Measure A – the medical marijuana money measure
There’s gold in the green hills of coastal Northern California, causing a stampede by California state and county governments trying to tap into the billions of dollars in potential revenue that the subterranean cannabis industry has been mining for the last 40 or 50 years.
Sonoma County voters are being asked to approve Measure A, a county tax on those who grow medical marijuana, in a March 7 special election. It’s a complicated measure, with a bewildering array of options and applications that requires a seven-page voter information pamphlet to flesh out the simple paragraph of the actual measure.
Essentially, the county supervisors are asking to be allowed to charge a cannabis business tax consisting of either a fee per square foot or a percentage of gross sales – on commercial medical marijuana production and business transactions in the unincorporated area of the county. They have set a 10 percent maximum on the amount of gross sales that can be taxed, and a maximum of $38 a square foot for the fee type. These are either/or propositions for now: either the county charges growers by the square foot of plantings, or by a percentage of their gross sales. Not both.
The rates will start out low to help bring nervous growers and processors on board. The Board of Supervisors can raise the numbers anytime, up to the limits allowed by Measure A. Fees per square foot of plantings have initially been set low, and the gross income tax is now set at 5 percent although it could go as high as 10 percent (though fees are the preferred tax method).
If passed, the measure will be in effect by April, 2017, in time for the county to start issuing licenses and collecting fees for the 2017 growing season.
Cannabis business taxes are NOT applied as general sales taxes; they are paid by the people growing, processing and selling medical cannabis. Sonoma County expects that the measure could generate $6.3 million in taxes this year alone.
Since the money raised will go into the county general fund, the measure requires only a simple majority to pass. But while use of the funds is unspecified, supervisors have made it clear that revenue collected is necessary to fund the significant number of new people needed to audit and oversee the new cannabis enterprise, including licensing, law enforcement, tax collection, environmental impacts, and the like.
County officials have said that if the measure fails, nothing will go forward – no permits will be issued, which would preclude growers from obtaining their state licenses.
Marijuana growers aren’t too happy about Measure A, or a lot of other tax measures being passed by California cities and counties, saying the combination of state, county, and city taxes, plus sales taxes, are too much.
The Sonoma County Growers Alliance (SCGA) has adopted a neutral position on Measure A, but with strong reservations, according to SCGA Executive Director Tawnie Logan.
“Either the measure passes and we have a tax structure that has the ability to bankrupt a fledgling regulated market, or the measure fails and we have no permits for businesses in 2017, perhaps not even in 2018 unless the industry can produce $300k to run their own tax measure.” Logan’s message is posted on the group’s website at www.scgalliance.com.
She felt the county’s threat to do nothing if the measure fails is “manipulative” and puts the growers in a precarious position of not being able to apply for state permits. State licensing begins Jan. 1, 2018, and growers will have to first show that they are a legal grower in their county. Once they have the state license they will be subjected to an additional 15 percent tax. Adding up the various taxes and fees could bring the commercial tax rate up to 38 percent or higher.
Federal vs. state law
In the convoluted legal system developed in the federal/state standoff surrounding medical marijuana cultivation, growers who were fairly comfortable that they would not be prosecuted if they toed the line would now be vulnerable.
Marijuana is a Schedule 1 narcotic at the federal level, as classified by the Drug Enforcement Administration, a fact which prevents banking of any funds resulting from any aspect of the business.
All taxes and fees paid by existing medical marijuana businesses are paid in cash.
“In calendar year 2016, 1,077 accounts had $879,923,449 reported taxable sales, with $77,204,954 computed tax due,” Board of Equalization spokesperson Venus Stromberg said. Handling this much cash throughout the state poses it’s own set of problems, requiring higher security and special measures to ensure everyone’s safety.
The need to move marijuana regulation and taxation to a more business-like platform – allowing money to be deposited directly to banks – has prompted U.S. Rep. Griffith, H. Morgan [R-VA-9] to introduce a bill in Congress, HR 715, asking the DEA to reclassify marijuana off the Schedule 1 list and allow it to be regulated and taxed efficiently. The bill is still in its early stages, but it was referred to the House Judiciary committee on Jan. 27.
Just finding the businesses to tax can require looking at newspapers and online to discover people in the business who have not yet come forward.
Stromberg said that people with state-issued medical marijuana cards – about 6,000 so far – are exempt from paying sales tax.
If you don’t have your sample ballot by now, call the County Registrar at 565-6800. People are already voting by mail.
You can learn more about the county’s new cannabis regulations at a Feb. 21 meeting for stakeholders and other interested parties, co-hosted by the county and the City of Santa Rosa, 6 to 8 p.m. at the Glaser Center, 547 Mendocino Ave. in Santa Rosa. Participants will be able to ask questions and provide input. In addition, the county’s Ad Hoc Committee on Marijuana, which includes First District Supervisor Susan Gorin, is conducting a survey that can be accessed online at www.surveymonkey.com/r/cannabistax.