Santa Barbara Awaits New Cannabis Tax Revenues

Santa Barbara County is itching to see what first quarter revenues look like after residents approved new cannabis taxes in June.

The cash will start flowing into county coffers next month, answering some important questions for the future of the county and its cannabis industry.

A consulting company estimated last year that cannabis taxes could generate as much as $5 million to $25 million annually, but county staff estimates have been slightly less optimistic. Lessons from the state, which has brought in less than initial estimates, have also been sobering.

Prior to the state taxes kicking in Jan. 1, Gov. Jerry Brown’s office estimated California would pull in $175 million in cannabis revenues in the first six months of 2018.

Actual revenues for that period fell considerably short at $134 million, which included $6.1 million from the cultivation tax, $75.5 million from the excise tax and $53.6 million from sales taxes.

State officials are blaming the shortfall on three factors, two of them interrelated. One factor is that many city and county jurisdictions have either banned legal cannabis operations or severely limited them, reducing the number of taxpaying businesses.

The two interrelated factors are the burgeoning black market and the high cumulative tax rates that are feeding it, a situation correctly predicted nearly a year ago by the global credit ratings firm Fitch Rating.

Some local jurisdictions have set cannabis taxes so high that, when combined with the state taxes, business owners in some areas are paying rates as high as 50 percent, according to state regulators.

Santa Barbara’s supervisors kept that in mind when setting the county’s cannabis tax rates. Staff were directed to come up with rates that did not exceed 10 percent.

Despite a recent drop in active state temporary medical marijuana licenses in Santa Barbara County, Deputy County Executive Officer Dennis Bozanich says the local industry remains strong.

“We continue to have the most cultivation licenses of any county in the state,” Bozanich said -- a fact County News reported previously. “And more entities are coming in.”

Bozanich says he’d like to see more testing labs and distributors. “Those are essential. With the quantity of locally grown cannabis, we don’t want them to go to some other county (for those services).”

He also hopes the downward trajectory of marijuana prices proves temporary and short-lived.

“Overall, the market’s got to get stabilized, both locally and statewide.”