Reining in Cannabis Tax Scofflaws

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Reining in Cannabis Tax Scofflaws
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Licensed cannabis operators reported $169 million in gross revenues to the county in fiscal year 2018-19. During that period, the county Sheriff's Department confiscated and destroyed plants and dried marijuana worth $288 million from illegal operations (Photo by Melinda Burns)

By Melinda Burns

Some cannabis operators in Santa Barbara County still don’t pay taxes, but there are signs that the county is closing in on them.

Of 106 licensed cannabis growers and processors in county unincorporated areas, 15 failed to report their gross revenues during the most recent quarter, from Oct. 1 to Dec. 31, according to a recent update for the county Board of Supervisors. That’s down from 22 tax scofflaws in the previous quarter. 

The county has put growers on notice that it will withdraw its “letter of authorization” for cannabis state business licenses if they fail to pay county taxes, said Assistant County Executive Officer Barney Melekian.

“The word went out that we were paying attention to that,” he said, adding that one grower was forced to surrender his state license and shut down last month; two others promptly paid up, and a fourth has been summoned to a county administrative hearing.

With 1,164 active state licenses for cannabis, Santa Barbara County is second in California only to Humboldt County in its embrace of the lucrative crop. The rapid influx of industrial-scale “grows” into the scenic Santa Ynez and Carpinteria valleys in recent years has produced an outcry for better enforcement and stricter regulations.

On Tuesday, the board authorized Melekian’s office to draw up a memorandum of understanding with the state Department of Food and Agriculture for use of its “Track-and-Trace” database for 60 days. As part of this pilot program, the county will investigate 250 state cannabis licenses in unincorporated areas, beginning later this year. 

The state tracks the bar codes that are embedded in cannabis plants and products, following the crop throughout the commercial supply chain. Access to this database, Melekian said, will allow an auditing firm contracted by the county to check whether a grower’s self-reported tax revenues line up with the number of his plants. A mismatch, he said, could indicate that the grower is selling on the black market in California or diverting cannabis illegally to other states.

Monterey and Yolo counties also will participate in the pilot program. In the future, the state is expected to expand local access to track-and-trace data throughout California.

Tax rates for cannabis in Santa Barbara County are as follows: 1 percent of gross revenues for nurseries and distributors, 3 percent for manufacturers, 4 percent for growers and 6 percent for retailers and microbusinesses.

Melekian reports that from July 1 to Dec. 31 – the first six months of the current fiscal year – Santa Barbara County collected $4.8 million in tax revenues from cannabis. That’s a 50 percent increase over the first six months of fiscal year 2018-2019, when the county collected only $3.2 million.

“People are doing a more accurate job of reporting, and there is more growth and more sales,” Melekian said. “The first two quarters of fiscal year 2018-2019, everybody was just getting their feet under them. County tax collection is more efficient now.”

Forty-eight cannabis operators reported zero gross receipts and paid no taxes during the most recent quarter, from Oct. 1 to Dec. 31, 2019 – but that’s likely because outdoor grows were dormant and some nurseries had no sales, Melekian said. Here, too, he said, the state track-and-trace data will help the county determine whether growers are telling the truth.

Meanwhile, raids on illegal cannabis operations slowed dramatically from Oct. 1 to Dec. 31, partly because of the scope and complexity of ongoing investigations, Melekian said. The county Sheriff’s Department confiscated and destroyed only 100 marijuana plants and 74 pounds of dried marijuana during that time, representing a total value of $79,000. In the previous quarter, the department confiscated 17,000 plants and 1,200 pounds of dried marijuana, a $5 million value in all.

During fiscal year 2018-2019, county records show, the department confiscated 985,000 plants and 65,000 pounds of dried marijuana valued at $288 million during searches at illegal operations. By comparison, licensed growers reported only $169 million in gross revenues to the county that year. 

