Saturday, December 2, 2023

Ukiah Expecting a $1 Million Sales Tax Shortfall Linked to Local Cannabis’s Declines in Spending

Highway 101 through Ukiah where Big Daddy, a well-known garden and agricultural supply business, is visible to travelers [Picture by Matt LaFever]

Sales tax revenue continues to slip in the city of Ukiah, the region’s retail hub, and Mendocino County as a whole, presenting new challenges for local government agencies.

Ukiah city officials said they expect a $1 million shortfall in sales tax revenue for the fiscal year ending July 1 from what was originally projected.

“This year’s budget will be more about needs than wants,” said Deputy City Manager Shannon Riley.

The latest sales tax report shows the city’s overall sales tax revenue declined a sharp 9.5% during the fourth quarter of 2022 from a year before, signaling a sluggish local economy that is still buffered by inflation and big declines in spending related to the county’s struggling cannabis industry.

Sales in garden and agricultural supply businesses, for example, plunged 12.6% in the city and 11% countywide compared to a statewide average decline of 5%, according to the latest sales tax update provided to city and county officials. An even sharper drop in spending in sporting goods and recreational stores was pegged at 18.2% in the city and 17% in the county, compared to a statewide average of 4.4%.

Underscoring the North Coast region’s sagging economy was the fact that there was only one reported increase in sales tax revenues for the city of Ukiah and only two countywide – service stations and drug stores – compared to eight sales tax revenue increases posted statewide in the 10 spending categories tracked.

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 The city’s single increase in sales tax revenue was from local service stations. It was a meager .6% rise compared to 1.4 percent for the county. The local figures paled compared to a jump of 7.5% at service stations statewide.

The sales tax revenue updates cover the final three months of 2022, typically the biggest spending period for consumers. 

The updates show the local economic slowdown continues at a pace greater than the North Coast region in general and statewide, according to the statistics supplied by HDL Companies, a Southern California firm that specializes in compiling sales tax revenue for government agencies statewide.

HDL in its latest report noted that while sales tax revenue was off in the city in all but one category, statewide the local one-cent sales and use tax receipts for sales during the months of October through December were 4.7% higher than the same quarter a year before.

Statewide, HDL found that “a holiday shopping quarter, the most consequential sales period of the year, experienced solid results which lifted revenue to local agencies across the state.”

[Data and chart from HDL]

But not in Ukiah and Mendocino County. 

HDL found that actual sales in Ukiah were down 5.9%, and taxable countywide sales dropped 6% over the comparable time. Neighboring counties suffered a 3.6% decline in comparison, according to HDL.

HDL said the local and statewide outlook for the remainder of the year looks bleak.

“Heading into 2023, additional interest rate hikes along with consumer sentiment waning about the economy foretells minimal change ahead from California’s taxable sales in the months ahead,” its report concluded.

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The county of Mendocino’s overall budget status is murky, and how declining sales tax revenue affects its financial status is unclear. County officials are bogged down in confusing budget delays, uncertainty about the accuracy of revenue projections, and a sharp shrinkage in the local cannabis industry because of chronic questions about a local regulatory framework. 

City officials are more confident. Deputy City Manager Riley said Ukiah in general tends to “weather economic situations well because of our diversified tax base, and the fact that we are a regional hub for such a large geographic area.”

“Even in tough times people come to Ukiah for medical needs, education, legal and business services, and general necessities,” said Riley. 

Riley said the city has been fiscally conservative for several years and has healthy cash reserves to meet any financial crunch.

Still, Riley said there is no doubt that the ‘crash’ in the local cannabis industry is taking its toll across the board in retail pot sales, garden, and farming supplies, and auto sales. 

“The Emerald Triangle is experiencing a very different economy than the state overall,” said Riley.

HDL researchers in a special report entitled ‘Cannabis Supply and Demand in 2023’ released two weeks ago declared “California’s cannabis industry is not dead, and it’s not dying. It’s just realizing that the market is not large enough to support everyone hoping to get a slice of the piece.” 

 “With every new market, comes inevitable corrections. California’s cannabis isn’t dying. It’s just not as large as people thought,” HDL told its clients.

