Cannabis cultivation is no doubt a lucrative field. Seasoned growers know the few factors that can make or break a good crop from a great one. Unfortunately for the bad ones, they became easily disposed of this season.
While it’s not necessarily a common practice across the country, it’s growing in prominence in California, and it speaks to a more significant issue at hand — taxes. The extensive taxation that cannabis operators face across California is practically pushing small and independent growers out of the door. It’s more costly for growers to turn products around into the supply chain than allow their plants to die out on their own. Forbes recently interviewed several active members of the cannabis industry, from small-farm advocates to distributors, who detailed the financial burdens of yielding low-quality crops.
This year, California produced upwards of 1 million pounds of cannabis that entered the retail supply chain, contributing to the estimated $26B in revenue the industry raked in this year. However, even with an astronomical number of products in the market, more growers in California have left crops in the ground this year compared to other years. Swami Chaitanya, the co-founder of Swami Select, confirmed that he’s witnessed more growers “letting it rot.”
Between taxes and labor, growers face extensive costs to harvest their crops. If the crop itself cannot be sold, growers are losing money to grow and harvest cannabis that won’t even end up on shelves. With a profit margin as thin as parchment paper sheets, they often end up left in the ground instead beyond their due date.
The cannabis market in California might be the oldest in the country, but the industry still isn’t dealt with in the same vein as let’s say, food or make-up. There’s extensive testing done for quality assurance, but cannabis cultivators don’t receive the same tax treatment as food producers. This year, the cultivation tax in California is roughly $9.65 an ounce, which doesn’t seem like a lot, but it adds up. Each pound of cannabis cultivated will cost $154.40 in taxes. However, the price of cannabis isn’t what it once was. Prices for a pound used to inch anywhere between $1,500 to $2,500. Prices have dwindled remarkably to nearly $300 to $500. Add on minimum wage costs for the employee trimming the pound, and many cultivators are practically reaching into their pocket to grow.
Chaitanya summed up the feelings of growers by saying, “That cultivation tax is evil.” However, some have pushed back that small cultivators are losing out on crops. Origins Council’s executive director and founder Genine Coleman has led the policy and research organization’s research into legacy growers located in Northern Cali. She’s explained that crops with negative value are rare, especially among small-time growers who can’t afford the loss. “They cannot operate at a loss like that. They are inclined to harvest just in case they can sell and recoup some costs,” she said, claiming that she hasn’t heard that happen before.
Coleman explained that it’s a common practice among large cultivators in the wake of “a collapsed market due to overproduction.” With no sales outlet either, these growers are finding it more efficient to let the crops die out instead of paying the cultivation tax on goods that won’t even sell.
The collapsing market that Coleman mentioned is a growing concern across California. Towards the end of 2021, cannabis operators and advocates in California published an open letter to Gov. Gavin Newsom and legislative leaders in hopes of creating cannabis tax reform. Their requests include eliminating the cultivation tax that was supposed to increase on Jan. 1st, expanding the number of retail stores across the state, and putting a freeze on tax increases for a minimum of three years. So far, a representative for Gavin Newsom expressed solidarity with the growers being affected by the high tax rates and the dominating black market. Hopefully, this will lead to fundamental tax reform in 2021 and turn around the bleak fate of the cannabis industry in California.