Every cannabis grower must obtain state and county business licenses; every landowner must obtain a county zoning permit. To date, records show, the county has issued permits for cultivation on 221 acres in inland areas and 22 acres.

Last year, responding to a barrage of citizen complaints about the pungent skunk-like smell from cannabis, the county set caps of 1,575 acres and 186 acres of cultivation in inland and coastal areas, respectively.

Most of the cannabis farms in the county are designated as “legal, non-conforming.” That is, the landowners claimed to have been cultivating cannabis for medicinal purposes before Jan. 19, 2016. Beginning on that date, the county allowed cannabis cultivation to continue on those properties under temporary state licenses, but the landowners were required to apply for county zoning permits.

A total of 156 permit applications are pending in various stages of county review. They would cover more than 2,000 acres – hundreds more than what is allowed under the county caps.

Melinda Burns is a freelance journalist in Santa Barbara.

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buckwheat Mar 27, 2020 06:55 AM
Reining in Cannabis Tax Scofflaws

I agree with 10:44. Law enforcement should not destroy confiscated cannabis. Distribute it to those who can't afford it and open their own discount dispensary! The prices being charged by medical and recreational dispensaries are ridiculous compared to the black market. Just think of how much revenue the county could take in.

Tee Gee Mar 26, 2020 05:24 PM
Reining in Cannabis Tax Scofflaws

What strikes me in this cannabis controversy is the history of where and how these talented growers honed their craft. Obviously, one does not invest hundreds of thousands of hard earned cash into a frivolous pursuit. I can only infer that they have been planting, harvesting, and selling weed for a long time, in order to be able to afford to buy land and set up the complex and expensive infrastructure required by the state of California in order to legally grow and sell pot. Yes, there are businessmen who have invested in these grows, but the expertise required to bring a quality product to market requires years of practice. I know this firsthand, as an acquaintance has set up a two acre grow, in which he projects he will gross over three million dollars this year. This is much more profitable than carrots, peppers, lettuce or garlic, which had previously sprouted from this land. I don't disparage him- after all, business is business; but I do want to accentuate the fact that these people were criminals, no matter how you cut it- so to speak- and have lived shady lives for many years, and really will justify their positions in order to gross that kind of income per acre

a-1586392012 Mar 26, 2020 03:35 PM
Reining in Cannabis Tax Scofflaws

Considering all the positive PR the weed industry spews out, this is total BS that some of their own are trying to get over on the County. I say shut them down - NOW! They also need to be prosecuted and pay the p[iper. Boo!

PitMix Mar 26, 2020 01:24 PM
Reining in Cannabis Tax Scofflaws

Crazy for the County to say that they lacked the resources to verify the applications received from the potsters but get involved in regulating the business anyway. Let's hope they finally do their job and go after the fraudsters. A majority of the growers failed to report any revenues to the County. Last time I checked my dispensary, prices were still really high and they were raking in a bunch. Something is really rotten in Denmark.

CoastWatch Mar 26, 2020 01:14 PM
Reining in Cannabis Tax Scofflaws

This stink weed and all the greed that goes with it has been nothing but problems for every community it's grown in.

yacht rocked Mar 26, 2020 12:41 PM
Reining in Cannabis Tax Scofflaws

In a non-realistic world, Growers should have to upgrade greenhouses to seal them against odor and pay mitigation fees to the Community for each month of foot-dragging.

a-1586392012 Mar 26, 2020 10:44 AM
Reining in Cannabis Tax Scofflaws

Why on earth would they destroy all of the "illegal" weed? Fish & Game donates illegally harvested fish, shellfish, deer, elk, etc. to "the needy." Why not do the same for the weed...give it to those who cannot afford to buy it? You know, "the needy"...the folks who don't have the dough or the means to get to the dispensaries. Some years ago (in the early 80s), I knew a person who worked with the police in the Sacramento area....this person always had the best "confiscated" weed/medicine for free! ("And the installation is Freeeeeeee.....")

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