News that Stays News: Cannabis Tax Revenues Fall Short for Third Consecutive Year (Great Work, Das!)

By Melinda Burns

For the third year in a row, the county CEO’s office is projecting a budget shortfall in cannabis revenues, this time because tax receipts from pot shops is lower than expected.

The shortfall for this fiscal year, covering June 2023 through June 2024, will likely be $1.8 million, or 24 percent less than the $7.5 million that was budgeted last June, county officials told the Board of Supervisors on Tuesday.

Fiscal year-end cannabis tax revenues are now projected to total $5.7 million — barely enough to cover the $5 million annual cost of ensuring compliance with county regulations and enforcing the law against black market operators.

Of 57 cannabis operators in the county, 33 reported their gross revenues for the third quarter and 20 reported zero revenues, indicating they were not harvesting from January through March, according to the CEO’s report to the board. Four operators did not file tax reports, officials said, and their county business licenses will not be renewed.

The county had previously over-projected cannabis tax revenues for both the 2021-22 and 2022-23 fiscal years, as a glut on the market caused prices to plunge.

This fiscal year, the county was counting on four cannabis dispensaries to come online in Orcutt, Los Alamos, eastern Goleta and Santa Claus Lane in the Carpinteria Valley, officials said; however, the owners still do not have their building permits and business licenses. In addition, the tax revenue from dispensaries in Isla Vista and Santa Ynez — the only two currently operating in unincorporated areas under county jurisdiction — has been lower than expected.

Dr. Greenthumb’s, the dispensary under county review in Orcutt; and Island Drift/The Annex in eastern Goleta, are both slated to open this fall. The Roots dispensary on Santa Claus Lane and Haven in Los Alamos are expected to open in the spring of 2025 and the fall of 2025, respectively.

North County Supervisor Bob Nelson expressed frustration with the cannabis retail owners who have not yet opened for business. Perhaps the rules need to be tightened, he said.

“At what point do we say, ‘Thanks, but no thanks’?” Nelson asked. “ … They are at this point taking advantage of the system, dragging their feet for years. Some of them have good reasons, and others don’t.”

Brittany Odermann, deputy county CEO, said the owners of the four pending retail operations were making progress “slowly but surely.”

“They know that we’re watching,” she said.

Shift in enforcement. The CEO’s quarterly updates on cannabis include a report on the activities of the Sheriff’s Cannabis Compliance Team.

Tuesday’s report noted that during the third quarter of this fiscal year, the team confiscated 259 pounds of cannabis valued at $261,000 from four illegal “grows” — a far cry from the millions of dollars’ worth of illegal live marijuana plants and dried product that the team was confiscating back in 2019 and 2020.

These days, according to the report, the team is seeing fewer large-scale illegal outdoor “grows” and more small illegal “grows” in homes and commercial buildings, where the operators can “hide in plain sight.” Also, the Sheriff’s team is focusing on the source of cannabis that is sold illegally on the street, because street dealing is “one of the most common ways youth in this county are gaining access to marijuana products,” the report said.

Finally, it said, the enforcement team is encountering the use of “burner distros,” illegal distribution companies that have become a statewide problem.

These companies are “fronting” as legitimate: that is, they have state licenses but they are moving large amounts of cannabis to the black market in other states or even countries, where its value goes up exponentially. Alternatively, the cannabis — grown legally or illegally — could wind up at an unlicensed storefront, say, in Los Angeles, where it could be sold without having to get permits or pay taxes.

In an interview, Odermann said that legitimate growers selling legal cannabis may not know that the distribution company buying their product is a front.

Because these companies typically offload their product, dump their licenses and vanish, they are known as “burner distros,” a takeoff on the cheap, disposable “burner” cellphones that offer anonymity to criminals on the run.

“It’s hard to track,” Odermann said. “They do it once and disappear. The way the illegal market is thriving is: they’re weaving into the legal market. Growers are getting duped.”

Melinda Burns is an investigative journalist with 40 years of experience covering immigration, water, science and the environment. As a community service, she offers her reports to multiple publications in Santa Barbara County, at the same time, for free.