What happened to the stash?

Sonoma County's Marijuana Tax was supposed to fund public services, but all it has done is support the agency that collects the tax

Since Proposition 64 legalized recreational marijuana in California eight years ago, cities and counties around the state have scrambled to implement their own iterations on cannabis policies.

With its large population, agricultural infrastructure and established medical marijuana system, the Golden State seemed poised to be a leader of the legal weed revolution. Sonoma County’s government hoped it could be an exemplary pillar of the new market.

Factored in to this initial enthusiasm was an assumption that taxes placed on marijuana would help fund public services like road repairs. This was explicitly outlined in the language of 2017’s countywide Measure A, which was approved by the voters. Measure A said that a cannabis business tax would “fund essential county services such as addressing industry impacts, public safety, fire, health, housing, roads, and environmental protection.”

Yet, as it stands, none of the funds generated by cannabis taxes in Sonoma County have been used for anything other than supporting the county’s cannabis program. According to McCall Miller, the coordinator of the county’s cannabis program, there is also no plan of directing those funds anywhere else any time soon.

“Cannabis business tax collections is directed to finance the County’s cannabis program,” Miller told the Sebastopol Times.

So, how did we get here?

After all, at the beginning, the county’s cannabis program was indeed building up a substantial fund balance. According to documents from June of 2023, over its first four years, the cannabis program brought in a surplus of $4.76 million in tax revenue. In FY 2020-21, for example, cannabis brought in over twice as much in taxes as the county spent on the program.

But, in FY 2021-22, things took a turn.

Between FY 2020-21 and FY 2021-22, cannabis tax revenue was cut in half, decreasing from $3.88 million to $1.82 million and causing a deficit in FY 2021-22. The program also had a deficit in FY 2023-24, according to documents received by the Sebastopol Times this month, and is projected to continue a deficit for the next three years, according to a presentation given by the cannabis program to the Board of Supervisors (BOS) on April 16 of this year. (The Sebastopol Times has asked the county specifically for the total amount of back taxes that are still owed by operators to the county but has yet to receive that information.)

The surplus that was generated at the beginning of the program is now being used to supplement the current budget.

“We have a runway of two—maybe three—years of fund balance based on the current costs,” said Christina Rivera, the County Executive Officer, at the April 16 BOS meeting.

According to Lauren Mendelsohn, the Junior Partner at Law Offices of Omar Figueroa, a cannabis-focused law firm based in Sebastopol, the state of the industry “is reflective of how Sonoma County has managed their program over the past few years.”

“It's taken a long time for permits to get approved, and there also have been instances of code enforcement coming down very heavy handedly on applicants, permit holders and other folks in the system,” Mendelsohn said. “So I think that there's a general sense that it's a less cannabis friendly location than many people thought it was going to be.”

When pressed by the Board of Supervisors at the April 16 BOS meeting as to how the cannabis program plans to re-establish a steadily funded cannabis program—or one that might bring in some revenue to fund other public services in the county—Rivera said those concerns would be addressed after an Environmental Impact Report (EIR) for an updated cannabis ordinance is accepted.

By this point, the thinking goes, the dwindling surplus funds will have yet to run out, and the county will have a better grasp on the future of the local industry.

“As the county staff brings back the updated program associated with the new EIR, we hope that this runway will give us enough time to then bring back something that is completely revamped,” Rivera said.

County officials must now wind a careful path as they attempt to prevent taxpayers from footing any of the bill. This won’t be made any easier by recent tax breaks given to cultivators and the over $2 million that is being spent on the EIR.

"This was going to be a cash cow and it's not," BOS Chair David Rabbitt admitted frankly at the April BOS meeting where the cannabis taxes were discussed.

“Be careful what you wish for,” he added.

Sonoma County is joined by an array of jurisdictions in California that are grappling with the reality of a stagnant statewide legal industry.

Frustratingly, the legal market in other places has at the very least managed to be a boon to local governments. In its 2024 budget alone, Denver, Colorado, for example, will spend $7.95 million of cannabis tax revenue on homelessness services, $7.53 million on affordable housing, $3.73 million on economic development and $3.32 million on youth education programs.

The hope for Sonoma County is that the upcoming update to the cannabis program will open up new revenue potential in the hospitality sector. Perhaps legal tastings, tours and wedding venues—not unlike the moneymakers for the wine industry—can support more operators and thus bring in more tax revenue.

“The ordinance revision is an opportunity to improve things locally and make it a more business-friendly environment,” said Mendelsohn. “Hopefully the county will move forward and allow consumption lounges and cannabis tourism and cannabis events.”

Mendelsohn also said it would also be helpful for the county to advertise cannabis business opportunities and to further solidify an ever-changing permitting process for potential entrepreneurs who are worried the “rug could be pulled out from under them.”

“They’ve got outreach channels that could be used to encourage more applications coming in, which would translate to more tax revenue,” said Mendelsohn. “And I don't really see them doing a ton of that.”

While increasing tax revenue is important, 5th District Supervisor Lynda Hopkins also wants to see some of the cannabis program’s expenditures simplified en route to becoming more economical.

“I think that the county should go back to fixing the permitting process,” Hopkins told the Sebastopol Times. “It has been a little unclear how we are using taxes to supplement the permitting process. There’s been a lack of clarity as to what employees are doing.”

Hopkins also suggested that the county’s cannabis tax should perhaps be abandoned given the amount the county pays to collect it. In FY 2023-24, for example, the county expended $576,398 to collect taxes.

“The whole idea of a tax is that it is something that can create positive impact in the community,” Hopkins said. “If the tax barely covers the cost of collecting the tax, then it should be abandoned. It is nonsensical.”

“We could potentially suspend the tax temporarily,” Hopkins added. “The voters did approve it, so it can always be reimplemented if there is a boom in the industry.”