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Taxes and Terroir


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The Humboldt County Board of Supervisors overstepped when it modified the cannabis tax approved by voters in 2016, a judge recently ruled.

Passed with 66 percent of the vote, Measure S imposed a $1 to $3 per-square-foot excise tax on commercial cannabis cultivation countywide. Under the language of the measure, the tax was to be imposed on cultivators based on the area of land they were growing cannabis on. The measure also stated the tax was to be collected "biennially," or once every two years, when its authors intended it to be collected "biannually," meaning twice a year.

The Humboldt County Board of Supervisors voted unanimously in 2017 to modify the measure to make it easier to implement (by imposing the tax on landowners rather than cultivators and basing it on the permitted square footage rather than actual cultivation area) and to clean up its mistake and allow for the millions in tax dollars to be collected twice a year. But a pair of attorneys — Ed Denson and Fred Fletcher — filed a lawsuit in 2018 alleging the board acted illegally in making the changes and demanding the county return the estimated $4 million in tax revenue it had collected.

Humboldt County Superior Court Judge Kelly Neel agrees, to some extent. In a four-page ruling filed with the court last week, Neel found that the county did err when the board modified the tax law, as only voters can meaningfully alter the voter-approved measure.

Neel dismissed the "biennial" to "biannual" change as a "scrivener's error" because it does not change the amount of taxes collected, just the time of collection. But when it came to taxing landowners rather than cultivators based on permitted cultivation areas rather than the size of actual cultivation operations, she found the board, though "well meaning," overstepped its bounds.

"A landowner leasing their property to another for the purpose of cultivation cannot be said to be actively engaged in cultivation absent further involvement," Neel wrote in the ruling. "The voters approved a measure whereby an individual involved in cultivation is the person responsible for the tax. ... In review of the language of Measure S as it relates to what is to be taxed, the county did expand the clear language of the measure. A person obtaining a permit is reserving the right to cultivate and abide by certain rules and regulations; it does not obligate them to actually engage in cultivation. ... The tax was supposed to begin accruing when cultivation starts rather than when a permit is issued."

Neel's ruling, which the county can appeal, could result in tax refunds for three groups of people, according to comments Denson made to local reporter Kym Kemp. First, there are landowners who were renting or leasing properties to cannabis farmers, but weren't actively involved in cultivation. "They should get their money back," Denson told Kemp.

Then, there are people who obtained cultivation permits but either didn't grow cannabis at all on their properties or cultivated fewer square feet than their permits allowed. It's hard to assess how large this group might be, though a number of growers have indicated they opted either not to grow last year or to downsize their gardens in the face of poor market prices and rising compliance costs.

Denson told Kemp he wouldn't be surprised if the county is facing refunding more than a $1 million in tax payments under Neel's ruling. What is clear is that if Neel's ruling stands — in addition to the refunds — it will create an implementation headache for the county, which will now have to devise a plan for measuring every permitted farm in Humboldt to figure its tax bill.

In other news, it looks like we might finally put some science behind all this cannabis terroir talk. The International Cannabis Farmers Association recently announced it will use more than $70,000 culled from a trio of grants from the Watershed Fund, the Headwaters Fund and the Dr. Bronners Family Foundation to fund the Humboldt County Cannabis Appellations Baseline study.

According to a press release, the study will map "potentially unique Humboldt County appellation regions based on biophysical and geographic characteristics of current and historic cannabis cultivation areas." Specifically, the study will collect climate data, elevations and temperatures from select farms throughout Humboldt, while also testing soil and water chemistry. The idea is to use the data to show distinct cultivation areas that can then file for legal appellation distinctions, which could provide marketing advantages.

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


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