Legal cannabis cultivators and manufacturers in unincorporated Sonoma County will get a tax break in the coming fiscal year.

That’s in store after a 3-2 vote Tuesday by the Board of Supervisors, approving a reset of the tax rate for qualifying specific operators to $0 for FY26-27.

The move, supported by Supervisors Lynda Hopkins, James Gore and board Chair Rebecca Hermosillo,  marks the latest step the board majority has taken to slowly steer the county toward eliminating the tax altogether.

The board also on Tuesday unanimously voted to create a new system for cannabis businesses to get licensed annually, with a starting charge set at more than $500, revenue from which is expected to cover the cost of running the county’s commercial cannabis governance program.

The supervisors who supported the tax break questioned why the levy was needed if the business license revenue would cover program costs.

“Why are we choosing one form of agriculture to tax when we’re not taxing the other ones?” Hopkins said Tuesday.

The county is expected to bring in $10,082 from the business license program but will face a $160,000 funding gap due to forgone tax revenue in the 2026-27 fiscal year.

The changes come on the heels of the board’s December approval of new regulations for commercial cannabis cultivation, sales and distribution in unincorporated areas following years of criticism from residents and industry representatives. The changes approved Tuesday will take effect July 1, along with the new regulations approved by the board majority in December.

County officials’ multi-year effort to revise cannabis regulations has been marked by contentious debate and criticism of the county’s handling of the issue. Those working in the local legal cannabis industry have called for relief from what they said was a financially burdensome and time consuming permitting process.

But concerned residents pushed back, calling instead for stronger safeguards against noise, odor and strain on limited water supplies.

There are 57 legal cannabis businesses operating in unincorporated Sonoma County.

Under the new business license program – modeled on the county’s vacation rental license program – cultivators, retailers and manufacturers will have to annually apply for a business license, now at $531.

The new system is intended to help the county keep track of legal cannabis businesses operating in its jurisdiction while also making that system more efficient and cheaper compared to the current, cumbersome process of obtaining a use permit, said McCall Miller, the county’s cannabis program coordinator. The program is expected to cost $490,000 in the coming fiscal year.

“This is going to dramatically change the budget to enter the legal use market,” Miller said in a Monday interview.

She said she could not provide the exact difference in cost, citing the range of county services that businesses might need depending on their site and operation plans. Anecdotally, Miller offered that some businesses have paid as much as six figures to get permitted.

The $531 license fee also does not include fees charged by county departments for mandatory steps like health inspections.

Harvested cannabis plants were trimmed and hung to dry at Erich Pearson’s farm on Trinity Road on Oct. 17, 2022. (Robbi Penglly / Sonoma Index-Tribune)

Cannabis businesses that already have a permit will be allowed to phase into the new business license system. The new program is expected to raise $10,082 in fiscal year 2026-27 and $20,768 in 27-28, as those businesses enter the new licensing program.

Those funds will cover the cost of running the program, which will require the staff time equivalent of 1.6 full time employees, compared with the eight employees currently staffing the program. The staff who fill those duties are spread across multiple departments and are being reassigned, Miller said.

While the Board of Supervisors passed the new business license program fairly easily, the question of how to handle the cannabis business tax became thorny.

The county charges a business tax on legal cannabis operations, with the rates varying by business type: cultivation, manufacturing and retail. Rates were first established in 2017 – a year after California voters legalized cannabis for nonmedical adult use – but the board has revised those rates multiple times in the years since.

County staff on Tuesday had recommended lowering the tax for cultivation from $0.36 per square foot to $0.32 per square foot and to keep the rate for manufacturing and retail steady, at 1.5% of gross receipts and 3% of gross receipt, respectively.

Hopkins’ motion to “zero out” the tax for cultivation and manufacturing for one year, came after a brief public comment period where representatives of the local industry questioned why the tax was even necessary when the new business license fee was designed to cover the cost of running the county’s cannabis program.

The tax break that ultimately passed will create a budget gap, however, requiring the county to cover a $160,000 gap using dollars already collected. The county’s cannabis fund is expected to have $2.5 million balance heading into the new fiscal year.

“No other type of farmer is charged this tax, we want to be treated like any other farmer,” said Erich Pearson, CEO of SPARC, which has several local dispensaries. “If the program can be fully funded through fees tied to actual cost, what is the justification for tax?”

In unincorporated Sonoma County, there are roughly 13 acres in commercial cannabis cultivation, with 12.7 of those crops being grown outdoors. About 0.7 acres of cannabis is cultivated indoors in the county jurisdiction.

“We tax those 13 acres but do not charge a special tax for thousands of vineyard or row crop” acres, Hopkins said.

Supervisors David Rabbitt and Chris Coursey, who voted against the year-long tax break, both said they were open to the idea of eliminating the tax but questioned whether the board had enough information about the potential funding impacts, especially in light of the tough fiscal year ahead.

In June, the board will approve its next budget, which stands to be impacted by deep federal cuts, flattening revenue streams and uncertain state support.

“This is bad timing considering we’re less than two months away from budget (hearings) where we’ve said several times we need to see all (funding) sources at the same time, all needs at the same time,” Coursey said.

Rabbitt indicated he was open to eliminating the tax but wanted further analysis before making decisions that would alter projected revenue streams.

“We need to continue to have the revenue to pay for the program,” Rabbitt said. “I hope the industry appreciates we weaned ourselves down from a staff of eight employees to 1.6.”

You can reach Staff Writer Emma Murphy at 707-521-5228 or emma.murphy@pressdemocrat.com. On Twitter @MurphReports.