HDL said the current situation reflects the harsh fact that small cannabis growers on the North Coast face stiff competition from big companies elsewhere.

HDL said that based upon “rough estimates, the 20 largest cultivation companies are capable of producing over 2.6 million pounds of (cannabis) flower per year, enough to supply the entire statewide market.”

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“This is not unique to the cannabis industry,” concluded HDL.

HDL said there are more than 11,000 wineries in the U.S., but the 50 biggest companies alone represent more than 90% of domestic wine sold by volume. The same is true with the brewing industry. Nationally there were 9,247 breweries, but most of them share just 13% of the total market, according to HDL.

“California’s cannabis industry is being shaped by the same free market forces that shape other industries, with the predictable result of concentrating market share into the hands of a few large companies,” according to HDL.

In short, HDL found that “It is likely that independent small (cannabis) businesses will continue to struggle as they compete for some small percentage of the market.”

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  1. I remember working at a local gift store in town in 2005-8. So much marijuana cash came into our store. We knew because it smelled like weed.
    Last year I commented on a cannabis article that Big Daddy (a sort of obscene name to hear your kids read off as you drive by) was at one time the biggest sales tax revenue generator for the county and was reemed with comments saying that regular non pot folks needed soil too. My point was more that this county’s dependence on the pot industry is real, not just affecting small growers and pot buyers, but everyone.
    After high school, I made it through this county with my side hustle of trimming for 25 bucks an hour. I made enough to get started here while I worked my way up at my 9-5. I never grew. And eventually my job paid off. I watched my friends make it big in weed. I wondered if i’d made the right choice to work for the man as my grower friends bought trucks and houses and seemed free. Now in their 40’s I’ve watched those friends be driven under with no other job experience, no college all while trying to prove their hard work is legitimate and part of the county culture.
    We don’t need a rail trail to bring tourism. We had weed. Now we (the people) have lost it and those that have survived without permits ship to illegal states. What exactly do we want our young people who can’t go to college to do here? And why is it ok to drive around tasting wine? Is the alcohol industry more noble than the marijuana one? Or is it that regular people ( not land inheriting grape giants) were running the show? More money was in the hands of regular people then, who spent the money in town.

  2. “California’s cannabis industry is being shaped by the same free market forces that shape other industries, with the predictable result of concentrating market share into the hands of a few large companies,” according to HDL.”

    What a load of nonsense. The tax and regulatory structure favors the large corporate interests, while making it almost impossible for small farmers. It’s just another example of the increasing institutionalized corruption in both the public and private sector.

    There is no such thing as a “free market”, that’s just a fairy-tale they tell us to justify the 1% monopolizing everything and then price-gouging on the retail end and pocketing the windfall.

  3. It’s just incredible how legalization has decimated the cannabis farmers in Mendocino County. Mendocino County should have become the mecca of cannabis grown in California instead it has become the prime example of how not to regulate/tax the industry.

  4. When is Mendocino County going to lower my property taxes? They have over Inflated property taxes based on the ability to grow cannabis.
    Remember when Mendocino county DA charged $50 a plant to people who got busted? That money will never be there again. And they blew it all.
    This county may not have realized it yet but there are tough times ahead for Mendocino county government. Over the years they have dogged cannabis growers for not being organized. But the county blew the cash they made on cannabis and they are now broke. What a bunch of idiots.

      • Your wrong, cannabis has been boosting property values for long before legalization. I recently saw 80 acres for 80k. Rural Property values have not been this cheap in decades. Just think what would happen if every rural property in inland mendocino county lost 50% of the assessed value?

        • Your property taxes are based on what the property value was when you purchased it, plus a maximum of 2% increase per year. If there is a spike in value after you purchase your property, your taxes are not impacted.

