Why is craft cannabis facing potential ruin in Northern California?

Taxes are destroying small weed farmers in California. It’s almost as if the government is rooting for its failures.

With a huge drop in wholesale prices and an increase in flat tax rates, some of the world’s top cannabis producers are on the brink of extinction. If conditions remain unchanged, it will have a devastating impact on the historic Emerald Triangle and the weeders there.

The problems faced by Emerald Triangle growers

The Emerald Triangle is a portion of Northern California that includes Mendocino County, Humboldt County, and Trinity County. It has been home to generations of outdoor cannabis growers and some of the best outdoor cannabis in the world since the early 1970’s. For many communities in the Emerald Triangle, cannabis is the backbone of their economy and has been for decades.

But thanks to the high tax rate on cannabis growers combined with historically low wholesale cannabis prices, that livelihood is now in jeopardy. It’s the complete opposite of what Proposition 64 was intended to do for the legacy cannabis farmers who helped create the cannabis industry.

“Given that we’re talking about 50% or more of smallholders going bankrupt by spring, that’s a significant concern,” said Tim Blake, founder of the Emerald Cup award show and cannabis competition. “You need small farmers in every community; They are the backbone of the community. Take these out of the Emerald Triangle and around these small counties in California and you will bankrupt them and turn them into ghost towns.”

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What taxes did Prop. 64 create?

Proposition 64 is the law that legalized adult use of cannabis in the state of California in 2016. It allows people over the age of 21 to grow, consume and sell cannabis within certain parameters.

Along with its passage came high tax rates. Taxes that destroy small businesses that produce expensive, high-quality cannabis.

Cultivators must pay both state and local crop taxes – taxes paid to the government for the right to grow and sell cannabis. The state tax rate is $10.08 per dry weight ounce. Local taxes vary by city and county, but typically range from $1 to $3 per square foot of canopy growth, or total area used to grow cannabis.

What is the tragic end of legacy cannabis?

As of January 1, 2022, state cannabis cultivation taxes increased from $9.65 per ounce of dry weight flower to $10.08. This equates to a tax of $161 per pound, up $7 from the previous $154. With wholesale pound prices in California at an all-time low, this tax burden makes it nearly impossible for small businesses to survive.

Currently, the wholesale market price for outdoor, sun-grown cannabis is $300-$500. However, there is a race to the bottom in cannabis prices and an emphasis on selling the most at the cheapest. A few years ago pounds sold wholesale for $1,300 to $1,600.

“Right now the wholesale market price is around $300 a pound. There’s a million extra costs baked in because we pack it, process it, sell it, distribute it… 59% of our wholesale is just taxes. It costs us $171 to grow that pound, so we’re automatically in the red already,” said Julia Jacobson, CEO of Aster Farms.

At $300 per pound, minus $161 in taxes, Aster Farms is left with $139 per pound profit. But it costs her $171 to produce a pound of bud, so Aster Farms costs -$32 per pound post-harvest. Production costs include paying for growing, processing and packaging the weed, paying employees, testing and packaging costs, as well as distribution fees and cultivation taxes.

Each year, Aster Farms produces between 2,300 and 2,800 pounds of weed. At current market prices, that means they’re spending money just to owe money.

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The consequences of the extinction of legacy cannabis

Unfortunately, this is a reality for the majority of Northern California’s outdoor sun-grown cannabis community.

In other agricultural industries, a product is taxed at a percentage of its wholesale price. In this way, the tax rate moves with market fluctuations. Cannabis is still taxed at the flat rate of $10.08 per ounce regardless of the wholesale price of that pound.

“It is unfathomable that we are still being punished for this [cannabis being a crop]. Corn, beans and even liquor are taxed at a percentage of the selling price. California needs to see this,” said Rose Moberly, co-owner and operator of Huckleberry Hill Farms.

When traditional cannabis growers disappear in favor of big corporations that produce low-quality weed at low cost, a region that has always been known for some of the best weed in the world will be inundated with pure trash weed. The cannabis world will lose a large number of experienced growers and breeders, and the overall quality of California cannabis will deteriorate.

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Also, there will be an extreme lack of strain diversity among large operators producing inferior weed. That’s what happens when decisions are based on dollars and dates, as opposed to an ingrained love for the nuances in the plant’s full potential.

“The greatest thing about smallholders is the variety of cannabis and the quality of cannabis,” said Taylor Blake, Emerald Cup Associate Producer. “It is necessary at this time to highlight the diversity of cannabis. If you look at large-scale cannabis production, you see it’s this monopoly of genetics where everyone grows the same thing.”

Additionally, the loss of the old artisanal cannabis growers of Northern California means the loss of a large part of cannabis history. The factory and industry would not be here without the Emerald Triangle. Without Emerald Triangle, we wouldn’t have strains like Mendocino Purps, Purple Trainwreck, and 707 Headband.

A future that doesn’t include the generations of families that built this industry before it was legal is downright criminal.

What can be done to help Northern California’s legacy cannabis farmers?

Tax reform is needed at both the state and local levels to enable these small-scale cannabis growers to afford operations. This is a mission that requires the California state government to reassess cannabis taxes and requires Governor Gavin Newsom to hear the people’s cries.

“Newsom, who supported Proposition 64 as Lieutenant Governor, signaled … that help could be on the way. Presenting his proposed budget for 2022-23, he said he supports cannabis tax reform and plans to work with the legislature to change policy,” according to an NBC News article published in January.

Rose Moberly of Huckleberry Hill Farms started a petition and there were several rallies to raise awareness of the plight of small weed farmers.

Dante Jordan

Danté Jordan is a former member of the Leafly Subject Matter Expert team and currently a freelance writer, video producer and media consultant specializing in cannabis culture, strains, products, education and everything else related to this little green flower. Contact him at smokingwithdante on Instagram or datenetworks(at)gmail(dotcom). His website is www.dantejordan.com.

Check out the articles by Danté Jordan

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