Getting your
Trinity Audioplayer ready...Despite getting some modest state and local tax relief in recent months, licensed cannabis growers, manufacturers and retailers say they’re still fighting for survival in what’s become an increasingly costly and oversaturated business.
Legal producers and retailers say they face fierce competition not only with each other, but from illegal operators who aren’t subject to regulatory and tax burdens and who control an estimated 60% of the market.
Ongoing difficulties accessing the banking system and federal criminalization of marijuana means it’s harder to get loans, process payments, keep books and pay taxes – and also leaving many businesses sitting on piles of cash that makes them targets for robbery.
The reality of the situation hit home last month in the North Bay, when two cannabis manufacturers notified state officials they were planning to lay off more than 100 employees who work in Santa Rosa.
Other Sonoma County-based cannabis companies shared the stresses they’re under, and what changes would help them thrive.
“This is a hard industry, and Sonoma County is an especially difficult and expensive place to operate a cannabis business,” Alicia Wingard, founder and chief operating officer of Flora Terra in Santa Rosa, told The Press Democrat.
Flora Terra has held an active adult-use and medicinal retailer microbusiness license since 2019, operating as a cannabis dispensary, cultivator and distributor. But Wingard said numerous conditions are making it more difficult to make ends meet. She cited labor costs, including to meet compliance requirements, along with rising costs of materials, water, insurance and electricity.
“Our electricity bill has more than doubled since we started operations in 2019,” she said, noting rising electricity rates, not increasing usage, are the driver. “We don’t have another provider we can turn to, so there is no alternative. We simply have to absorb the increases.”
Wingard also pointed to the rise in Santa Rosa’s minimum wage from $12 per hour in 2019 to $18.21. “We absolutely believe in paying our employees fairly, but from a business standpoint, that increase is significant, especially when factoring in payroll taxes, workers’ compensation and the additional labor required to meet cannabis compliance requirements.”
Market oversaturation
In addition to these costs, Wingard said the market is oversaturated with “too many dispensaries within the city limits for the population we’re serving.” She said that has created a highly competitive environment: “It becomes a race to the bottom at the exact same time that nearly every expense involved in running the business is going up.”
There are currently 66 licensed cannabis operators in Sonoma County, including 31 distributors, 23 manufacturers and 12 microbusinesses, according to Jordan Traverso, deputy director of public affairs at the Department of Cannabis Control. He said in Marin, Napa, Solano and Sonoma counties, there hasn’t been much change in distribution licenses within the last two years, and the “big jump in manufacturing between 2024 and 2025” has since stabilized.
The recreational weed industry has, since legalization in the Golden State with Prop 64 in 2016, struggled to compete with the illicit market. Taxable cannabis sales have declined since peaking in 2021 at about $5.8 billion, down to $1.15 billion in the first quarter of 2026 according to the state Department of Tax and Fee Administration. Legal sales make up only 40% of all marijuana consumption in California, according to the state Department of Cannabis Control.
Ongoing market troubles have begun to affect local operators. In July the Santa Rosa-based businesses CraftForce Services Inc. — the manufacturing arm of CannaCraft — and Queen City Staffing announced mass layoffs of about 60 employees in production, packing and trimming. Bret Peace, CEO of CraftForce’s parent company Groundwork Holding Inc., attributed layoffs to economic downturn and competition with the illicit market.
Barriers to accessing conventional banking
California business operators have for years said one of the major obstacles blocking their growth is the federal criminalization of marijuana. Marijuana is still a federally illegal substance — although schedule reform appears to have bipartisan support ahead of the November election, after President Donald Trump issued an executive order urging the Justice Department to expedite the reclassification of marijuana to Schedule III, a category that includes ketamine and testosterone.
More banks than ever work with cannabis-related businesses, or about one-fifth of U.S. banks, according to the Financial Crimes Enforcement Network’s most recent numbers from 2024. But a federally chartered bank dealing with cannabis operators could risk its deposit insurance. Congress has been trying to address this for years with the SAFE Banking Act. Under this law —which has never passed the Senate — regulators would be prohibited from terminating or limiting a bank’s deposit insurance because it provides services to cannabis or cannabis-adjacent businesses.
Cannabis operators got to voice their concerns at the state level in a July 29 panel convened by state treasurer Fiona Ma. Government officials joined financial institutions, regulators and labor and business representatives to discuss banking challenges affecting California’s legal cannabis market.
“California’s legal cannabis industry continues to face barriers to accessing affordable and reliable financial services because of the ongoing conflict between state and federal law,” Ma said. “Legal cannabis businesses should be able to operate through safe, transparent and accountable financial systems.”
Stakeholders said limited access to conventional banking, lending and payment services can increase operating costs and complicate tax and regulatory compliance for cannabis businesses.
Clint Kellum, director of the Department of Cannabis Control, told the panel the state has had a stable and regulated market for about eight years, with about 8,000 licenses and more than 4,000 businesses. “I think it’s the most valuable crop in California.”
However, federal prohibition of cannabis continues to put licensed California operators “on a less equal playing field” with other types of businesses, Kellum said.
Frank Espinoza, executive vice president at South Bay Credit Union, said there is a high demand for banking assistance from many in the industry, including from inexperienced newcomers.
Loans are highly sought after, as the industry relies heavily on capital from friends and family, and then private lenders, he said. Many have never sought lending from a traditional bank before, and can face difficult roads to prove their viability due to current financial volatility and fluctuating cash flows.
Desire for security, enforcement
The panel also considered ongoing serious labor and security risks for the legal market due to cash holding. According to Trista Gonzalez, director at the California Department of Tax and Fee Administration, there are about 1,600 active cannabis retailer accounts, and in 2020 about 25% of tax return payments were remitted in cash.