          • I bought my property at a Inflated rate because it had southwest facing exposure and was in a historical cannabis growing region. Now property values are going down in my area and the assessed value is not accurate.
            I’m sure you understand what a comparable listing.
            I think there are thousands of parcels in this same situation and Mendocino county should prepare for a loss in property tax revenue

  5. This sentence doesn’t make sense: HDL said that based upon “rough estimates, the 20 largest cultivation companies are capable of producing over 2.6 pounds of (cannabis) flower per year, enough to supply the entire statewide market.” Let’s try to fix it. 2.6 Million pounds? 2.6 pounds per person ( enough to make us happy 😊 and then some). Or what?

    • It is 2.6 million pounds, of course. Anyone familiar with cannabis knows 2.6 pounds is consumed in downtown Ukiah every day. Thanks for taking the time to point out a typo.

  6. The county is putting my farm out of business for taxes even though they would not let me grow until they designed a compliance plan among other protocols. Which they have now decided are not needed. Now I am on a steering committee for a new organization that will be bringing training to the industry. We have counties courting us, colleges ready to offer labs space and support and plenty of funds. When other members on the same committee enquire about Mendocino as the primary hub for the state wide training how am I supposed to answer? We have great opportunities we are throwing away. Napa is investing 80 million in regenerative farming training. I have had numerous meetings with the Mendocino College, they are wonderful people with a great AG program already in place. But how can I recommend a county that discriminates and clearly doesn’t want it here. The BOS clears states they cannot except the bad actors getting away with anything so they will sacrifice the good ones. That has been the problem all along. No matter what we do there are bad actors in all industry. The state has the final say in sorting it out. At the same time the profit margins have sent the bad actors packing. This is going to be small scale farming with a profit margin where no farmer can live off off. With the current fee system a business that had a 10% profit margin would have to grow 50 to 100 lbs to make the profit to cover the fees. Our legacy has a value. People still come here ready to invest and tap into our knowledge based resource that is getting siphoned out of the county. This is a multibillion dollar industry and the first wave was get rich SEC banned penny stock hustlers. The second wave when it becomes federally legal is ready to make a big splash. They are not planning on making a penny for 15 years but they are spending now to be prepared and ready to act. They are established companies ready to fund regenerative farming practices, not operators from places like Columbia that the county fawns over. They are here in Mendocino. What am I supposed to tell them about our county. How am I supposed to react to all the national news articles showing a non functional system? The money has chosen Mendocino due to location close to an international airport and Little Rivers long runway. Our established tourist trade and dining locations. Opportunity wants Mendocino, Mendocino hasn’t chosen opportunity for one reason only. Prohibition era discrimination, it is wrong and our local economy is suffering from it.

  7. Ya called legalized and Ma And Pa are put out bye out state money who big grows crush locals ylwho support and live in our community whoshop here and kids go school here support we’re they live unlike out state money who don’t even hire locals and take there money out state yet take money out local pokits don’t go to club stay local sell over priced 50 for 1/8 of a OZ at less 200 dollars a pound tell me who makeing money that’s why all got BMW and nice homes that still take there money out state get better spend way less get from a local source buy black markit stay local do not support none locals should be a law saying must be a county resident for ten years to grow in county you live in or to even file a permit add on Cartel grows who take there money flod county with drugs they own all little car shops and taco stands yet no one does anything about this all own more one home and paying locals to grow on there property I can say that thereo small percent of Mexican owned businesses that are not cartel fronts for drugs ya old couple and kids in store would no think twice I can go threw ukiah and see more than a dozen owned cartel drug fronts tire shops to detail to cell phones to tacos and that’s were I say nothing going change or does county care as long some one lines there pokits half reason why no money left in the growing. Stay strong locals don’t let cartels grow on your land with the amounts of plastic trash and chemicals fertilizers 8 out 10 are using thadhoxnback into are ground water look abiggesr store most expensive real state is grow stores selling chemicals high priced get on for Penny’s unregulated. Fertilizes going in ground your body. That’s were real story is garbage and fertilizers from grows not one have a seen anything about that yet see in every area in county

  8. This is great. In fact I hope Ukiah get zero tax income. Our streets are horrible, they waste money on very stupid projects. They piss the money away.

    And what gets me is Mendocino County is so economically depressed yet housing is sky high. As a citizen I am ashamed at the city and county.

    Its just going to get worse. There is nothing anymore.

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