Utopia Farms cultivation production manager Sean Ashman inspects maturing marijuana plants, which must be sold for cash to dispensaries, because banks don't want to do business with cannabis companies. (Karl Mondon/Bay Area News Group)

Politics

California cannabis growers call for changes to Proposition 64 harvest tax

State legislators and cannabis cultivators alike are calling for legislative changes to California’s recently passed recreational marijuana legalization measure Proposition 64.

Some bills have already been introduced, which seek to close loopholes in the new laws, such as the allowance of smoking marijuana while driving. Others seek to clarify the allowances and restrictions for both recreational and medical cannabis businesses.

“I would expect to see a fair amount of activity,” said North Coast 2nd District Assemblyman Jim Wood (D-Healdsburg), who is coauthoring the cleanup legislation Assembly Bill 64. “As the governor’s office begins to look at this initiative and (the Medical Cannabis Regulation and Safety Act) and people begin to dig through it, I think there is going to be a need for clarification.”

The California Growers Association, which represents cannabis cultivators throughout the state, has named changes to Proposition 64’s cultivation tax its top priority for 2017.

“There are lot of things about Prop. 64 and the medical regulations that could be better,” California Growers Association Executive Director Hezekiah Allen said. “This is one of the few things that if they are not changed, it will collapse the marketplace.”

Proposition 64’s passage will implement a cultivation tax for cannabis cultivators that would be collected at the time of harvest. The tax rate is set at $9.25 per dry-weight ounce of flowers and $2.75 per dry-weight ounce of leaves.

Allen said the glaring issue with the tax is the proposition does not specify whether the tax is collected at the beginning of harvest or at the end, which he said makes all the difference for farmers who aren’t connected to larger businesses.

“At the beginning of harvest our bank accounts are at their lowest,” Allen said. “We’re at our most strapped for time. The harvest is the culmination of the years of investment and hard work.”

The association has been circulating a petition since the end of December calling on the Legislature to clarify that the tax be collected at the end of harvest when the product has been trimmed, cured, graded and sorted.

“The hope there is growers will be able to recoup some of their investment to have the money in their bank account to cover the tax,” Allen said.

Nate Whittington is a Ferndale medical cannabis farmer who owns Ladybug Herbal Sanctuary Co-op. He is also the Humboldt County director of the growers association and voted in favor of Proposition 64 mainly because it worked to further decriminalize marijuana. For Whittington, the tax structure and rate adversely affect smaller farmers like himself who are not connected to other businesses that will help cover the tax at the beginning of harvest.

“A tax structure like this is only going to benefit the mega-monopoly businesses,” Whittington said. “That’s not going to drive innovation. It will drive a race to the benefit of who can gather the largest market share.”

Whittington said the costs of coming into compliance with Humboldt County’s commercial medical marijuana regulations have led him to operate at a loss this year. He said that the state flower tax would equate to about 15 percent with the leaf tax hitting up to 30 percent, especially with product prices dropping. That does not include local taxes.

“It wasn’t drafted with farmers in mind,” Whittington said of Proposition 64’s structure. “It was drafted in a way to get the most money and benefit the distributors and those on that side of the industry.”

“We have all eyes on us,” he continued. “This is a national-level discussion and the way we approach our taxation of the product and cultivators is really going to be a testament to our core values as Californians and how we deal with agricultural products.”

Proposition 64 allows the state Legislature to amend its provisions with a two-thirds vote as long as the changes further the intent of the law passed by the voters. Any changes that do not further the intent of the laws would require a ballot initiative.

Allen said his association has been in discussions with Gov. Jerry Brown’s staff in the past few weeks and have determined that their proposed changes to the harvest tax would not require another ballot initiative. Now their goal is to have their changes implemented into legislation.

“I’m feeling very optimistic that we will see a very broad and diverse group of stakeholders and lawmakers come together to address a number of outstanding concerns,” Allen said.

At least two pieces of cleanup legislation were already introduced in December.

Senate Bill 65 would seek to close a loophole that allows drivers to use marijuana; while Proposition 64 bans open containers of cannabis in vehicles, it doesn’t explicitly ban smoking or consuming the drug behind the wheel.

Assembly Bill 64 would make several changes and clarifications for both Proposition 64 and the Medical Cannabis Regulation and Safety Act such as providing the $3 million for marijuana DUI detection development a year early, placing more restrictive advertising prohibitions, and allowing the Secretary of State’s office to issue trademarks for cannabis products.

Wood, a coauthor of Assembly Bill 64, said Colorado has had over 80 bills of cleanup legislation introduced since it voted to legalize marijuana in 2012, though he hopes California will not have to do the same.

He said he is open to including more issues in the bill and that he expects several more pieces of legislation to emerge in the coming years.

“I want to make sure the public is protected throughout the process and that these are reasonable regulations for the industry as well,” Wood said. “There is fine line we’re walking to bring as many people on board as we can without making them so frustrated that the walk away and continue business as usual.”


AT A GLANCE

General provisions of Assembly Bill 64, which seeks to amend the Adult Use of Marijuana Act, also known as Proposition 64, and the Medical Cannabis Regulation and Safety Act.

Specifies that licensed medical marijuana business can operate for profit or not for profit.

Specifies that dispensary licenses can be issued for businesses with storefronts or without storefronts, such as delivery services.

Expands prohibition of marijuana advertising to all interstate and state highways and applies these restrictions to all entities, not just limited to marijuana businesses.

Authorizes the Secretary of State to issue trademarks for marijuana goods and services.

Advance a $3 million loan from the state General Fund to the California Highway Patrol in the 2017-2018 fiscal year to research marijuana DUI detection development and would require marijuana tax revenue to be used to repay the loan.

Allows cooperatives and collectives to operate for profit or not for profit.

Requires a two-thirds vote in both houses to pass.

Source: Assembly Bill 64; 2nd District Assemblyman Jim Wood