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California's small cannabis growers face extinction as taxes, bills and snow pile up

“I don’t want to be dramatic, but the survival of the legacy small-craft businesses in California is at stake," said the executive director of the Mendocino Cannabis Alliance.
Cannabis farmer Shanon Taliaferro at his farm outside of Redway, Calif.
Cannabis farmer Shanon Taliaferro, on his property outside Redway, Calif., on March 30, says small farms are still trying to recover from winter storms that battered the struggling industry.Alexandra Hootnick for NBC News

HUMBOLDT COUNTY, Calif. — Booming thunderclaps cracked like gunfire through the cold night air as heavy branches snapped off ancient redwood trees and slammed to the earth 200 feet below. 

“It sounded like a war zone,” said cannabis farmer Shanon Taliaferro of the January storm, one in an unrelenting series that walloped California this winter, causing at least half a billion dollars in damage. “It was all hands on deck.”

Seemingly no corner of the state's $51 billion agricultural industry was spared the winter's wrath, including the nearly 3,000 small cannabis farmers who were hit hard by the storms. It will be months before a full financial picture emerges, but outdoor cultivators are already feeling the financial squeeze as they confront an existential question: How much longer can the people who built California’s cannabis industry afford to stay in it?

Shanon Taliaferro surveys damage at his farm following recent storms, outside of Redway, Calif.
Shanon Taliaferro stands among the damaged farm equipment on his property, left, after winter storms destroyed a water tank, upper right, and bent the frames of a greenhouse on his cannabis farm in Northern California.Alexandra Hootnick for NBC News

The severe weather was the latest blow to the industry, which has grappled with high taxes, falling sales and increasing competition from vast, indoor farms.

“We’re seeing the individual collapse of the legacy farmers — the mom and pops who have been doing this for 15 or 20 years and who have a real stake in this game,” said Victor Pinho, who operates a cannabis farm tour company in Northern California. “It’s just hit after hit after hit on these poor people.”

Despite living and working in the unofficial capital of cannabis, cultivators in Northern California's Humboldt, Trinity and Mendocino counties, known as the Emerald Triangle, have struggled since recreational marijuana was legalized in 2016.

Severe drought and wildfires have destroyed crops, and taxes and compliance fees have depleted profits while a still-thriving black market continues to drive prices down. Now, historic snow and cold have dealt another setback.

“No one was prepared for storms of this magnitude,” said Michael Katz, executive director of the Mendocino Cannabis Alliance. “I don’t want to be dramatic, but the survival of the legacy small-craft businesses in California is at stake.”

For Taliaferro, who owns seven farms in Humboldt County, the fury of wind and rain ripped a yurt on his property from its foundation, destroyed three water tanks and leveled four greenhouses. One tank was found weeks later a half mile down the mountain.

Taliaferro estimates the winter storms cost him at least $50,000 in damage, not including delays in planting because of persistently cold weather that has lingered into spring. Because cannabis remains illegal under federal law, he cannot apply for federal assistance to recoup losses or help rebuild his infrastructure.

"Friends who haven’t diversified their incomes are close to losing their homes or moving back in with parents," he said. "People who were here for a quick buck are going elsewhere."

Cannabis sales fall for the first time since 2018

Despite California's position as the nation's largest recreational cannabis market, its annual sales slumped last year for the first time since sales began in 2018. Annual legal sales reached $5.3 billion in 2022, down 8% from $5.77 billion the year before, according to the California Department of Tax and Fee Administration.

The downturn follows a 2021 bear run that drove wholesale prices as low as $300 a pound compared to a high of $3,000 in some years, hurting small, seasonal operators unable to compete with year-round indoor cultivators.

Only after industry insiders complained of a collapsing market and officials realized cannabis wasn't the green rush once envisioned did California begin to ease regulations and reduce state and local taxes.

Shanon Taliaferro surveys damage to greenhouses following recent storms
Shanon Taliaferro surveys the damage to greenhouses on his Northern California farm after severe winter storms.Alexandra Hootnick for NBC News

But as the market began to stabilize in 2022, a new obstacle surfaced by the end of the year: historic storms that hit outdoor farmers in the Emerald Triangle hard. The three counties found themselves on the defensive against another blow to California’s troubled cannabis market.

“There are lots of nails in that coffin,” said Brandy Moulton, a former Mendocino cannabis farmer who was forced to close her grow operation in 2022 after paying about $60,000 a quarter in taxes for three years.

Across the Emerald Triangle, farmers said they have stopped paying their taxes because they can't afford it, and some growers are considering going underground into the black market, where they can set their own prices and avoid the levies.

Last year, California overhauled its cannabis tax structure and eliminated at least one cultivation tax on growers. It also moved the 15% excise tax from distributors to retailers. But that's of little help to Taliaferro, who said he uses nearly half of his income to pay for permits and taxes.

Nicole Elliott, director of the California Department of Cannabis Control, said, “There is still a lot of work to do. We acknowledge that.”

Dusty Hughston of Cougar Ranch Family Farms inside his greenhouse with business partner Shanon Taliaferro, outside of Miranda, Calif.
Dusty Hughston, of Cougar Ranch Family Farms, inspects marijuana plants with business partner Shanon Taliaferro.Alexandra Hootnick for NBC News

How the Emerald Triangle emerged as a center for cannabis farming

Many communities in the Emerald Triangle were founded by cannabis farmers in the 1960s, when hippies and homesteaders began growing the crop clandestinely under the thick canopy of towering, old-growth redwood, Douglas fir and oak trees.

