Stanislaus County voters to decide on cannabis sales tax on November ballot

Stanislaus County has a cannabis sales tax on the November ballot that would apply to licensed businesses in unincorporated areas. There are 14 cannabis businesses in unincorporated Stanislaus, four retail and 10 cultivation.

The cannabis tax, Measure P, would replace the fees outlined in development agreements for cannabis businesses. It aims to simplify assessments and reduce the county’s administrative burden. The proposed rates are comparable to the commercial cannabis business taxes in Modesto.

Stanislaus County’s revenue from the local cannabis industry has fallen steadily, mainly because development agreements have been canceled and competition with the black market remains fierce. The county asks voters to replace a fee structure with the sales tax.

The projected annual revenue from fees on the cannabis industry in Stanislaus County is down 56% from three years ago.

In the 2021-22 fiscal year, the county’s revenue from cannabis businesses in unincorporated areas totaled $3.9 million. In 2022-23 and 2023-24, revenues were $2.3 million. For 2024-25, the county projection is $1.7 million.

If passed (only a simple majority is required), Measure P would offset this revenue loss. The county would impose an 8% tax on gross retail sales of cannabis, and the Board of Supervisors could increase or decrease the tax rate depending on economic factors.

Currently, retail cannabis businesses pay a minimum quarterly fee. Under the 8% gross sales tax, they’d pay more when sales are up and less when sales are down.

“It is expected to generate approximately $1.7 million in annual revenue for strengthening neighborhood safety, community enhancement, eliminating illegal grows, and drug prevention and treatment,” said Carissa Lucas, communications director for Stanislaus County. The $1.7 million boost in revenue would bring the total projected revenue for the 2024-25 fiscal year to $3.4 million.

Measure P would authorize an annual tax of up to 4% on distribution, manufacturing, and testing gross receipts, 8% on retail sales, and the greater of 4% on cultivation receipts or $8 per square foot of canopy. The tax would remain in place until repealed by a future vote.

Attorney Zach Drivon, who represents several cannabis operators, said the tax would allow cannabis businesses to be treated more like traditional businesses, with a license, permit and tax on the percentage of revenue.

“The most important thing is that this is not a tax on consumers, this is not a tax on the voters, this is strictly a tax on legal cannabis businesses,” Drivon said. “If it passes, it’s going to put the legal cannabis businesses on more stable ground with the development agreements, especially for retailers, and the minimum payments that they’re obligated to pay regardless of the volume of revenue they bring in.”

Why has revenue gone down in the first place?

Revenue from the legal cannabis industry is down statewide. Locally, at least, that’s in part due to the industry shrinking. “Stanislaus County currently has 14 cannabis businesses in operation: four retail and 10 with cultivation/nursery permits,” said Lucas. That’s down from a high of 25.

The proposed tax in the county would replace a system requiring a minimum payment from cannabis businesses based on projections from 2018-19. “They pay the minimum amount regardless of revenue,” Drivon said. “As revenues declined and those minimum payments remained constant, the minimum payments represented a greater proportion of their revenue. In some cases, it got upwards of 20% to 25% of the business’s total revenue.”

As The Bee reported earlier this year, local business owners have complained about being unable to pay the fees in their development agreements with the county. They’ve said the black-market marijuana trade has thus had an unfair advantage.

Illegal grows remain a problem

When the state of California passed Proposition 64 in 2016, it legalized the use and cultivation of marijuana for adults 21 and older and authorized the resentencing or dismissal of eligible prior marijuana-related convictions. Additionally, it reduced criminal penalties for marijuana-related offenses, making it difficult for law enforcement to stop the illegal trade.

In an annual report earlier this year to the Board of Supervisors, the Sheriff’s Office reported that it seized about 89,000 pounds of processed cannabis and destroyed about 6,700 plants in 2023.

“Retail businesses can’t compete with the black market because they’re burdened by taxes, and some dispensaries have already closed,” said Gökçe Soydemir, an economics professor at Stanislaus State University. “Measure P will help reduce some of that burden, but it’s only a first step.”

In May, Gov. Gavin Newsom announced state law enforcement operations that resulted in the seizure of over $61 million of illegal cannabis through the first four months of 2024.

“California produces the most amount in the United States of illegal cannabis,” said Robert Solomon, a professor at UC Irvine Law School. “Transitioning that to legal cannabis is very difficult.”

Solomon blames the decline in statewide revenue on too much local control. “There’s not enough uniformity,” he said, “so that there becomes an incentive for poor communities to start to see cannabis as a way to gain revenue, and for rich communities as a way of saying, who gives a crap?”

“Enforcing the illicit market is key right now to level the playing field for businesses,” Fiona Ma, California state treasurer, told The Modesto Bee at a local union rally. “We have the best weather and the farmers are experts, but the taxes are too high and the lack of enforcement has decimated this industry.” Ma’s office is encouraging counties all over the state to change tax structure to support the cannabis industry.

In California, 54% of cities and counties do not allow any cannabis business. When looking at the cultivation of cannabis, 68% of cities and counties in the state do not allow growing. Hughson and Newman are the only cities in Stanislaus County that prohibit any type of cannabis business. Oakdale and Patterson prohibit delivery service sales of cannabis. Turlock allows the sale only of medicinal cannabis.

Solomon said it’s still a problem that you can go through large areas of the state with no access to cannabis. He said it opens the door for more illegal growers.