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Cannabis cash

Will cannabis fill Santa Barbara County's coffers with tax revenues? That will depend on a number of factors, starting with whether voters approve Measure T in the June 5 primary.

Voters in the June 5 primary will be asked to approve a tax on cannabis operations that could shore up Santa Barbara County’s sagging budget, helping to retain a variety of community services, as well as provide funds needed to pay for enforcement action against illegal marijuana operations.

County staff has estimated tax authorized by Measure T will pump between $5 million and $25 million into county coffers every year.

Proponents say the tax should be approved to ensure compliance with the county cannabis regulations and eliminate the black market that will try to operate outside those laws. As a general tax, it only requires a majority vote to pass, or 50 percent plus one vote.

“Santa Barbara County needs to tax cannabis growers and businesses to enforce our ordinance and fund other priorities, such as the Sheriff’s Department, District Attorney’s Office, mental health services, public health and other general services,” says the Board of Supervisors’ argument in favor of Measure T2018 signed by Board Chairman and 1st District Supervisor Das Williams.

“Whether you agree with the legalization of cannabis or not, it is imperative that we tax the industry to ensure compliance and eradicate the black market.”

Opponents say the tax should be rejected because it is a general tax, and the revenues will go into the General Fund where it can be spent on anything with no guarantee it will be used for enforcement.

They say it should be a special tax, which would require approval by two-thirds of the qualified voters in the county.

“Measure T is another new tax supposedly to be used mitigating public safety impacts from commercial pot-growers in our county,” says the argument opposing the measure, signed by 4th District Supervisor Peter Adam, Santa Barbara County Taxpayers Association Executive Director Joe Armendariz, retired sheriff’s Sgt. Susan Brown and Montecito resident Tobe Plough.

“In fact, it’s another blank check to be spent on general county services. … Another blank check will result in more wasteful spending without the critical protections we taxpayers deserve.”

The opponents claim the county is facing a $50 million deficit because of misplaced spending priorities, and the cannabis tax revenues will be swallowed by the general fund and used to maintain the status quo.

The supervisors’ argument in favor of the tax rebuts that assertion: “Opponents will claim that the money will simply go into the General Fund. What they won’t tell you is that the General Fund is what funds the critical departments listed above.”

Death of taxes

One thing is certain: If the tax is not approved by voters in the June primary, the ordinances the Board of Supervisors have approved — or expect to approve — governing cannabis operations in Santa Barbara County will not go into effect.

That caveat was built into the ordinances when supervisors approved them, because without the tax, the county will lack money needed for enforcement.

Supervisors have not specified what steps they will take if the tax measure fails. But the board would only have until July 17 to authorize placing another tax measure on the Nov. 6 General Election ballot.

Another alternative would be to completely ban cannabis operations in the county, which would be difficult given the number already underway. It could also lead to liability claims and lawsuits.

Those in the cannabis industry say any failure to make the ordinances effective will push all existing operations into the black market, and without funding the county will be hard pressed to prevent the proliferation of illegal operations.

Many residents also say the inability of the county to provide adequate enforcement will likely leave them to endure the undesirable impacts of cannabis operations, ranging from traffic and environmental damage to noise and odor.

Rates and revenue

As proposed, the cannabis tax will apply to both adult, or recreational, cannabis operations and medical marijuana operations but only in the unincorporated areas of the county, not within the incorporated cities, and will be levied on operators’ gross receipts.

The tax rate selected by the Board of Supervisors will vary, depending upon the type of operation.

Nurseries and distributors — excluding those engaged in transport only — will pay 1 percent, while manufacturers will pay 3 percent, cultivators will pay 4 percent and retail and microbusinesses, which vertically integrate more than one type of operation, will pay 6 percent.

No one is sure how much revenue the taxes will generate. If cannabis operations remain stable at the anticipated level, the figure could easily be $25 million annually.

But there is also a strong possibility the market will become oversaturated with cannabis operations, creating a downward spiral in revenue.

In 2017, California’s total cannabis production was estimated at 13.5 million pounds per year, but total cannabis consumption was estimated at 1.6 million to 2.5 million pounds per year.

Analysts said that meant the state’s entire market could be supplied by just 200 medium-sized indoor growing operations, or less than the total potential production in Santa Barbara County alone.

Yet state officials estimated more than 14,000 cultivation licenses could be issued statewide.

With supply greatly exceeding demand, prices are expected to plummet, and smaller undercapitalized operations likely will go under.

If the county ends up levying its tax on fewer operations with lower gross revenues than initially estimated, the annual revenue might be closer to $5 million.

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