Playing by the rules: cannabis taxes and fees (opinion)

Jim Shields from the Observer looks at the costs of compliance.

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Editor’s note: The opinions expressed in this article are Jim Shields’ and do not necessarily reflect any opinions of The Mendocino Voice. Shields is the manager of the Laytonville Water District and the editor/publisher of the Mendocino County Observer, in which this piece was originally published. Anyone is welcome to submit a letter to the editor at [email protected] 

For more information on the county’s track and trace meetings, see our article here. The workshops will take place on June 14 and 15 in Fort Bragg, Boonville, Laytonville, and Ukiah. You can also check out the Mendocino Voice Cannabis Compliance Resource for additional resources on cannabis permit fees. 

LAYTONVILLE, CA 6/13/17 — The county is holding meetings this week in Laytonville, Ukiah, Fort Bragg, and Boonville to publicly unveil its newly-minted “Track and Trace” system that will, well, track and trace ganja from seed to whatever its end use might be.

According to the statement released by the County Executive Office, “The County of Mendocino has selected SICPA to provide a track and trace system called CalOrigin to support the new cannabis program. This system will be used by organizations permitted by the County to operate a cannabis business which cultivates, manufactures, distributes, tests, delivers, and/or dispenses cannabis in the unincorporated areas of the County. Join the County and SICPA at an upcoming community outreach workshop to discuss the new program, training, support and next steps for potential permittees.”

SICPA, a so-called tracking technology company, was awarded a contract by the BOS to provide the software for the county to electronically monitor, basically through bar coding, the twisting trail of pot as it moves through the legalized marketplace.

One unanswered question is why is the county implementing track and trace when the state is also in the process of establishing the same system state-wide. In fact, SICPA is thought to the leading contender for the state contract. To my way of thinking that might be one track and trace system too many.

Also track and trace is not free. It’s another fee levied on growers and pot-related businesses. The standard fee is $90 per month, but cottage growers are given a discounted rate of $45 dollars a month.

Anyway, why is track and trace so important to the state and this county?

The answer is it supposedly will keep everyone honest when it comes to taxes (the tax man does cometh) and serve as a potential impediment to legalized pot escaping to the black market where it’s estimated that 60 to 80 percent of the ganja consumed is from California.

The fly in the ointment is to date in Mendocino County those who are inclined to comply with new laws, ordinances, rules and regulations legalizing pot comprise a distinct minority.  

Public policy buttressing pot legalization assumes that most folks will comply with the law. As the old saying goes, that may be assuming a fact that is not in evidence — especially here at ground zero.

I received quite a bit of comment following last week’s column dealing with the economics of pot where I set out three options for growers wrestling with compliance issue:

  1. Comply with the law, pay your taxes and fees, and acquire your permits and licenses.
  2. Take your chances and sell your product on the black market.
  3. Get out of the ganja business and go legit.

Here are two examples of the emails I received regarding compliance:

Ex. #1—The pot ”legalization” is enough of a disaster for our county without the supervisors needing to make it worse. I realize that they need to go along with whatever state regulations have been put in place, though they can do so gleefully, or they could do it in the hands-off manner that has prevailed in our county for years, as much as they could get away with it, if, that is, they wanted to save our county from sinking into Appalachian conditions.

That 150 people have signed up for all the red tape torture out of Jim Shields’ estimate of 9000 growers says something about how welcome this “legalization” is.

And with good reason.

Probably more than half the money earned from pot in this county gets spent in this county. And while it is not taxed at the source in the same manner as other income, there is still sales tax on all the money spent, and the businesses where it is spent pay taxes, and employ people who pay taxes, and spend their money in other places where it generates taxes, etc.

While the “legalization” promoters were trying to give the impression that there would be room for mom and pop growing a few plants, we’re left with the impression that our sheriff and DA are looking to stomp out all growing which is not done within the tax’em-to-death framework. We all know what that means:

Take away the illegal grows from mom and pop growers, and give it to the mafia.

Well, Allman and Eyster – do you really honestly think it will mean anything else?

As successful as the war on drugs has been up to now….

A lot of money gets generated in this county from mom and pop operations, and if you manage to put them out of business it will mean a serious economic decline of our county.

