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The Sweet Spot 

It was Benjamin Franklin who famously wrote in a 1789 letter that "in this world nothing can be said to be certain, except death and taxes." Well, California pot farmers have largely skirted the second of those for decades and now fear the looming certainty of taxation may bring death to their businesses.

The Humboldt County Board of Supervisors is moving forward with putting a marijuana excise tax on the November ballot that, if passed, promises to bring in millions of dollars in revenue to county coffers. Staff recommended a complexly tiered progressive tax that would give breaks to small, outdoor farms and operates under the basic premise that the larger and more environmentally damaging a grow the larger its tax bill.

But at its June 28 board meeting as the Journal went to press, the Board of Supervisors voted 4-1, with Supervisor Mark Lovelace dissenting, to move forward with a simplified version with lower rates. Under the current versions, outdoor grows will be taxed at a rate of $1 per square foot of canopy. The rate jumps to $2 per square foot for mixed-light grows and $3 per square foot for indoor grows.

Now, this is steep discount from what county staff had originally proposed. Consider that under staff's proposal, a 43,580-square-foot grow — the largest allowable under the county's ordinance — would fetch a tax bill of more than $130,000. Under the version moved forward by supervisors, that bill would drop to $43,580.

The trick in this whole conversation, as numerous supervisors noted, is finding the sweet spot, or a tax rate low enough to incentivize compliance and draw growers out of the black market, yet high enough to bring much needed revenues into the county to pay for environmental mitigation and county services. Make the rate too low and the county is letting much needed revenue — it has an annual structural deficit expected to hit $10 million by 2020-2021 by some estimates — slip through the cracks. But make the rate too high, and the county is either bleeding farmers out of existence or pushing them to stay in the black market. But there's also the argument that a rock-bottom rate that draws the majority of Humboldt's estimated 10,000 cannabis farms into compliance and onto the tax rolls is going to generate a lot more revenue than a heftier tax with only a fraction of farmers in compliance.

And, of course, this conversation isn't taking place in a bubble. State law currently sees medical marijuana subject to the state's 7.5 percent sales tax and there's a concerted effort to implement an additional statewide cannabis tax this year. North Coast Sen. Mike McGuire's bill, which would have imposed a 15 percent point-of-sale fee for marijuana users, has apparently died in committee. But another bill by North Coast Assemblyman Jim Wood, which would tax cannabis distribution at the rate of $9.25 per ounce, appears to have widespread support.

Couple that with the fact that growers — at least those who are coming into compliance — are facing a host of new costs, from licensing and permit fees to consulting bills and attorney fees, while navigating this new landscape, and the picture gets murkier.

But let's go back to that 43,580-squarefoot grow for a minute. The standard rule of thumb is that 100 square feet of canopy should yield a pound of marijuana, which means this garden could reasonably turn out 435 pounds a year. With a retail price of around $1,000 a pound, that means about $435,000 in gross profit. Under Woods' bill, that garden would send $64,469 to the state in taxes. Meanwhile, in Humboldt County, the grower would pay $43,580 in taxes, for a total tax bill of $108,049.

As Franklin said centuries ago, taxation is certain, and that's proving true even for marijuana farmers. But what that certainty will mean — for farmers, consumers, a billion-dollar industry and a poor county like Humboldt — is anything but.

Editor's note: This column was updated from a previous version to correct a math error.
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