Supervisors tentatively OK new cannabis tax rate

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After three hours of listening to a staff presentation on the proposed cannabis business activities tax framework, which also included a warning from Sheriff Eric Taylor concerning illegal activities in the county, the San Benito County Board of Supervisors voted unanimously to tentatively approve a tax rate of $3,500 per acre during a special meeting on Sept. 10. 

The supervisors came to the dollar amount only after a protracted discussion among themselves, as well as Taylor, cannabis growers, and staff, on the merits of either “low-balling” at $1,000 per acre or going for the maximum of $10,000, a range that county voters approved as part of Measure D in the June primary election. 

Staff was scheduled to receive direction and approval of a resolution from the supervisors, as well as receive policy directions to prepare amendments to the county’s cannabis regulations. Following direction from the supervisors on the tax rate and the proposed code amendments, staff would then complete the necessary legal, fiscal, environmental and operational analysis and return at a future meeting with specific ordinance amendments for consideration.

Instead of approving the resolution, the board only agreed, hesitantly, on a $3,500 rate, which the supervisors said they wanted to make clear was only a “starting point” that could go higher or lower. They also agreed on a minimum cultivation size of 20 acres for cannabis permit approvals.

Currently, all cannabis cultivating operations are exempt from property tax through Dec. 31. However, the resolution could go into effect as soon as Sept. 24.

“The board can set different rates for different categories and can also distinguish between medicinal and nonmedicinal businesses,” Deputy County Counsel Rebecca Mojica said, adding, “Currently, we have 778 acres of cannabis that are dual licensed by both the county and the state. At $3,500 per acre, that generates approximately $2.7 million. At 5,000, approximately $3.9 million.” 

Mojica  said if the rate were $5,000 per acre it would generate an estimated $10 million in revenue.

“These forecasts do assume full utilization,” she said. “Actual revenues will phase in gradually and depend on the projects and the canopy of the cannabis.”

Mojica also said the tax framework to the business and zoning parameters are within the supervisors’ authority to change without voter approval, along with controlling the canopy caps, permit limits, zoning, background checks, exclusion zones, setbacks, acreage minimums—all under the land use and zoning provisions of the county’s code. 

“As far as the compliance, we also have regulations and we could further address things like nonproducing operators, through unused acreage revocation, expanded background checks, and enhanced monitoring fees,” she said. “Other enforcement tools include fines that go up to $10,000 per day for illegal operations, and escalating penalties for permitted operators, and up to $5,000 per day per violation.”

Senior planner Stephanie Recker summarized some of the cannabis code amendments that the staff was “seeking policy direction on so that we can develop specific ordinance language and return to the board with those proposed amendments.”

Board chair Dom Zanger was about to adjourn without giving any direction, suggesting the conversation could continue through more meetings, but he was interrupted by Supervisor Mindy Sotelo, who posed a number of questions seeking clarity on several points about the proposed ordinance. 

Cannabis grower Dean Tran asked the board to establish a standard cannabis cultivation tax that creates meaningful revenue without undermining the industry that generates it.

“The goal should not be to maximize the tax per acre,” he said. “It should be to maximize long-term participation to guarantee a reliable county revenue. I recommend starting at $2,500 per acre annually with annual reporting on acreage and actual collections for future adjustments based on new results. The approach gives the industry predictability, gives accounting meaningful revenue, and creates a tax base that can grow over time.”

Grower Aziz Nashat recommended that supervisors not adopt a gross revenue tax model.

“Most operators have found a way to route their revenue through their distribution licenses, which have an effectively lower tax rate and are not really paying any taxes,” Nashat said.

Grower Jake Brookes said cannabis is an “ag commodity,” and the county has an “opportunity to be one of the larger export counties on a long-time horizon.”

“San Benito is a great opportunity to be a big export county,” he said. “That is dollars coming from everywhere else into this county to local irrigation suppliers, local staffing forces, local people that work the ground, other local farmers that are around us.”

While the supervisors questioned Recker about a possible fee structure for various services, the tone changed abruptly when Supervisor Angela Curro said she was uncomfortable knowing Recker was the person going out to the grows in South County to answer complaints and other issues.

“You’re going to go out alone to inspect. I have safety concerns,” she said.

“I go out with code enforcement,” Recker answered.

“Does code enforcement carry a gun?” Curro asked.

When Recker said no, Curro said, “So you’re just two people out there in South County, with no cell reception. I know there’s a lot of bad characters in South County that can take advantage of the fact that we don’t have enough staff.”

She asked if Taylor would come up and speak. 

The sheriff noted how one grower in the room tried to make a case that cannabis was like any other crop and should be treated the same. 

“I don’t currently have any open homicides regarding cilantro, but I have open homicides regarding cannabis,” Taylor said. “There is a side to this industry that’s not great.”

He explained how he was skeptical about cannabis at first but has since come to know some of the “good guys” involved and said he appreciates their dedication and concerns for the county. 

“I think it can be a positive for our community if we do it correctly,” he said. “But not everybody that comes into this industry is honest.”

Taylor said he has also not investigated any cartels or any hostile parties that are involved in the lettuce industry. 

“But in this county right now, we have Chinese nationals and we have Mexican cartels that are running illegal marijuana growers,” he said. “It is my job to protect [the legal cannabis] industry to make sure that the ones that are coming in here to do this correctly aren’t being driven out of town by the ones that are operating in the shadows. That’s the impact it’s going to have to my office.”

When the conversation turned back to how much tax should be charged per acre, Taylor recommended a mid-range amount, saying that he needed to fund a deputy for South County and $2,500 an acre would make it possible. 

“If we want the Sheriff’s Office to be running the program or with an accurate response time because we have South County deputies, then we’re going to have to add staff because I don’t have enough,” he said.

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