Monterey County’s Budding Cannabis Industry Wants Tax Relief

May 21, 2018

Wednesday AM Update: Monterey County Supervisors voted 4-1 to lower the county's taxes on the cannabis industry. The new rate for cultivation in greenhouses is $5 per square foot of the foliage area. And for indoor cultivation, the new rate is $8 per square foot of the foliage area. 

Monterey County’s new cannabis farmers say they’re over taxed. The Board of Supervisors is poised to offer some relief, but will it be enough?

Along a rural dirt road off Highway 101, south of Salinas, sits Riverview Farms.  It used to be known for growing succulents and flowers like poinsettias. Then, the flower market dried up.

Michelle Hackett is President of Riverview Farms.  The property has been in her family for twenty years.

“There was a very long period of time where this property actually, you know, sat empty,” says Hackett.

But that changed two years ago when it became clear California was embracing legal cannabis. And now, the farm’s greenhouses are filled with marijuana plants.

“This is really our first shot at being successful on these properties in several years,” Hackett says.

The opportunity came with a high price tag. The family built four new greenhouses. Inside one of them, it’s sea of green, leafy marijuana plants. Fans regulate the temperate and it’s humid and aromatic.

Each of the new greenhouses costs over $1 million to build; the family is still working to pay that off.

“This is really the state of the art. This is the future of greenhouse growing especially for cannabis,” says Hackett.

It's been a huge investment in anticipation of a big return, but Hackett says that hasn’t happened yet. First, there are several state taxes. On top of that, there are county taxes.

Hackett says her biggest concern is over Monterey County’s cultivation tax. It’s currently $15 per square foot of the foliage area. For her farm, that’s works out to be about $600,000 a year, just for that one tax alone.

It’s a rate set by voters when they passed Measure Y in 2016.  That was before California legalized the recreational cannabis industry and created all those state taxes.

Now, it turns out Monterey County’s cultivation tax is one of the highest in the state. So high that when the county’s tax bills went out, only 64% of the money came in; some payments partial, others full. (According to the county, it collected approximately $2.7 million from the cultivator bills.)

Riverview Farms paid in full.

“And it's killed us. So for us in order to stay competitive the tax rate does not work. Point blank,” Hackett says.

Figuring out how much money the county needs to make from the tax is the job of Nick Chiulos. He’s Assistant County Administrative Officer.

Bare minimum, the tax needs to cover the cost of the county having a cannabis industry.  That means paying for things like the permitting process, law enforcement to shut down illegal grows and community outreach.

“We also are aware that Measure Y, which was approved by the voters, established a general tax to fund general government services in Monterey County. So we were trying to find a balance that would do both,” Chiulos says.

That, plus the county is now facing a $36 million deficit.  This Tuesday, the Board of Supervisors will reconsider the cultivation tax rate. Supervisor Luis Alejo says the rate should go down.

“People have invested a lot of money and put a lot of sacrifice into their businesses. They're hiring. These jobs pay good wages. I don't want to see anybody fail,” says Alejo.

That new rate is expected to drop from $15 per square foot of foliage area to somewhere between $4 and $8.

But even that would not be low enough for Riverview Farms’ Michelle Hackett.  She says for all intents and purposes, her business is a start-up, not ready to handle such a big tax bill.  

“For me, $2 would be the perfect the perfect medium. Give us some time at that low tax rate to allow us to kind of rebound, reboot, get some revenue,” Hackett says.

And Monterey County’s cannabis industry may soon face another tax.  Measure H on the upcoming June ballot could add a new tax to support Monterey County Regional Fire District.