Stanislaus County is preparing a cannabis tax for the March ballot. What are the rates?

BY KEN CARLSON OCTOBER 19, 2023 6:00 PM

Stanislaus County staff have recommended that cannabis businesses pay up to an 8% tax on gross sales. If voters ​ approve the measure March 5, the county Board of Supervisors could set the tax rate at a percentage below 8%. ANDY ALFARO aalfaro@modbee.com

Stanislaus County leaders are working on a measure for the March ballot that would set tax rates for permitted cannabis businesses in unincorporated areas.

County staff have recommended that cannabis businesses pay up to an 8% tax on gross sales. If voters approve the measure March 5, the county Board of Supervisors could set the tax rate at a percentage below 8%.

The tax on cannabis sales would replace a fee structure in development agreements between the county and commercial cannabis permit holders. Some businesses have complained they can’t afford the fees in their development agreements, and officials say the agreements place an administrative burden on the county.

After hearing complaints from permit holders, county supervisors in May 2022 voted to eliminate one of the cannabis fees that generated funds for youth and community programs.

At Tuesday’s board meeting, county staff recommended setting a simplified initial tax rate at 8% of gross sales for cannabis retail shops. Initial rates of 2.5% of gross receipts were recommended for cultivation, nurseries, distribution operations, manufacturing and testing.

Attorney Zach Drivon, who represents several cannabis operators, said his clients have concerns about the proposed tax on sales. He said a 2.5% tax rate on gross sales is unfeasible for legal growers, distributors and manufacturers because wholesale market prices are depressed due to overproduction.

Stanislaus County sheriff’s deputy Yom collects an evidence sample during a raid of an illegal marijuana growing operation in Ceres in June 2021. The county has committed legal cannabis fee revenue to costs of Sheriff’s Office enforcement operations against illegal marijuana growers. Andy Alfaro aalfaro@modbee.com

Stanislaus County has committed cannabis fee revenue to costs of Sheriff’s Office enforcement operations against illegal marijuana growers. The proposed tax would potentially bring in $3 million or more annually. According to a staff presentation Tuesday, the county’s commercial cannabis program took in fee revenue between $3.57 million and $3.77 million annually from 2020 to 2022.

The county approved 26 development agreements with commercial cannabis operators under Proposition 64, the initiative that legalized recreational marijuana in 2018 and made local government responsible for regulating the businesses. Of those, 18 agreements are still in effect and there are 30 active licenses.

Terry Withrow was the only supervisor opposed to moving forward with the tax measure. He estimated about 7,500 hours of county staff time was expended on the legal cannabis program in the past year to garner $2 million or $3 million in revenue.

The staff time could have been dedicated to obtaining more grants and increasing services for people in the community, Withrow said. “If we were in the business world, we would have abandoned this loser and moved on to something else to generate more income,” he said.

The board is scheduled for a Nov. 28 public hearing on a cannabis ordinance, the ballot language and proposed initial tax rates. The ballot measure would require simple majority approval.

A staff report said the tax also would apply to illegal marijuana operations, which could strengthen enforcement activities. According to the stated benefits of the proposed measure, the tax would generate unrestricted revenue for the county general fund, improve neighborhood safety, enhance the community, eliminate illegal grows and support drug prevention and treatment.