The state has advocated for businesses to move away from cash holding as much as possible, and Gonzalez said the percentage of tax return payments made in cash today is “less than 5%.”
Some business stakeholders said they need stronger enforcement arms in order to do business legitimately, and originally did not support the 2016 legalization bill due to seeing taxation changes as driving growth in illicit businesses.
Ma noted that with 56% of California cities and counties not permitting operations, illicit operators have proliferated in some areas, creating a glut of advertising of unauthorized businesses and products.
Others cited a desire for stronger access to affordable, stable capital streams to pay workers and keep manufacturing facilities open.
Jim Araby, strategic campaigns director at UFCW Local 5, said current federal cannabis policy also threatens workers’ rights to stable employment and retirement opportunities.
Under the current federal status, “Workers in this industry are denied 401k pension plans, health insurance, paid leave, educational reimbursement,” Araby said. “The volatility of this industry makes it hard to retain a job. We lost 1,500 employees that we thought we had.”
Carlos Arias, co-founder and CEO of the large-scale cultivator Green Horizons, said without federal reclassification, the safety of employees at cannabis businesses is a great concern for many operators. He said his staff has faced carjacking at business sites, and said the state has an interest in improving enforcement to help support businesses seeking financing and development opportunities. “I do think we need to figure out how to tackle the illicit market not only when it comes to moving the product, but (also) when it comes to the labor side.”
Terry Wheatley, chair of the board at CannaCraft, noted that these pressures led to laying off 60 employees in Santa Rosa. She said of the current system regulating the marijuana industry “It’s like a dog chasing its tail.”
“We should be able to treat it as alcohol, cigarettes, anything else,” Wheatley said. “Treat us as if we are on an equal playing field. We are not criminals.”
Modest state and local tax relief
The state has in recent years worked to reduce some pain points for the troubled industry, such as when Gov. Gavin Newsom in 2025 signed a bill to roll back taxes on recreational weed. The law temporarily reverted the cannabis excise tax — a levy imposed before sales taxes are applied, under a 2022 agreement between the state and marijuana companies — from 19% to 15% until 2028. It was designed to help dispensaries operating under slim margins, after cannabis industry leaders argued the tax hurts an industry overshadowed by a thriving illicit drug market.
In Sonoma County, officials have sought to reduce some industry pains. The Board of Supervisors in April voted to “zero out” a tax on cultivators and manufacturers for one year, while maintaining a 3% tax on retail sales that’s projected to generate $330,00 during the fiscal year ending June 30. That’s on top of 15 percent excise tax retailers must collect for the state, calculated after the Sonoma County tax is added.
The board also voted to create a new system requiring cannabis businesses to get licensed annually, with a starting charge set at $531 to fund the county’s commercial cannabis governance program.
Traverso at the Department of Cannabis Control said, for the North Bay, the number of licenses reporting gross revenue in the smallest tiers for their respective license types has been “pretty constant across the years, hovering around 60%.”
“The three largest licenses from 2024, however, have seen some contraction, going from reporting revenue in the $30-$50 million and $20-$30 million brackets down to the $10-$20 million bracket,” Traverso added. But Wingard, at Flora Terra, said the challenges facing the industry squeeze out longtime local operators.
“When you combine all of these increasing expenses, it’s really no surprise to see companies in the area laying people off, outsourcing labor, leaving the area, or folding completely,” she said. “We’ve always loved working locally and supporting other North Bay operators whenever we can. Unfortunately, there are fewer and fewer options as time goes on, and that’s disheartening. These are businesses and people we’ve worked alongside for years, and you can really see the industry shrinking around us.”
Still room for newcomers?
There are still some willing to dive into the industry, despite these challenges.
Santa Rosa resident Nathan Flynn now owns and operates The Club by KO Collective, a licensed cannabis dispensary carrying flower, edibles, concentrates and vape cartridges for in-store pickup or local delivery. He said the building was the previous location of Sonoma Patient Group, once the longest-running dispensary in Santa Rosa.
Flynn, a real estate agent with Keagan and Coppin, saw the listing and decided to open a dispensary on his own. He got his license to operate in May, and was surprised to discover how costly it can be to enter the industry.
For example, he decided to build his own website and point-of-sale system to avoid paying around $4,000 per month. He said it also cost about $2,500 to get the county’s health permit following a basic inspection, and said he has experience with zoning from working in commercial real estate and was able to secure a conditional use permit with a $15,000 application fee. In addition, “All of these third party services are just wanting so much money,” Flynn said. “I’ve had weed maps calling my phone every week since I got my license trying to get me to sign up with them. They want $900 per month. That is insane.”
He said he isn’t sure how a newcomer seeking to open a new brick-and-mortar business could swing that application fee, on top of securing a building with a one-year lease: “For the little local guy, that’s hard.”
“I was open 19 days and was trying to get an ATM in my store,” he said. “The ATM guy calls me and says he has someone who wants to buy me out. I’m like, I’m not even open yet, what do you mean? That is a perfect representation of the industry. The corporations are trying as hard as they can to take over everything.”
Flynn said he’s had an enthusiastic response from local customers, who have responded well to his limited hours of operation from 4:30 p.m.-7 p.m. and appreciate being able to come after typical work hours.
“The customers have been great,” he said. “I’ve been getting people that are showing up, who knew there was a dispensary there before. This one lady came and said she hadn’t been in 10 years. But she knew the spot.”
Staff Writer Natalie Hanson reports on business and agriculture for The Press Democrat. She can be reached at natalie.hanson@pressdemocrat.com or at 619-665-5887.