“We didn’t think it was going to be this bad,” said Ben Blake, co-founder of Esensia, which has farmed premium cannabis on a quarter-acre plot in Mendocino County for 15 years. “This is kind of a last battle for these growers.”
There were warnings throughout the years, especially in this region that has grown some of the best cannabis strains through the decades in a microclimate suited perfectly for the crop.
North Coast marijuana eventually gained a prestige similar to Napa Valley and its wine. That occurred when then-Lt. Gov. Gavin Newsom stopped by to meet with small cannabis farmers in Garberville in 2015, as he pitched passage of Prop 64 as part of his quest for the governor’s office. Those growers expressed ther fears with one telling him: “I don’t have millions of dollars. Make it viable for all of us.”
A key moment came in 2017 when the state Department of Food and Agriculture scrapped a proposal to place a 1-acre cap on cannabis farms and issued regulations that opened the door to large-scale cultivation.
Local governments in California have the final say on the size and scope of cannabis farms and businesses. Some have fought against any significant cannabis-growing sector, such as Napa County, while others have opened their areas more to the sector.
That includes Lake County, where Santa Rosa-based CannaCraft has its Kindness Farms on more than 100 acres that allows the processor to grow more than 40,000 plants.
There were 6,235 cannabis cultivation licenses in the state last year, with Humboldt County having the largest number, followed by Santa Barbara and then Mendocino counties. The latter has about 1,100.
Additionally, growers also noted the cultivation tax makes it harder to compete, when tacked onto other charges when cannabis eventually lands at the retail market. In past years, the tax would be around 10% of the revenue for regional growers. But with depressed prices, that percentage will go up much higher.
“Value is being extracted along the way by taxes and packaging and testing. And all of these regulatory costs that have been added onto the product is taking value out of the supply chain, so that the amount of value that farmers can get has plummeted,” said Allen of the state growers’ association.
Allen and others are asking for a suspension in cultivation taxes this year to help small farmers get through. But any reduction would affect state revenues as California took in more than $1 billion in overall state excise, cultivation and sales taxes in 2020 from cannabis. A 2019 report from the state’s Legislative Analyst’s Office noted the trade-off.
“On one hand, for example, reducing the tax rate would expand the legal market and reduce the size of the illicit market. On the other hand, such a tax cut would reduce revenue in the short term, potentially to the extent that revenue could be considered insufficient,” according to the report.
Nicole Elliott, director of the California Department of Cannabis Control, said in a statement that her newly formed agency was committed to helping small cannabis businesses and noted that Gov. Newsom has allocated $100 million in grants to help small cultivators who “often have unique regulatory needs.”
Coincidentally, the wholesale price drop comes just as the movement for cannabis legalization is the farthest along it has ever been in Congress, making federal repeal not a question of if it happens, only when.
Senate Majority Leader Charles Schumer of New York has sponsored legislation that would remove all federal prohibitions on marijuana and the House has passed a bill that would stop federal bank regulators from penalizing banks that work with cannabis-related businesses, which would make accessing capital much easier for these farmers. Thirty-six states allow weed for medical use, while 18 states permit recreational use.
Small growers said if they were able to sell their prized crop across state lines or even directly to consumers like other crops, they would be able to have a sustainable business for the future.
“It’s just been snuffed out by a thousand cuts,” Esensia’s Blake said.
In past years, a pound of premium cannabis could sell wholesale after taxes from $1,000 to $1,500 per pound, he said. It will be much less for 2021 and could go as low as $700 per pound though Blake added, “no one really knows for this fall.”
Blake said on some farms that “some (weed) may not be sold for any price.”
Esensia should be well-positioned as Blake thinks he has a good strategy: he built his brand name in the marketplace; worked closely with local retailers such as Sebastopol’s Solful; and developed the company’s own top-shelf strains that it can sell to other cannabis farms.
“It’s going to be a real test,” he said. “I think we have built the ship strong enough.”
You can reach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.
