A Sonoma County Board of Supervisors majority on Tuesday approved a significant cut to the county’s cannabis cultivation tax, sending the county further down a path toward eliminating the tax altogether.

The move comes even though the tax revenue used to run the county’s cannabis program has fallen short of covering operational costs.

Board Chair Lynda Hopkins, Vice Chair Rebecca Hermosillo and Supervisor James Gore voted to continue assessing cultivators based on their square footage and what type of growing operation they have. The new rates, however, will amount to roughly 2.5% of a grower’s gross receipts, or a 45% reduction, according to McCall Miller, the county’s cannabis program coordinator.

Supervisor Chris Coursey voted against the proposal, preferring instead a 25% reduction proposed by staff. Supervisor David Rabbitt, also voted no and said he would rather keep the rates the same.

The new rates will take effect July 1 pending a second, final vote by the board in May.

Under the change, the cultivation tax will be reduced from $0.69 per square foot to $0.36 per square foot for outdoor cultivation, $2.51 per square foot to $1.15 per square foot for mixed light cultivation and $7.58 per square foot to $3 for indoor cultivation.

It is the fourth rate change the board has passed — including a temporary reduction in 2022 — since first establishing rates in 2017, a year after California voters legalized cannabis for nonmedical adult use.

Stabilizing the industry

County officials have for years grappled with how to balance the needs of local growers who say the local industry is collapsing under burdensome regulations and fees, with the county’s operational costs, concerns from neighbors who want stronger oversight and the now-squashed expectations that the local industry would prove lucrative enough to support county services.

In March 2017 a majority of Sonoma County voters ― 71% ― approved a framework for the county’s Cannabis Business Tax.

But the industry has struggled to retain a foothold. The number of cultivators has dropped significantly, from 155 cultivators in May 2023 to 66 active cultivators in the county’s most recent count.

According to Miller, the county cannabis coordinator, outdoor cultivation has “held pretty steady” compared to last year and totals just over 13 acres in unincorporated Sonoma County. The steady rate shows the tax program changes and reductions have worked, she said.

“When this all started the taxes were way too high. They continue to be too high, we’ve reduced them, we continue to see this industry get reduced and reduced,” said Vince Scholten, owner of NorCal Growers.

If the tax burden on cannabis cultivators is not relieved, Scholten said, the county would likely see cultivation turn to the black market where the county would get nothing.

Staff projections showed that tax revenue under the 2.5% gross receipts revision would bring in $704,843. The county would have to tap about $1 million from other funds to cover the remaining operational costs.

Tuesday’s tax cut is intended to help stabilize the industry and keep the county’s cannabis tax fund solvent through fiscal year 2026-2027, Miller said.

The rate reduction recommendation was based on an annual report produced by a HdLCompanies, a Brea-based consultant hired by the county to analyze the local industry, particularly the tax rate.

The report found the average price per pound for indoor cannabis salable product decreased from $606 in 2024 to $240, and the average price for outdoor cannabis products has also decreased from $277 to $143.

But the findings rely on businesses’ voluntary responses to HdL’s survey, which amounts to about 20% of the 66 licensed growers in the county. The answers provided by the businesses are not verified, Miller told The Press Democrat, and the report also doesn’t take the county’s operational needs into account.

Hopkins on Tuesday 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.

The tax program funds about eight employees across five county departments and pays other costs, including legal and contract services.

The number of employees is expected to drop to about seven, though County Administrator Christina River indicated all program positions would be eliminated if the tax program ends. If that were to happen, Rivera said some employees may be moved to other areas or laid off.

Drafting a new ordinance

Tuesday’s discussion offered a preview of upcoming ordinance discussions.