T he Sonoma County cannabis industry is continuing to falter despite a recent cut to local cultivation taxes which, experts say, is outweighed by the longstanding challenges facing the industry. “Is it a lifesaver? The answer is ‘no,’” says Robert Eyler, a professor of economics at Sonoma State University. The 45% tax reduction in April “is good in that it does reduce the cost of cultivation. But it’s still a very, very hard market in which to stay afloat.” A plethora of problems—a supply glut, taxes, competition, onerous regulations, resident resistance—plagues the industry, says Eyler, who conducted a study of the economic impacts of cannabis on North Coast county economies in 2023. “There is more supply than demand and it’s forced a reduction in prices that may not be economically viable for small producers,” Eyler says. The chief executive of a nonprofit focused on small North Bay cannabis farmers seems to agree. “In 2018 at the dawn of legalization, a pound of [outdoor- grown] cannabis was selling for around $2,000 wholesale and now it’s selling for $300 a pound, which is the cost of production,” says Genine Coleman, the chief executive of Origins Council. Recreational cannabis was legalized in California in 2016 with the passage of Proposition 64. Starting on Jan. 1, 2018, the sale and taxation of recreational marijuana that was set in place by Prop. 64 became effective. Competition is another challenge facing the industry. Since illicit cannabis operators don’t pay legally required taxes and fees, they can undercut legitimate operators in price, giving them an unfair advantage. Illegal operations are not the only competition faced by Sonoma County cannabis businesses, says Coleman, whose organization is a California 501(c)(4) nonprofit advocating for independently operated small farmers cultivating half an acre or less. For decades, the so-called Emerald Triangle—the cannabis- heavy counties of Humboldt, Mendocino and Trinity—was nationally known as the center of California cannabis. Sonoma County served as a kind of gateway to those counties. “In 2018, at the dawn of legalization, big corporations with a lot of money invested in Santa Barbara County and now Ventura,” a seismic shift that hit Northern California cannabis businesses with unexpected competition, Coleman says. These competitors have ample capital and can utilize economies of scale not available to the mom-and-pop growers Coleman represents. Another factor: State, county and local taxes have long driven up the cost of doing business, cutting into profit margins. A new state excise tax increase scheduled to kick in July 1, exacerbates the problem. “The excise tax increase up to 19% starting July 1, 2025 would likely reduce the size of the licensed cannabis market,” says Seth Kerstein of California’s Legislative Analyst’s Office. The nonpartisan office has provided fiscal and policy advice to the legislature for the past 75 years. “The increase would raise prices by around 4%,” Kerstein says. “The metric we tend to think of in this context of forecasting tax revenue is a tax that’s a percentage of the retail sales, so we think about it is in terms of what effect it would have on the total number of retail sales,” Kerstein says. Coleman adds, “We’re already struggling to have consumers
purchase in licensed dispensaries when there’s a lot of unlicensed choices out there. This will drive even more businesses out of the market.” ‘The regulatory nightmare’ Next to taxes, regulations are some of the most daunting challenges the North Bay—and statewide—cannabis industry faces. Applicants face literally years of paperwork, fees, back-and- forth with officials, delays and frustration, Coleman says. “It has taken some people as long as 10 years to get set up,” Coleman says. The regulatory nightmare doesn’t stop there, according to Robin Goldstein, director of the Cannabis Economics Group and a UC Davis economist in the Department of Agricultural and Resource Economics. Once a grower finally gets going, “Every cannabis plant has to be tagged with its own RFID tag,” Goldstein says, referring to Radio-Frequency Identification, which tracks objects. “You have to enter it into the track and trace system every time you transfer from the farm into a batch that’s going to be packaged and it moves through the supply chain you have to enter every minute detail. “Cannabis businesses across the street have to hire dedicated employees and have high labor costs,” Goldstein says. “There are safety and health regulations in all industries but there is no other agricultural industry where you have to track the origin of every plant back to where it came from.” Also, “Basically, the state requires that every single cannabis project be subject to the California Environmental Quality Act,” Coleman says, referring to environmental review of outdoor cultivation. Many such projects are legacy projects, meaning they either were operating illegally or operating as medicinal products for years. “Normally under CEQA if you have a parcel that already has been cultivated, you are mitigating environmental impacts. But the state ignored that and is basically treating everything like a brand-new development project,” Coleman says. Neighbors raise concerns Cannabis cultivation projects have been subjected to a higher level of discretionary review, which also invites more engagement from neighbors, she says. Along those lines, some residents have formed the Neighborhood Coalition of Sonoma County, a 501(c)(3) nonprofit that has a website, an email list, a newsletter and a blog. Its members attend county government meetings, write letters to the editor and elected officials and otherwise advocate for their goals, which include excluding cannabis cultivation from certain areas. One of its most active members is Craig Harrison, a resident of Santa Rosa’s Bennett Valley neighborhood who acts as a representative of Bennett Valley Citizens for Safe Development. Harrison, a retired attorney, says he would like Bennett Valley and about half a dozen other areas in the county to be deemed exclusion zones where cannabis could not be grown outdoors. Harrison says the group’s concerns include water supply and odor. “We’re in a Zone Three water supply here. Groundwater is limited, and cannabis is a thirsty crop, so we have some concerns about that,” says Harrison. Harrison’s assessment of cannabis as “thirsty” is shared by
July 2025
NorthBaybiz 23
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