Title
Receive and accept the Cannabis Program fiscal year 2025-2026 annual budget review.
Report
RECOMMENDATION:
It is recommended that the Budget Committee receive and accept the Cannabis Program fiscal year 2025-2026 annual budget review
SUMMARY:
The Cannabis Program (Program) provides a comprehensive local framework for managing licensed commercial cannabis activities in collaboration with state and county agencies. The Program oversees taxation, regulation, enforcement, education, and efforts to protect public health, the environment, and community safety. The County of Monterey is currently the sixth largest holder of active Department of Cannabis (DCC) licenses in California, with 312 total licenses, 253 of which are located within the unincorporated area of the county. As of June 2026, the County’s license profile is dominated by small cultivation licenses, with a smaller number of medium and large licenses.
The Program coordinates activities with and between key departments, external agencies, the DCC, the cannabis industry, and community groups. Seven County departments and the fire districts work jointly to enforce local cannabis ordinances as well as regulations issued by the DCC and other state and federal agencies. Each of these organizations plays a critical role and requires the program to be well coordinated, with effective internal and external communication to ensure the success of the cannabis industry within the unincorporated areas of the County.
DISCUSSION:
The cannabis industry remains a significant economic engine for the County of Monterey (County) but continues to face substantial challenges, including taxes and regulatory requirements intensified by competition from a thriving illicit market. These pressures collectively strain the cannabis industry, leading some businesses to reduce operations, close entirely, or fall behind on tax obligations. Currently, 52 active commercial cannabis businesses operate within the County, including 7 dispensaries, 41 cultivators, and 4 businesses engaged in manufacturing, distribution, or processing.
The Program compiles data from multiple sources, which is summarized in the Annual Budget Review Report for fiscal year 2025-2026 (FY 26) in attachment A. For this fiscal year, the Board of Supervisors approved 12.65 positions across seven departments at a total cost of $3.4 million to support cannabis related work. The County also received $252,497 in non‑tax revenues, including direct fees for cannabis business licenses, cannabis business permits, and building permit fees collected at the discretion of the receiving department. Additionally, the Program generated $96,000 in fees through cannabis business permit (CBP) applications and renewals, as well as canopy modification requests. These revenues are reflected within the planning and engineering fee category.
Cultivation tax revenue is billed annually and collected quarterly; however, canopy square footage may be adjusted up to two times during the CBP term. Because of this variability, cultivation tax revenue is reported as a projected annualized figure that assumes each business will remain operational and will not modify its canopy size for the remainder of the fiscal year.
Cannabis tax revenue is based on the cultivation and nursery square footage declared on an CBP. All declared canopy must remain at or below the square footage listed on the CBP, as verified during compliance inspections to ensure these limits are not exceeded. The Program estimated $3.5 million in cannabis tax revenue for FY 26, and a total of $3.6 million was collected. This amount includes partial revenue from quarter four of FY 2024-25 ($965,683) and revenue from quarters one through three as well as partial collections in quarter four of FY 26 ($2,667,187).
The total square footage dedicated to nursery and cultivation has steadily declined since the economic downturn began in 2021. As previously noted, the downturn has placed significant financial strain on operators, prompting many to adopt cost saving measures such as reducing canopy size. In addition to downsizing, several farms have transitioned to outdoor licenses to further lower expenses. Outdoor licenses (cultivation in greenhouses without supplemental lighting) reduce costs in two ways: cannabis tax rates decrease from $1.46 to $0.71 per square foot, and monthly energy costs are substantially lower. While these adjustments help growers mitigate rising operational costs, they also result in decreased cannabis tax revenue for the County.
In FY 2026, a total of $63,130 was approved for release from the Cannabis Assignment Fund to reimburse the DCC for expenses determined ineligible under the Local Jurisdiction Assistance Grant. Following this reimbursement, approximately $2 million remains in the Cannabis Assignment Fund.
OTHER AGENCY INVOLVEMENT/COMMITTEE ACTIONS:
Monterey County departments involved in preparing the Cannabis Program fiscal year 2025-2026 annual budget review include the Auditor Controller.
FINANCING:
Approval of this recommendation will not result in additional general fund contributions.
BOARD OF SUPERVISORS STRATEGIC PLAN GOALS:
The Program addresses each of the Strategic Initiative Policy Areas that promote the growth of a responsible and legal Monterey County cannabis industry.
Well-Being and Quality of Life
X Sustainable Infrastructure for the Present and Future
X Safe and Resilient Communities
X Diverse and Thriving Economy
Prepared by: Michelle House, Cannabis Program Manager
Approved by: Deborah Paolinelli, Assistant County Administration Officer
Attachment A: Cannabis Program fiscal year 2025-2026 annual budget review slide deck.