Once a mecca for logging, Humboldt and surrounding counties blossomed into California’s worst kept secret, producing what became the gold standard for cannabis not just in the state but across the country. 

A legacy farmer born into the cannabis trade, Taliaferro, 50, grew up in the Humboldt mountains. His mother moved to the area in 1974 and started a small pot farm tucked deep inside the forest. 

“It was just us against The Man,” Taliaferro said of his childhood.

In 1996, Taliaferro was arrested during a law enforcement "green sweep" while transporting seven cannabis plants. He said his "unjust" arrest and three years of probation made him decide to dedicate his life to growing weed as an act of defiance. During his probation, he learned building trades that would become the foundation of his future cannabis businesses.

Those trades have allowed Taliaferro and his wife to diversify their incomes. Without his rental properties, livestock and cannabis retail and distribution operations, Humboldt Homegrown and Green Ox, Taliaferro said he is not sure he could survive by just growing pot as he did when he first got into the industry and black market marijuana was going for $5,000 a pound.

“It’s really hard to make it,” he said. “With the price of herb going down and the price of everything else going up, it really does feel like the corporate world has a leg up. It’s really hard to compete against that.”

Skyline Farms cannabis properties
Cannabis fields in Northern California, including Skyline Farms, shown here, were battered and flooded by historic winter storms.Alexandra Hootnick for NBC News

Taliaferro’s Spruce Grove farm, perched on a ridge about 3,000 feet above sea level, usually rises atop the fabled Humboldt fog. But on a recent morning, dense clouds concealed the vast valley below and obscured nearby mountain peaks. Across the ridge, a burn scar from the 2020 August Complex fire that destroyed more than 1 million acres slashed the land.

This year, Taliaferro is looking to cut costs by hiring just 14 seasonal employees for all seven farms, down from 28 in years past. He’s also looking to replace damaged equipment with cheaper materials like PVC for the greenhouses instead of metal, and plastic for the water tanks.

"We lost an entire summer's water storage," he said. "I'm not entirely sure what the remedy is for that."

'Outdoor is still the gold standard'

Some 50 minutes away in Mendocino County, Nikki Lastreto and her husband, Swami Chaitanya, sit side by side on their living room couch surveying dozens of small containers filled with cannabis samples for this year’s Emerald Cup, known as the “Academy Awards of cannabis” within industry circles. 

Lastreto and Chaitanya were snowed in for four weeks when a bitter storm blanketed the bumpy two-mile road that leads to a large meadow where their 190-acre homestead houses their eponymous brand, Swami Select.

On an unseasonably cold April day, the road in was slick with ice and mud as Chaitanya’s SUV bucked and bounced through a maze of trees.

A Phi Beta Kappa graduate of Wesleyan University, Chaitanya traded his East Coast upbringing for San Francisco in 1967 and worked as a filmmaker and photographer before turning to cannabis farming. Now 79, Chaitanya, who was born William Allen Winans, wears a long white beard and the white robes of his adopted religion, Hinduism. His likeness emblazoned on Swami Select containers has become synonymous with craft cannabis.

Swami Chaitanya examines cannabis samples
Swami Chaitanya examines cannabis samples for the annual Emerald Cup competition.Alicia Victoria Lozano / NBC News

Lastreto, a former television and newspaper journalist, holds a notebook and pen as Chaitanya picks up a nugget and closely inspects it with a magnifying glass. He pinches and squeezes the sample, sniffing it for quality. 

“Look how dry this one is,” he said, handing the unimpressive nugget to his wife. 

Lastreto, 68, jots down a note, and the couple moves on to the next sample. It’s just the third year indoor cannabis entries are allowed in the Emerald Cup and already they comprise a majority of contestants, Lastreto said. 

Despite its popularity among consumers and retailers, Lastreto and Chaitanya both prefer organically grown marijuana exposed to natural sunlight rather than the artificial lamps of indoor operations. Nutrients from the sun contribute to better terpenes, naturally occurring compounds that determine the scent and flavor of pot and contribute to the healing powers of the plant.

“Outdoor is still the gold standard,” Lastreto said. 

Still, indoor cannabis has quickly overtaken outdoor marijuana in the legal market. Farmers are able to cultivate year-round and can better control the conditions for each plant. As a result, indoor cannabis has flooded the marketplace, making it difficult for small outdoor operations like Swami Select to compete.

Snow remained on one of the Skyline Farms cannabis properties outside of Redway, Calif.
Remnants of snow remain on a Skyline Farms cannabis property in Northern California.Alexandra Hootnick for NBC News

This year, the weather further dampened operations. Like many outdoor farmers, Swami Select pushed back its planting season to late April when it would typically start earlier in the month. The delay means not having fresh product on the market, which means no income.

"Everyone thinks we have millions of dollars buried in the woods," Chaitanya said, adding that the couple is taking on credit card debt. "We're barely breaking even."

When asked why he remains in the industry, Chaitanya chuckles.

"We don't do it for profit," he said. "It's a lifestyle."