Humboldt County’s cannabis cultivation tax is bringing in less money than the county budgeted for. Again.

The midyear budget workshop Friday showed cannabis tax revenue tracking at $3.7 million through December, against a full-year projection of $5.5 million. County Administrative Officer Elishia Hayes told the Board of Supervisors that even with a strong second half, the final number is likely to land around $4.2 million. That’s a $1.3 million shortfall, minimum.

The board spent two hours on this. It did not resolve anything.

The math

Humboldt County charges a cultivation tax of $1 per square foot for outdoor, $2 for mixed-light, and $3 for indoor. Those rates have been in place since 2018. They haven’t been adjusted up or down.

The problem isn’t the rate. The problem is the taxable base. Fewer farms are paying because fewer farms exist.

Active cultivation licenses in the county dropped from approximately 1,400 at the start of fiscal year 2025-2026 to an estimated 1,200 now. Each license that lapses or goes unpaid is revenue that disappears from the projection.

Hayes presented a chart showing the trajectory. Cannabis tax revenue peaked at $8.1 million in fiscal year 2021-2022. It dropped to $5.8 million the following year, then $4.1 million last year. This year’s projected $4.2 million would represent roughly half of the peak.

“The trend line is not ambiguous,” Hayes said.

Board reaction

New chair Michelle Estrada asked the question the room was waiting for: should the county lower the cultivation tax rate to keep more farms in the system?

The answers split predictably.

Supervisor Rex Bohn said no. “You lower the rate, you collect even less. We’re not going to grow our way out of a revenue problem by charging less.”

Supervisor Mike Wilson said yes, or at least maybe. “If the rate is driving people out of compliance, then the rate is part of the problem. A lower rate on more farms could net us more than a higher rate on fewer farms.”

Supervisor Natalie Arroyo asked for modeling. She wanted to see what revenue would look like at $0.50 per square foot outdoor, $1 mixed-light, and $2 indoor. Hayes said her office could produce that analysis within 30 days.

Supervisor Steve Madrone didn’t weigh in on the rate but raised the enforcement question. “We’ve got, what, maybe a thousand unlicensed grows in this county? If even half of them were paying the tax, we wouldn’t be having this conversation.”

That’s true on paper. Collecting tax from unlicensed operators is a different challenge entirely, and one the county has never been able to solve.

Where the money goes

The cannabis tax feeds the general fund but has historically been earmarked (informally, not by ordinance) for cannabis-related county services: planning and permitting, code enforcement, environmental cleanup, and road maintenance in cultivation-heavy areas.

At $4.2 million, the county can maintain current staffing levels but has no room for the two additional cannabis planners that the planning department requested in October. Those positions, budgeted at $380,000 combined, were contingent on hitting the $5.5 million target.

Without those planners, the 247-application permit backlog isn’t going anywhere.

Hayes also flagged a secondary issue. The county’s agreement with the DCC for coordinated enforcement includes a county funding match of $620,000 per year. That match is currently funded through cannabis tax revenue. If revenue drops further, the county would need to find the money elsewhere or reduce its enforcement partnership with the state.

“We are approaching a point where the cannabis program does not pay for itself,” Hayes said. Nobody disagreed.

What happens next

Estrada directed staff to prepare three scenarios for the board’s February 11 meeting: maintain current rates, reduce rates with a broader base strategy, or implement a tiered system based on canopy size.

She also asked the county counsel’s office to research whether the tax ordinance could be amended by board vote or would require a ballot measure. The answer to that question will determine the timeline for any changes.

In the meantime, the $1.3 million gap needs to be addressed in the current fiscal year. Hayes recommended drawing from the general fund reserve, which currently holds $8.4 million. The board took no formal action Friday but signaled general agreement with that approach.

“We’ll figure it out,” Estrada said. “That’s what reserves are for.”

It was not the most inspiring closing statement. It was honest.