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Supes Move Forward with Cannabis Tax Reprieve 

click to enlarge Local cannabis farmers say plummeting wholesale prices have left many on the brink of insolvency, prompting them to push for tax relief.

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Local cannabis farmers say plummeting wholesale prices have left many on the brink of insolvency, prompting them to push for tax relief.

The Humboldt County Board of Supervisors is moving forward with providing local cannabis farmers some tax relief after a flooding of the wholesale market sent prices plummeting in recent months.

The board voted 3-1, with Second District Supervisor Michelle Bushnell having recused herself due to a potential financial conflict of interest and Fifth District Supervisor Steve Madrone dissenting, in a special Feb. 7 meeting to give farmers until September to make payments on bills due this year, while reducing next year's tax bills by 85 percent. Citing concerns over the tax breaks' impact on the county budget — which County Administrative Officer Elishia Hayes warned could result in a hiring freeze — Madrone had supported a more modest 50-percent reduction in the coming year's taxes.

The board had previously offered farmers a reprieve by forgiving late payments on bills due in October of last year until May of this year. The Feb. 7 vote — which will have to come back before the board for final approval at a future meeting — would give farmers until September to make those payments, as well as their second-installment payments, which were slated to come due in March.

The tax relief — which cannabis farmers maintained was crucial in trying to keep local farms solvent amid a crashing wholesale market — will result in the county losing millions in budgeted revenue in an effort to help Humboldt growers stay afloat until market forces stabilize.

During public comment Feb. 7 and during a Feb. 1 public hearing, the board heard from dozens of cannabis farmers, almost all of whom said their farms are on the brink of insolvency. Most asked for a full suspension of Measure S, which was passed by 66 percent of county voters in 2016 and imposed a tiered $1, $2 or $3 per-square-foot cultivation tax on outdoor, mixed light and indoor grows, respectively.

"I feel like a lot of this tax was built on false assumptions that we've been sitting on these piles of money from the past," said one cultivator. "The only thing that will give a fighting chance is full suspension."

Others warned that if the supervisors didn't provide relief, growers likely wouldn't be able to pay their tax bills anyway, while lamenting the cascading costs of compliance, state licensing fees and taxes, all in a marketplace that has seen production outpace consumption three-fold, sending wholesale prices cratering over the past six months.

While Measure S tax bills are much smaller than those levied by the state, Johnny Casali, who owns Huckleberry Hill Farms, said implementing local tax relief might spur the state to take action.

"If we do nothing, they will do nothing, and we will be done," said Casali.

Isaiah O'Donnell, the bulk flower distribution manager at Bear Extraction, struck a similar chord.

"The state is watching us," he said. "They're looking to see what Humboldt does and it's going to have a ripple effect."

That message — and the overall plight of the industry currently — seemed to resonate with the board, which was unanimous in its desire to offer some form of tax relief. The point of contention was what type would be appropriate, especially given the county's fiscal situation.

Coupled with a half-cent sales hike (Measure Z) first approved by voters in 2014, Measure S has helped the county increase services while keeping its budget in the black, pumping $47 million into county coffers since its implementation. But even with both measures in place, the county faced a daunting fiscal future.

The county is looking down the road at an unfunded pension liability of more than $330 million, according to a budget report from former County Administrative Officer Amy Nilsen, and a seven-year budget forecast prepared in 2018-2019 projected the county's general fund would face a more than $20 million shortfall in 2024-2025.

And that was before the county approved employee raises in recent months that are forecast to add a combined $44.5 million in annual spending by 2023-2024. The board and county staff have said the raises were necessary to address a staffing crisis that had seen all county departments struggling to attract and retain employees.

During the Feb. 7 meeting, Hayes warned that a significant reduction in Measure S revenue could necessitate a hiring freeze and the suspension of one-time supplemental budget requests, adding that "an overall staffing reduction" might also prove necessary.

The sentiment of the majority of the board, however, was that farmers wouldn't pay tax bills if they didn't have the money, while First District Supervisor Rex Bohn noted a significant percentage of county positions are vacant anyway, questioning whether the CAO's grimmest warnings would come to pass.

"We're going to be able to balance this out," said Bohn, who initially proposed a full suspension of Measure S taxes as a "one-year stop gap to help an industry."

Madrone, however, while sympathetic to the plight of local cannabis farmers, expressed deep concern about the county's finances.

"As a county, we're in crisis. ... Every department across the county doesn't have the staffing it needs to be able to do its job well," he said, later adding that people depend on the county to fix roads, process permit applications and provide emergency services. "Those things don't happen without revenue."

In the spirit of "compromise," Madrone suggested a temporary 50-percent reduction in Measure S taxes. Bohn countered with 85 percent, which, while supported by Fourth District Supervisor Virginia Bass and Third District Supervisor Mike Wilson, did not win Madrone's vote.

With its 3-1 passage, the tax relief proposal will come back to the board in the form of a resolution for final consideration at a future meeting, at which time Hayes said she would also present some proposals for stabilizing the budget in the face of the resulting loss of projected revenue.

The cannabis industry seemed generally appreciative of the board's vote, with the Humboldt County Grower's Alliance (HCGA) calling it "significant relief," which came six days after Bushnell's bombshell announcement that she would be recusing herself from the discussion.

Representing Humboldt County's sprawling Second District, which HCGA says is home to 80 percent of the county's cannabis farms, Bushnell was seen by many as a key player in pushing tax relief forward. As a member of the county's ad hoc cannabis committee, Bushnell had been instrumental in bringing the issue forward to the Feb. 1 public hearing but then seemingly blindsided just about everyone when she announced at the beginning of the discussion that she wouldn't be participating.

At the end of the Feb. 1 meeting, Bushnell explained that leading up to her decision, she'd had conversations with Hayes, county counsel and her private attorney. She said she has a cannabis farm — Boot Leg Farm LLC — that received a state license Jan. 3. While she said she has not cultivated cannabis on the farm yet — and doesn't know if she intends to — if planted it would be subject to Measure S taxes, so she decided to recuse herself to avoid jeopardizing the legitimacy of the board's discussion and potential vote. (She said she had also sought a written opinion from the Fair Political Practices Commission but had not received one.)

According to county records, Bushnell is named in three county cultivation permits on three different parcels. The local permits — which are for Boot Leg Farm, Chronic Creek and Hum Fire LLC — were approved between April 30 and Oct. 1 of 2021 for a combined cultivation area of 83,460 square feet. A financial disclosure form filed with the Fair Political Practices Commission on Jan. 28, 2021, lists Bushnell as the owner of the properties listed on the Chronic Creek and Hum Fire LLC permits, with no rental income disclosed for either.

Rejoining the Feb. 1 meeting after the board had moved on from the Measure S conversation, Bushnell said she'd been watching the meeting online as some cultivators bemoaned losing their elected representative's voice in the conversation.

I understand people are disappointed," she said. "I am as well. I have slept very little. I really love my community and am very supportive of it, especially the cannabis community. I am part of the cannabis community."

Editor's Note: A prior version of this story misspelled County Administrative Officer Elishia Hayes' name. The Journal regrets the error.

Thadeus Greenson (he/him) is the Journal's news editor. Reach him at 442-1400, extension 321, or thad@northcoastjournal.com. Follow him on Twitter @thadeusgreenson.

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Thadeus Greenson

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Thadeus Greenson is the news editor of the North Coast Journal.

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