Despite the county recording the strongest collection of cannabis taxes to date in the first quarter of fiscal year 2019-20, some 66 of the 90 state licensed operators within Santa Barbara County reported no gross receipts or did not submit reports.
The Santa Barbara County Treasurer-Tax Collector collected approximately $2.8 million from 34 licensed cannabis operators. An additional 34 operators stated they had no gross receipts and 22 did not submit reports, according to county officials.
The first quarter tax revenue received was the most the county has collected since they began tracking tax collection, which spans a total of five quarters dating back to the start of fiscal year 2018-19. The latest collection represents a 63% increase over the same time period a year ago, and a 23% increase over the fourth quarter of FY 2018-19, Barney Melekian, former county undersheriff and current assistant county executive officer over public safety, told the Board of Supervisors earlier this week.
The board previously adopted a cannabis tax revenue budget of $5.6 million for the current fiscal year, a 3% increase over last year’s budgeted revenues.
Last June, the board approved $100,000 for a cannabis compliance audit to identify those who may be underreporting or involved with compliance issues. The county has recently been selected by the state to participate in a beta testing of the state’s track and trace system, a barcode system that tracks plants from growth to sale.
“It’s a critical component of the tax audit,” Mr. Melekian told the board.
County officials will be meeting in mid-February in Sacramento to learn more about the testing and could launch by late February. The testing is expected to last around 60 days.
“What comes after that 60-day trial is concluded is not clear yet,” Mr. Melekian said.
The county is waiting for the track and trace system to come online before proceeding with the cannabis compliance audit, something that 1st District Supervisor Das Williams said is “crucial” and should proceed with urgency.
“When we allocated money in the fiscal year budget, we hope it doesn’t normally take seven months to get started on something,” he said. “I think the reasons for the delay are understandable, but given the circumstances, we’ve got to move forward with urgency.”
Fifth District Supervisor Steve Lavagnino also said the compliance audit should occur sooner than later, and encouraged county staff to contact the operators who reported no gross receipts by phone to try and spark some urgency on their part.
“That’s one thing that’s at the top of my list,” Mr. Melekian replied.
Mr. Lavagnino then said the county “overlooked” the Tax-Collector’s Office initially, which was “a huge mistake in hindsight.
“Not only is that not fair to the county, it’s also not fair and an incentive to those people who are paying, to try and figure out another way around the system,” he said.
Several people spoke during public comment of Tuesday’s meeting, including Mike Palmer, who was representing Cannabis Association for Responsible Producers, also known as CARP Growers.
“All legal non-conforming operators should be operating on the same playing field,” he said, adding that he welcomed tougher enforcement on tax compliance and that CARP Growers estimate they have paid over 80% of the county tax revenue so far.
Graham Farrar, CEO of Glass House Farms and president of CARP Growers, told the board that everyone in the county who runs a cannabis business should be paying their fair share of taxes.
““That was the deal with the county, that was the deal with the community, and everybody needs to be doing their part,” he said “Running a cannabis business in Santa Barbara is extremely onerous. It has an immense amount of regulations and extreme taxations. As an operator, it’s not the system that I would have wished for, but it’s the rules we have and everyone needs to follow them.”
Mr. Farrar then compared the existing rules to those of soccer and explained that no team should be able to carry the ball with their hands if others aren’t allowed.
“No player and no ref would tolerate that,” he said.
Tuesday’s presentation also included an update on the county’s cannabis enforcement. After seizing more than 984,000 live plants worth an estimated $222 million in fiscal year 2018-19, the first quarter of fiscal year 2019-20 yielded only 16,684 live plants worth an estimated $4.2 million. Mr. Melekian explained to the board that the volume was “down slightly” because of the nature of the investigations. Sheriff’s officials also said that the time of enforcement, July 1 through Oct. 31, came during a seasonal slow down in terms of marijuana growth.
In total, staff responded to 271 cannabis complaints in the quarter, with 234 for odor complaints — 221 of which were in Carpinteria.
“They were dealing with some operations that were smaller in size, but larger in impact because some of these were even backyard grows, not professional grows, personal grows, that were against the rules growing in backyards in neighborhoods,” Mr. Williams said. “The positive impact may very much be much more than what it looks like on paper.”
Board Chair and 2nd District Supervisor Gregg Hart gave kudos to the enforcement team, which he said is the model that other counties in the state want to replicate.
Fourth District Supervisor Peter Adam said the county was in the “grand experiment” stages of cannabis cultivation.
“We’re watching the evolution occur,” he said. “Some of it’s going okay, and some of it leaves some to be desired. We’re moving through it and… it’ll take years for it to shake out. There will be some uncomfortable events on all sides, but we’re working through it.”
On Feb. 11, the board will meet to discuss the merit-based application process for the retail storefront selection process. The presentation will include a projected timeline and the scoring sheet that will be used for evaluation.