BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 2496
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          ASSEMBLY THIRD READING
          AB 2496 (Nava)
          As Amended  May 20, 2010
          Majority vote 

           GOVERNMENTAL ORGANIZATION   17-1JUDICIARY           8-1         
           
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          |Ayes:|Coto, Blakeslee, Chesbro, |Ayes:|Feuer, Tran, Brownley,    |
          |     |De Leon, Evans, Galgiani, |     |Evans, Jones, Swanson,    |
          |     |Hernandez, Hill, Lieu,    |     |Monning, Nava             |
          |     |Ma, Mendoza, Nestande,    |     |                          |
          |     |V. Manuel Perez,          |     |                          |
          |     |Portantino, Silva,        |     |                          |
          |     |Torres, Torrico           |     |                          |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Cook                      |Nays:|Knight                    |
          |     |                          |     |                          |
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           APPROPRIATIONS      14-2                                        
           
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          |Ayes:|Fuentes, Conway, Hill,    |     |                          |
          |     |Bradford, Charles         |     |                          |
          |     |Calderon, Coto, Davis,    |     |                          |
          |     |Hall, Miller, Nielsen,    |     |                          |
          |     |Skinner, Solorio,         |     |                          |
          |     |Torlakson, Torrico        |     |                          |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Harkey, Norby             |     |                          |
          |     |                          |     |                          |
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           SUMMARY  :  Amends the California Cigarette and Tobacco Products  
          Licensing Act of 2003 (Act) in governing the financial and other  
          obligations of non-participating tobacco manufacturers (NPMs) as  
          part of its diligence obligation.  Specifically,  this bill  :  

          1)Requires a manufacturer or importer to additionally consent to  
            jurisdiction of the California courts for the purpose of  
            enforcement of the Master Settlement Agreement (MSA) and a  
            specified provision of the Cigarette and Tobacco Products Tax  
            Law (Tax Law):








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             a)   Requires the manufacturer or importer to additionally  
               identify the registered agent to the Department of Justice  
               (DOJ);

             b)   Authorizes a peace officer or board employee granted  
               limited peace officer status to inspect any site with  
               respect to violations of a specified provision of the Tax  
               Law; and,

             c)   Prohibits those persons from acquiring a package of  
               cigarettes unless the brand family or product manufacturer  
               of the cigarettes is included on a directory posted by the  
               DOJ, as specified.

               Deletes the DOJ's fee on manufacturers for implementing and  
               maintaining the directory.

          2)Authorizes a tobacco product manufacturer that elects to place  
            funds into a qualified escrow fund to make an irrevocable  
            assignment of its interest in the funds to the benefit of the  
            State of California.

            Requires any funds assigned to the state that are withdrawn to  
            be deposited into the General Fund as a credit against any  
            judgment or settlement which may be obtained against the  
            tobacco product manufacturer who has assigned the funds. 

          3)Requires a stamp or meter impression to be made on rolls of  
            tobacco, as specified, and makes conforming changes to related  
            provisions:

             a)   Requires certification of additional information, as  
               specified;

             b)   Establishes circumstances under which a manufacturer and  
               brand families are to be excluded from the directory of  
               tobacco product manufacturers that are participating  
               manufacturers and brand families under the MSA, and would  
               require those distributors, after receiving notice from the  
               DOJ, to provide notice to each customer that is a licensed  
               distributor, wholesaler, or retailer who purchased, within  
               two years before the removal, the cigarettes of the tobacco  
               product manufacturer or brand family removed or excluded  








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               from the DOJ's directory of tobacco product manufacturers  
               that are participating manufacturers (PMs) under the MSA;

               Deletes provisions referring to cigarettes or tobacco  
               products from a NPM located outside the United States that  
               is removed form the directory;

             c)   Requires a newly qualified NPM or a NPM that poses an  
               elevated risk of noncompliance with the Tax Law or the MSA,  
               to post a surety bond, as specified before inclusion onto  
               the DOJ's directory of tobacco product manufacturers that  
               are PMs under the MSA;

             d)   Specifies that a person is prohibited from shipping or  
               distributing into or within this state for personal  
               consumption in California cigarettes of a tobacco  
               manufacturer or brand family not included in the directory,  
               and would provide that this specification is declaratory of  
               existing law;

             e)   Requires any NPM not located in the United States, as an  
               additional condition precedent to having its brand families  
               listed or retained in the directory, to cause its importers  
               to appoint an agent, as specified, and would impose  
               additional specified responsibilities upon such  
               manufacturer;

             f)   Requires, as a condition of selling cigarettes in  
               California, a tobacco product manufacturer, as specified,  
               to submit, or authorize to disclose, a copy of its  
               applicable return:  

               i)     Provides that a failure to comply with that  
                 provision would subject the manufacturer and its brand  
                 companies to removal from the directory; and,

               ii)    Imposes a civil penalty on any manufacturer that  
                 intentionally provides an applicable return with  
                 materially false information.

          4)Adds to the forfeiture list cigarette and tobacco products  
            that do not meet requirements specified by the Board of  
            Equalization (BOE) or the Attorney General (AG). 









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          5)Requires the BOE and the DOJ to share the data, including  
            e-mail addresses, for distributors, importers, manufacturers,  
            and wholesalers.

          6)Eliminates the reference to the track and trace provisions  
            under state law that is applicable to delivery sales.

          7)Defines "Delivery Sales Laws" as any state or federal laws  
            applicable to delivery sale under to existing state law.

