Monterey County: The Green Rush Taxes

Monterey County and its cities are rushing to claim tax revenues from marijuana cultivation and sales, placing a huge financial burden on local cannabis businesses.

In Monterey, during last November’s elections, there were a total of six different cannabis tax measures on the ballot. One of which affected the entire county, Measure Y. The five cities are Salinas, Del Rey Oaks, Gonzales, King City and Greenfield.

The preliminary revenue estimates of Measure Y could raise an estimated $20 million per year for the county, according to HdL, a consultant company hired by Salinas for the process of issuing permits to cannabis growers, processors and dispensaries. For Monterey County, Measure Y established a tax towards the commercial marijuana businesses located in the unincorporated areas of the County of $25 per square foot on cultivation, $5 per square foot on nurseries, and 10% of gross receipts on other marijuana businesses. The projected costs such as regulatory and enforcement expenses were estimated at $3,000,000 per year, which leaves the County with the remaining surplus of $17 million from cannabis tax revenue. This revenue will then go into the County’s general fund, which is a government’s basic operating fund and accounts for the day-to-day costs of operation of all programs.

On top of Measure Y, there are some local cities that have imposed an additional local cannabis tax. The Salinas marijuana tax imposed a tax on cultivation activities not exceeding $25 per square foot of canopy size. In addition, dispensaries, manufacturing and delivery businesses will be taxed by 10 percent of annual gross receipts. The City of Salinas estimates their marijuana tax to generate $1 million to $2 million annually. In Del Rey Oaks, the city implemented a tax of no more than 10 percent (5 percent when enacted) on gross receipts of cannabis businesses. Del Rey Oaks marijuana business tax anticipated revenue is $250,000.

How do residents of Salinas and Del Rey Oaks benefit from their city’s imposed business tax? The tax revenue pays for the residence’s municipal services — fireman, police officers, recreation, park and road maintenance, etc. According to an analysis of measure A, done by the office of the Del Rey Oaks City Attorney: “revenue is used by the City to pay for the provisions of municipal services to city residents and visitors, including the provisions of essential city services.” In other words, revenues from Marijuana Business Taxes are spent funding unrelated expenses.

So, the County is receiving somewhere around $20,000,000 a year in marijuana tax revenue. As well as some individual cities receiving the commercial business tax revenue of $250,000 to $2 million. Both the County and local revenue generated from cannabis tax go into the corresponding governments general fund. A general fund that essentially funds the same municipal serves.

Monterey County and local governments are racked in a massive amount of cash from their business cannabis tax revenues. However, marijuana growers and marketers, also trying to maximize on their investment in “green gold,” are protesting what they call high taxes without commensurate services.

Are these marijuana taxes bound to negatively affect Monterey County’s commercial cannabis businesses?

Marijuana tax at the county level is $15 per square foot, then add on the state tax of $148 per pound, and then finally federal income tax with no real ability to write off taxes because of section 280e in the IRS code. All this combined, says Joey Espinoza of the Coastal Growers Association, an advocacy group for cannabis growers, “makes it extremely difficult to create a profitable business.” Now cannabis businesses must somehow conquer the issue of multiple taxation. These marijuana taxes, Espinoza predicts, will “make it extremely difficult to create a profitable business.” And thus, will begin a negative chain reaction. If a business is unable to make a profit, it is ineffable that people will either fail and / or move to an area with a better tax rate.

If this is the case for Monterey County then county will slowly start receiving less and less tax revenue. In Espinoza’s opinion, a “much more reasonable tax would implement: $3 per square foot indoor; and $2 per square foot greenhouse and $1 per square foot for outdoor”; much like that assessed in Humboldt County. Not only are these rates much more reasonable, says Espinoza, but the local government will still be collecting taxes they weren’t before.

In the end, Joey believes that “ultimately the tax will have to change”, that’s no question, “whether it changes by the vote of the board or it happens via voter initiative, it will change.”