Monterey County Grand Jury • 2023-2024

Cannabis Tax Revenues: Highs and Lows Stock Photo from Microsoft 365

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⚠️ Este contenido ha sido traducido automáticamente. El texto original en inglés es la versión oficial. La traducción puede contener errores.

Findings 8 findings

Current revenues do not provide sufficient margins over expenses to fund community services at prior years' levels. Without operational changes, the Cannabis Program's sustainability is in jeopardy, and future funding for community services from this source will be minimal and/or unavailable.

The 2020 Cannabis Program Strategic Plan, intended to be updated every two years, was not revised until January 2024, causing delays in assessing key metrics and whether program goals are being met.

Current tax rates have stabilized. Revenues for FY 2024-25 are projected to be consistent with prior years, contributing to the Program's sustainability if Program expenses are aligned with revenues.

An internal audit of the Cannabis Program, recommended by the Citygate Report, was not completed, thus risking inefficient operating practices and the potential for inaccurate record keeping. 12

More than 50 cannabis businesses have closed or filed bankruptcy leaving the County with $6M in unpaid taxes, resulting in reduced revenues for community services.

A community survey indicated that a high priority for cannabis tax revenues should be allocated toward drug education and prevention. However, only a small fraction of the cannabis tax revenues has been allocated toward such programs. The lack of funding for these programs is inconsistent with community priorities and increases the potential for drug abuse and death.

Illicit activities are one of several major factors contributing to the reduction in funds available for community needs.

Criminal/Civil penalties for most illicit business activities may be adjudicated as a misdemeanor by the District Attorney’s office with less than a year probation and/or a fine of $1,000 or less, resulting in an ineffective deterrent system.

Recommendations 9

R1

The BOS direct Cannabis Program staff to analyze ways to reduce expenses within the Cannabis operational system, supplementing best practices identified in the Citygate report recommendations to stabilize and grow the Cannabis Tax Assignment Fund
R2

Cannabis Program Manager complete a Strategic Plan every year and provide the BOS with status updates at each subcommittee meeting
R3

The BOS support the growth and sustainability of the Cannabis industry by maintaining the current Program tax rates for the next two budget years
R4

The Office of the Auditor-Controller's Internal Audit Division (IAD) conduct an internal audit on the Cannabis Program in FY 2023-24
R5

The Office of the Auditor-Controller's Internal Audit Division (IAD) conduct an internal audit of cannabis businesses with tax deferral payment plan agreements, including those in tax delinquency
R6

The Treasurer-Tax Collector Office develop a timely action plan for those growers in arrears and recommend to the BOS to consider phasing out further tax payment extensions
R7

The Director of Public Health identify projects to assist with youth drug awareness/education/prevention and request funding from BOS as a priority allocation from the CTF
R8

MCSO increase enforcement of the regulations regarding illicit activity by licensed and unlicensed growers by September 30, 2024. 13
R9

The District Attorney’s office in cooperation with the Cannabis Program and Sheriff/Coroner’s office increase prosecutorial efforts of unlicensed and underreporting cannabis growers to the maximum extent of the law; by using existing resources, potential grant funding, and assistance from the Cannabis Administrative Prosecutor Program (CAPP)

Conclusions 1

CL1

Since voter approval of legalized sales, the cannabis industry in Monterey County and across the state has experienced start-up regulatory and operational hurdles. Local officials have approved numerous changes to create sustainability within the cannabis industry, including an additional tax rate reduction over one year ago. Maintenance of a lower tax rate, as well as reductions in Cannabis Program staff, are expected to provide a stabilizing effect on the CTF and cannabis operators. In the event the BOS approves the regulated licensing of cannabis lounges in Monterey County, revenues could potentially increase.

No Responses Found 4

Government entities assigned to respond to this report. No response documents have been linked in our database.

Monterey County County

Monterey County Auditor-Controller Elected County Office

Monterey County Board of Supervisors Elected County Office

Monterey County District Attorney Elected County Office