Why does Northern California’s craft cannabis face potential ruin?
Taxes are destroying small weed farmers in California. It’s almost like the government is rooting for their failure.
With a huge decrease in wholesale prices and an increase of flat tax rates, some of the world’s best weed and producers are on the verge of dying out. If conditions go unchanged, it will have a devastating effect on the historic Emerald Triangle and craft weed cultivators there.
The problems facing Emerald Triangle growers
The Emerald Triangle is a section 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 weed in the world since the early 1970s. For many Emerald Triangle communities, cannabis is the backbone of their economy and has been for decades.
But thanks to the heavy taxation rate for cannabis cultivators, in combination with historically low wholesale cannabis prices, that livelihood is now in danger. It is the complete opposite of what Proposition 64 was supposed to do for the legacy cannabis farmers who helped birth the cannabis industry.
“Given the fact that we’re talking 50% or above of small farmers being bankrupt by spring time, it’s a significant issue,” said Tim Blake, founder of the Emerald Cup awards show and cannabis competition. “You need small farmers in every community; they’re the backbone of the communities. Take those out of the Emerald Triangle and around these small counties in California, and you’re going to bankrupt them and turn them into ghost towns.”
What taxes did Prop. 64 create?
Proposition 64 is the law that legalized adult-use cannabis in the state of California in 2016. It enables people over the age of 21 to cultivate, consume, and sell cannabis within certain parameters.
Along with its passing came heavy tax rates. Taxes that are destroying small companies that produce high-cost, high-quality cannabis.
Cultivators must pay both state and local cultivation taxes—taxes 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 they tend to be between $1 and $3 per square foot of canopy growth, or the total area used to grow cannabis.
How does legacy cannabis face a tragic ending?
Beginning on January 1, 2022, state cultivation taxes on cannabis increased from $9.65 per dry-weight ounce of flower to $10.08. This equals a tax of $161 per pound, up $7 from the previous $154. With wholesale pound prices in California currently as low as they’ve ever been, this tax burden makes it near impossible for small companies to survive.
Currently, the market price for wholesale pounds of outdoor, sun-grown cannabis is $300-500. However, there’s a race to the bottom of cannabis prices and an emphasis on selling the most for the cheapest. A few years ago, wholesale pounds sold for $1,300-1,600.
“Right now, the wholesale market price is about $300 a pound. Baked in there are a million additional costs, because we’re packaging it, we’re processing it, we’re selling it, we’re distributing it… 59% of our wholesale is just taxes. It costs us $171 to grow that pound, so we are automatically already in the red,” said Julia Jacobson, CEO of Aster Farms.
At $300 a pound, minus $161 of taxes, that leaves Aster Farms $139 a pound in profit. But it costs them $171 to produce a pound of flower, so after harvest, Aster Farms is -$32 per pound. Production costs include paying for growing, processing, and packaging the weed, paying employees, paying for testing and packaging, as well as distribution fees, and cultivation taxes.
Each year Aster Farms produces between 2,300-2,800 pounds of weed. At current market prices, that means they are spending money just to owe money.
The consequences of legacy cannabis extinction
Unfortunately, this is a reality for the majority of the outdoor sun-grown cannabis community in Northern California.
In other agricultural industries, a product is taxed at a percentage of its wholesale price. That way, the tax rate moves with market fluctuations. In cannabis, regardless of that pound’s wholesale price, the flat tax rate of $10.08 per ounce still applies.
“It’s unfathomable that we are still being punished for [cannabis being a crop]. Corn, beans, even liquor is taxed at a percentage of what it’s being sold for. It’s something that California needs to look at,” said Rose Moberly, co-owner and operator of Huckleberry Hill Farms.
If legacy cannabis cultivators disappear in favor of large-scale operators who produce low-quality weed at a low cost, a region that has always been known for some of the best weed in the world will be flooded with straight-up garbage weed. The cannabis world will lose a large number of expert breeders and growers, and the overall quality of California cannabis will deteriorate.
Also, with large-scale operators producing low-quality weed will come an extreme lack of strain diversity. That’s what happens when decisions are based on dollars and data, versus a deep-rooted love for the nuances in the plant’s full potential.
“The greatest thing about small farmers is the diversity of cannabis and quality of cannabis,” said Taylor Blake, Associate Producer of the Emerald Cup. “Highlighting diversity in cannabis is necessary at this time. If you look at large-scale cannabis production, you see it’s this monopoly of genetics where they’re all growing the same thing.”
Additionally, losing the legacy craft cannabis farmers of Northern California means losing a huge part of cannabis history. The plant, and the industry, would not be here without the Emerald Triangle. We would not have strains like Mendocino Purps, Purple Trainwreck, and 707 Headband without the Emerald Triangle.
A future that doesn’t include the generations of families who have been building this industry since 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, so these small cannabis farmers can afford to operate. This is a mission that requires the California state government to reassess cannabis taxes, and it requires Governor Gavin Newsom to hear people’s cries.
“Newsom, who supported Proposition 64 as lieutenant governor, signaled… that help may be on the way. Unveiling his 2022-23 budget proposal… he said he supported cannabis tax reform and planned to work with the Legislature to modify policy,” according to an NBC News article published in January.
Rose Moberly of Huckleberry Hill Farms started a petition and there have been multiple rallies to raise awareness of the small weed farmers’ plight.