken down into six business categories: cultivation, which involves propagation, planting, growing, harvesting or processing; distribution; manufacturing; laboratory testing; micro business, which involves a retailer that may be closed to the public and offer delivery; and retailer.
In March 2019 the board adopted the following tax rates.
Every businessperson or entity engaged in cannabis cultivation in unincorporated areas of the county must pay an annual tax of $3 to $17 per square foot, according to the ordinance.
The remaining business categories pay an annual tax based on gross receipts for the fiscal year:
- Distribution: 0.5% to 4%
- Manufacturing: 2.5% to 4%
- Laboratory testing: 0.5% to 4%
- Micro business: 2.5% to 5%
- Retail: 0.5% to 8%
The board unanimously agreed to look at Santa Cruz and Monterey counties’ cannabis taxes and fees. Supervisor Kollin Kosmicki suggested the board create an ad hoc committee to review San Benito County’s cannabis tax. He added that allowing cannabis farms to come into the county with lower fees is a “legitimate economic opportunity.”
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Table from the San Benito County of Supervisors May 7 agenda packet. “Let’s essentially replicate that so that we’re not creating barriers and that we’re essentially allowing the free market to work,” Kosmicki said.
Supervisor Mindy Sotelo said, “We have an opportunity to work with people that are really trying to do something good. And I believe that there are a lot of people that are trying to do that.”
Supervisor Angela Curro nominated Supervisor Bea Gonzales to lead the ad hoc committee, which the board approved.
The county currently does not set a limit on commercial permits for the cultivation, manufacturing, laboratory testing or distribution of cannabis, according to its cannabis policy. There are no limits for micro businesses, but the county does limit retail stores to five permits.
There is a reason why the county doesn’t collect taxes from cannabis operators.
“Currently, we don’t have any businesses that have established cannabis operators in the county,” Alonso said. “There are a few that are working through the pipeline, however we don’t have any that are in operation at this time.”
Last year, the county had four registered hemp growers, but two of them were found to be illegally registered, county Agricultural Commissioner Ken Griffin said during the meeting.
Businesses that grow hemp, described by the county as a cannabis crop containing no more than 0.3% of tetrahydrocannabinol (THC), the psychoactive compound in cannabis, are required to pay a registration fee of $1,000, according to the county hemp ordinance.
Supervisor Dom Zanger and Curro said the ad hoc committee should think of revising the hemp ordinance too.
There were two public commenters who said they’d like to establish business in the county but the tax rates were prohibited.
Darren Story, CEO of Coastal Sun Farm, a Santa Cruz-based cannabis farm, said he was interested in bringing business to the county, but the tax rate and the outdoor cultivation policy stopped him.
“We run a really tight ship, but with the overwhelmingly large difference between Santa Cruz County and this county, currently, it’s just not tenable to establish operations here of any sort,” Story said.
Beginning in January 2021, the Santa Cruz County Board of Supervisors reduced the county’s cannabis business tax for distributors to zero.
In Santa Cruz, indoor cultivation and manufacturing businesses pay a gross receipt of 7% per year, its county ordinance read. Monterey County charges an annual tax of $.72 to $2.18 per square foot for cultivation businesses, its county ordinance read.
The second speaker Aziz Nashat, chief operating officer of Lifted Organics, a cannabis farm in Santa Cruz County, said the taxes for cultivation in San Benito County were “untenable.”
Nashat urged the supervisors to consider a lower tax rate to reduce the number of illegal growers in the area.
“I imagine you guys have problems with black market operators,” Nashat said. “This is a way to bring them out of the shadows.”
An illegal marijuana grow was recently discovered by the Hollister Fire Department on Buena Vista Road.
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