Many stores will close because there is no more relatively easy money to spend on anything but absolute necessities. And this at a time when Willits is trying to recover from the bypass. Ukiah will wind up like Willits, Willits will end up like Laytonville, Laytonville will wind up like Leggett, and the loss of county revenue will be much greater than anything that the county can hope to gain from the taxation, except of course to the extent the county turns it over to mega-grows. This would seem inconsistent with the policy up to this point where part of the effort to suppress marijuana growth has been because it supposedly has been a public nuisance for some to have a small pot grower next door. If the idea is to instead have a grow measured in acres a half mile away from where people live, it will be every bit as much of a nuisance for everyone living downwind from such an operation. Especially if they also have to suffer the insult of not being able to grow themselves.

But I wouldn’t be a bit surprised if the supervisors would like such an operation better, so long as it is not in their own back yard. There always seems to be this perverse favoring of big business over regular folks making a decent living.

And it would be so wonderful with all the minimum wage jobs it would generate, too, since Walmart can’t keep the whole county employed.

Ex. #2—Regarding … the three types of choices for us family farmers. Put me down for choice #2 (“Take your chances and sell your product on the black market”). My Grandpa told me never to jump on a moving train or be led down a blind alley. Not going to start now.

This may be a good time to take a look at what are the basic costs of compliance in the new legalized ganja world.  Here’s a breakdown:

Fees to pay at time of initial application:

  • annual application fee-$1,240
  • property profile & records management fee-$230 until July 1, 2017 when it increases to $555

Fees to pay time of permit:

  • annual permit & compliance inspection fee-$675
  • nurseries (type 4) annual permit & compliance inspection fee-$725
  • annual MSF certification program fee-$970

Other agriculture fees:

  • hourly inspection fee-$82.91
  • weighing and measuring device registration fee-$111.10

Taxes:

Every person who cultivates commercial cannabis in the unincorporated area of the County shall pay an annual commercial cannabis business tax. The initial tax rate effective January 1, 2017 through June 30, 2020, shall be set at two and one half percent (2.5%) of the gross receipts per fiscal year; provided, however, that cultivators shall pay not less than the following amounts:

  1. Persons cultivating less than or equal to two thousand five hundred (2,500) square feet of cannabis shall pay a tax of no less than one thousand two hundred fifty dollars ($1,250) per growing cycle.
  2. Persons cultivating two thousand five hundred one (2,501) square feet and up to five thousand (5,000) square feet of cannabis shall pay a tax of no less than two thousand five hundred dollars ($2,500) per growing cycle.
  3. Persons cultivating more than five thousand (5,000) square feet of cannabis shall pay a tax of no less than five thousand dollars ($5,000) per growing cycle.

The county estimates that this year it will reap $2.1 in pot dollars. The forecast is based on 600 law-abiding growers paying their taxes. The calculus works out to an average of $3,500 per head, or approximately the mid-point in the foregoing tax table. It also appears that annual fees will average approximately another $3,500; so county growers will pay about $7,000 in combined taxes and fees, annually.

Of course, these local taxes and fees are in addition to taxes and fees on pot set by the state. There is a 15 percent excise tax on both med-pot and rec-pot, as well as a 7.5 percent sales tax on rec-pot. State fees for marijuana are in the process of being set by agency rule making now in progress.

It’s my understanding that marijuana is now hovering around the $800 to $900 per pound range, which means 8 pounds of pot must be produced and sold to pay just the county tax man and fee collectors. Their state counterparts must be paid also.

These are the costs of playing by the new rules, AKA, Legalized Marijuana.


Jim Shields is the MCO’s editor and publisher, and also manages the Laytonville  County Water District. Listen to his radio program “This and That” every Saturday at 12 noon on KPFN 105.1 FM, also streamed live: http://www.kpfn.org

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2 COMMENTS

  1. Anyone who is crying about 8-12 units to cover administration business costs has never caught a court case. Being busted for illegal cultivation is the “120% tax”… they take everything and then some more. In the “pay to play”
    scheme of things this is far from unreasonable… of course there will be other expense to come into compliance but on an annual fee schedule this pretty realistic IMHO.

  2. This is going to put a lot of people out of business. Only the big guys will be able to stay. The margins are terrible with the costs of production, Compliance fees and taxes and prices dropping, there is going to be little left in profits. Only the big producers will be able to stay, but I guess that was the plan all along. Very not fair. Reminds me of when big ag took over the family farm. How many family farms were left? Not many.

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