Monterey County Auditor - Controller

The estimated price for finished cannabis product dropped from $1,600 per pound in 2020, to under $500 per pound in 2021, due to a glut in the state cannabis supply. Response F1: Partially Agree While the Cannabis product prices declined significantly from 2020 to 2021, the price reductions varied by cultivation type. Cannabis wholesale flower pricing as reported by the County Administrative Office’s Cannabis Program Division, the highest monthly price point for ‘Mixed Light’ and ‘Indoor’ grow types were $1,305 per pound and $1,969 per pound respectively in 2020 reaching to the lowest monthly price point of $400 per pound and $790 per pound respectively in 2021.

The major source of cannabis revenue in Monterey County comes from assessed square footage of cultivation. Response F2: Agree

Growers paid around $19 million in assessed taxes in 2021. An additional $1.4 million in taxes were collected from other cannabis businesses, including dispensaries processors, quality assurance testing, delivery, transportation, and disposal. Response F3: Disagree The County’s financial system reflected Cannabis tax revenue of $22 million in Fiscal Year 2020-21, consisting of $19.6 million in cultivation taxes and $2.4 million in other taxes such as dispensaries, distribution, and manufacturing.

In the past five years, just under $70 million has been collected in Cannabis tax revenues. Response F4: Agree For five fiscal years 2016-17 through 2020-21

Even with the glut of cannabis on the open market, Monterey County is still actively processing a nine-fold increase of provisional licenses over the active/complete licenses. 2 | P age 2021 - 2022 Monterey County Civil Grand Jury Final Report – Topic: “MONTEREY COUNTY’S CANNABIS INDUSTRY UP IN SMOKE?” Response from the Auditor-Controller Response F5: Disagree While the County has experienced a significant backlog in approving Cannabis Business Permit applications, the number of anticipated provisional license processing is less than nine-fold. According to the numbers reported in May 2022 by the County Administrative Office’s Cannabis Program Division, a total of 15 business permit applications have been approved out of a total of 109 applications submitted. The 94 remaining applications in the approval queue, if in good standing, may be granted provisional licenses equating to seven (7.3) times the applications approved. Additionally, the County’s provisional licensing timeline is aligned with the State’s timeline and intended to incentivize the operators to fulfill the permit requirements for final approval and help reduce the backlog.

County FTEs (staff) have increased from 6 to 28 in fiscal 2021-22 involving multiple agencies that regulate, inspect legal cannabis, and enforce the eradication of illegal cannabis in the County. Response F6: Partially agree Agree with the concept of increased staffing. Disagree with the number of FTE (staff) stated. A total of 25.23 positions were budgeted for the Cannabis program activities in Fiscal Year 2021-22 to not only regulate legal and eradicate illegal activities but to also administer tax assessment and collection, financial tracking and oversight, internal and external communication, and related activities of the program.

The County Cannabis Program is the county regulatory infrastructure with a budget of $6.3 million, a third of the cannabis tax revenue in 2021. Response F7: Disagree $5.6 million was budgeted for the Cannabis Program in fiscal year 2021 while the actual program cost was $4.7 million. County’s Cannabis tax revenue in fiscal year 2021 was $22 million and total Cannabis Program revenue was $23.7 million, which included other revenues such as permit fee, tax penalty etc. Comparing actual program expense against actual program revenue, the expense amounted to fifth (20%) rather than third (33%) of the revenue.

Consumers also pay state Sales Tax, state Excise Tax, and county or city sales taxes which results in a four-fold increase in price compared to unlicensed/illegal cannabis. 3 | P age 2021 - 2022 Monterey County Civil Grand Jury Final Report – Topic: “MONTEREY COUNTY’S CANNABIS INDUSTRY UP IN SMOKE?” Response from the Auditor-Controller Response F8: Partially Agree Agree with the concept of additional taxes raising the cost of doing business for legal vs. illegal operators, though the proportion of cost difference is not verified independently.

Allocation of the Cannabis Tax/Assignment Fund (CTF) is difficult to track. The increase of property values due to requirements of the Cannabis Program has not been available to the public. Response F9: Agree

To help the passage of AUMA, the Board of Supervisors stated the new industry would bring new economic development and jobs to counter losses from NAFTA twenty-two years prior. Response F10: Agree

Monterey County did not hire an Economic Development Manager and staff until November 2021, five years after the Cannabis Program was established. The number of new jobs remains unknown. Response F11: Partially Agree According to a report by the Cannabis Program Division to the Cannabis Committee in November 2021, cannabis-related businesses employed 2,400 employees as of July 2021.

Many inspections do not operate in a consistent manner nor with a standardized check list. Response F12: Agree The County may have establisheda checklist. However, according to the industry survey feedback reported by the Cannabis Program Division, inconsistency remains in the inspection process. A more consistent and transparent use of checklist among other measures may aid in establishing consistency to the overall inspection process. 4 | P age 2021 - 2022 Monterey County Civil Grand Jury Final Report – Topic: “MONTEREY COUNTY’S CANNABIS INDUSTRY UP IN SMOKE?” Response from the Auditor-Controller RESPONSE TO: Recommendations R1 through R6