          8)Amends the definition of "bidis" or "beedies," as defined, to  
            include any product that is marked as sold as "bidis" or  
            "beedies", and clarifies that persons who violate the  
            prohibition prescribed under existing law are subject to both  
            criminal and civil liability.

          9)Provides that the provisions of this bill are severable.

           EXISTING FEDERAL LAW  :

          1)Requires, state AGs and various tobacco product manufacturers  
            to enter into a MSA as a settlement of various lawsuits, that  
            provides for the allocation of money to the states and certain  
            territories.  

          2)Enters California into a memorandum of understanding (MOU)  
            providing for the allocation of the state's share of funds to  
            be received under the MSA between the state and counties and  
            certain cities within the state.

          3)Requires any tobacco product manufacturer selling cigarettes  
            to consumers in this state to place specified amounts into a  
            qualified escrow fund by April 15 of each year. 
           
          EXISTING STATE LAW  :

          1)Prohibits the sale, offer for sale, distribution, or import of  
            "bidis" or "beedies," defined as a product containing tobacco  
            that is wrapped in temburni leaf or tendu leaf, unless it is  
            sold or intended for sale in business establishments that  
            exclude minors .

          2)Requires, under the Tax Law, a tax with respect to  
            distributions of cigarettes paid by distributors through the  








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            use of stamps or meter impressions:

             a)   Requires that these stamps or impressions be affixed to  
               each package of cigarettes sold;

             b)   Requires certification of additional information, as  
               specified; and,

             c)   Requires the AG to post on the AG's Internet Web site a  
               directory of tobacco product manufacturers that are  
               participating manufacturers that are participating  
               manufacturers under the MSA, and that have made the  
               required escrow payments and provided certification of  
               related information to the AG:

               i)     Requires the AG's Internet Web site to include  
                 specified brand families, as defined, that have been  
                 identified by the by the tobacco product manufacturers;

               ii)    Requires that a manufacturer and brand families be  
                 excluded from the directory, under certain circumstances;  
                 and,

               iii)   Requires certain cigarette and tobacco products be  
                 forfeited to the state, under certain circumstances, upon  
                 seizure by the BOE.

          3)Enacts the Cigarette and Tobacco Products Licensing Act, which  
            imposes licensing requirements on tobacco manufacturers,  
            wholesalers, retailers and importers; requires manufacturers  
            to pay a one-time fee; and, imposes additional civil and  
            criminal penalties on individuals and businesses that violate  
            tobacco-related, anti-contraband laws and laws prohibiting  
            tobacco-related sales to minors.

          4)Establishes the Stop Tobacco Access to Kids Enforcement Act  
            (STAKE Act) to reduce or eliminate the illegal purchase and  
            consumption of tobacco products by minors:

             a)   Requires retailers from selling cigarettes and tobacco  
               products to minors under the age of 18 and requires that  
               retailers check identification of individuals trying to buy  
               cigarettes and tobacco products who appear under the age of  
               18; and,








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             b)   Increases civil penalties and expands the number of  
               agencies that are permitted to carry out investigations of  
               illegal tobacco sales to minors from the State Department  
               of Public Health (DPH) to include the AG and other state  
               and local agencies.

           FISCAL EFFECT  :  According to the Assembly Appropriations  
          Committee:

          1)Costs associated with this legislation are minor and  
            absorbable within existing resources as this bill enhances the  
            AG's authority to enforce the existing provisions of the MSA. 

          2)In an earlier version of the bill, the BOE estimated their  
            administrative costs associated with the legislation would  
            likely be minor, between $10,000 and $50,000. 

          3)This bill does not affect the state's tax revenues. 

          4)Potential minor non-reimbursable local costs for investigation  
            and prosecution of violations, potentially offset by fine  
            revenue.

           COMMENTS  :  This bill amends the Tax Act with regard to governing  
          the financial and other MSA-related obligations of NPMs as part  
          of its diligence obligation.  Author states, "This bill would  
          bring California law into conformity with Virginia's law and  
          those of the other states to prevent PMs from arguing in future  
          litigation that California has failed to "diligently enforce"  
          against NPMs."  This bill modeled on similar NPM escrow statute  
          enhancements made in the following states:  Virginia, Kentucky,  
          Kansas, and Idaho.  The measure would protect against the sale  
          of cigarettes below market prices, and would help protect the  
          state's share of tobacco settlement payments under the MSA.

           Related legislation  :  SB 822 (Escutia) Chapter 780, Statutes of  
          1999, created California's version of the MSA model statute,  
          requiring tobacco manufacturers selling products within the  
          state to either become a participating manufacturer under the  
          terms of the MSA, or, if a non-participating member, to deposit  
          specified funds in a qualified escrow fund each year. 

          AB 71 (Horton) Chapter 890, Statutes of 2003, created the  








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          Cigarette and Tobacco Products Licensing Act of 2003, which  
          generally provides for the licensing of tobacco manufacturers,  
          importers, distributors, wholesalers, and retailers, and  
          prohibits any such entity from operating in California without a  
          license.  Authorizes BOE to suspend or revoke licenses for  
          violations of the Act and related provisions of law. 

          Currently, AB 2733 (Ruskin) of 2010, amends the Tobacco  
          Licensing Act to prohibit displaying or gifting of cigarettes  
          and tobacco products during any period of license suspension and  
          revocation.  The bill also requires a person that has received a  
          notice of suspension or revocation to post a copy of the notice  
          at the primary entrance and near the cash register.


           Analysis Prepared by  :    Rod Brewer / G. O. / (916) 319-2531 


                                                               FN:  0004447