BILL ANALYSIS Ó
AB 1894
Page 1
Date of Hearing: May 14, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 1894 (Ammiano) - As Amended: April 1, 2014
Policy Committee: Public
SafetyVote: 5-2
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill establishes the Medical Cannabis Regulation and
Control Act to regulate the cultivation, testing,
transportation, distribution, and sale of medical cannabis.
Creates the Division of Medical Cannabis Regulation (division)
in the Department of Alcoholic Beverage Control (department),
and gives the department authority to register persons for
specified activities relating to medical cannabis and to collect
registration fees.
This bill also authorizes the board of supervisors of any county
and the governing body of any city to levy, increase, or extend
a transaction and use tax (TUT) for tangible personal property
that is medical cannabis, or medical-cannabis-infused products
for general purposes, if the ordinance proposing the tax is
approved by a two-thirds vote of the local legislative body and
by a majority of the county or city voters. A similar tax may be
levied for specific purposes, if approved by a two-thirds vote
of the local legislative body and by a two-thirds vote of the
county or city voters. The combined rate of any taxes imposed
pursuant to this measure may not exceed a 5% rate, and city rate
may not exceed 2%.
FISCAL EFFECT
Costs/Fees:
1)Significant annual costs, potentially in the range of $15
million, to create the Division of Medical Marijuana
Regulation and Enforcement within the ABC to regulate the
medical marijuana industry. It is not clear these costs would
AB 1894
Page 2
be fully covered by the unspecified registration fees
authorized by this bill, as the division will be created
regardless of the number of applications. (The bill specifies
a $5,000 fee for a provisional registration, but is silent
regarding ongoing mandatory registration.) It is also not
clear what source would fund the significant - in the millions
of dollars - start-up costs for the division.
The entire budget of the ABC is $58 million, with 430
positions. The ABC is charged with licensing and regulating
persons and businesses engaged in the manufacture, importation
and distribution of alcoholic beverages, and with
administering the provisions of the ABC Act to protect the
health, safety, welfare and economic well-being of the state.
In addition to the ABC, there is the ABC Appeals Board, with a
$1 million budget.
Based on funding and staffing levels of the ABC and the
Appeals Board, and considering the complexities of the
undertaking and the significant start-up costs of any new
entity (adoption of regulations and fee schedules, office
equipment and expenses, etc), it seems reasonable to assume
the costs of providing statewide regulation of the
cultivation, manufacture, testing, transportation,
distribution, and sale of medical marijuana, along with
associated hearings, appeal, litigation and enforcement, would
be at least in the range of 25% of the ABC budget.
2)This bill establishes unspecified registration fees. The costs
of creating and maintaining the division, as specified, within
the ABC would require significant application fees and fines.
For purpose of illustration, the average fee to cover the cost
of a $15 million entity, if there were 1,500 annual
applications, would be about $10,000 per application.
Given the current legal environment surrounding medical
marijuana, with the California Supreme Court ruling last year
that local governments can ban medical marijuana production
and distribution, and given the federal government's interest
in shutting down dispensaries, will there be a sufficient
number of applications and penalties to fully fund the
division?
3)This bill creates a continuous appropriation from the Medical
Cannabis Regulation Fund, supported by registration fees,
AB 1894
Page 3
created by this bill to support the division. Continuous
appropriations are contrary to the general practice of this
committee, which prefers annual budget review of expenditures.
Tax revenue:
1)Unknown moderate local revenue increase, potentially in the
millions of dollars, from an unspecified TUT increase of up to
5% per county. For order of magnitude purposes, based on a
2009 BOE estimate that the potential sales and use tax revenue
on marijuana would be about $400 million, based on a 9%
combined rate, if 20% of the taxable sales amount was
medicinal marijuana, and if half of the state's cities and/or
counties, representing 50% of the state's population, levied
an average 3% TUT, the annual local revenue increase would be
about $13 million.
2)Unknown, nonreimbursable local election costs to the extent
cities and counties opt to hold elections on proposed tax
increases. Unconsolidated elections generally cost in the
hundreds of thousands of dollars, depending on the
jurisdiction.
SUMMARY CONTINUED
Specifically, this bill:
1)Specifies this chapter does not prevent a city or county from:
a) Adopting ordinances that ban or regulate location or
operation of a commercial registrant.
b) Enforcing those ordinances civilly or criminally.
c) Establishing a fee for the operation of a commercial
registrant.
2)Confers on the division authority to administer this chapter,
including, but not limited to:
a) Establishing statewide standards for cultivation,
testing, transportation, distribution, and sales of medical
cannabis.
b) Establishing a scale of state-imposed fees for the
cultivation, testing, transportation, distribution, and
sale of medical cannabis.
c) Approving or denying registration applications for
AB 1894
Page 4
cultivation, testing, labeling, transportation,
distribution, and sale of medical cannabis.
d) Suspending, fining, restricting, or revoking mandatory
commercial registration upon a violation a rule or
regulation.
e) Imposing penalties.
f) Administering a grant program for cities and counties to
help with cannabis regulation.
3)Establishes the Medical Cannabis Regulation Fund within the
State Treasury, and requires all fees collected pursuant to
this regulatory scheme be deposited into the fund, to be
continuously appropriated to the department to administer this
chapter. (Any penalty collections are deposited in the General
Fund.)
4)Requires, the division, by January 1, 2016, to establish
procedures for the issuance, renewal, suspension, and
revocation of mandatory commercial registration; application,
registration, and renewal forms and fees; qualifications for
registrants; security requirements; testing and labeling
requirements; health and safety requirements; inspection and
tracking requirements, storage, packing, and transportation
procedures; advertising restrictions and requirements; product
safety requirements; and civil penalties for the failure to
comply with regulations.
5)Prohibits approval of a commercial registration application or
renewal if the department determines:
a) The applicant fails to meet the established requirements
or any regulation adopted;
b) The applicant, or any of its officers or directors, is
under 21 years of age;
c) The applicant knowingly provides false information.
d) The applicant, or any of its officers or directors, has
been convicted in the past five years of a serious or
violent felony, as specified, a felony involving fraud or
deceit, or any other felony that, in the division's
estimation, would impair the applicant's ability to
appropriately operate medical cannabis cultivation,
manufacturing, distribution or sales.
e) The applicant is a physician making medical cannabis
recommendations for patients.
f) The applicant, or any of its officers or directors, has
AB 1894
Page 5
been sanctioned by the division.
g) A sufficient number of registrants already exist to meet
patients' needs in the jurisdiction.
6)Requires the department to issue emergency regulations within
180 days of January 1, 2015, including establishing
appropriate fees.
7)Requires the department to provide for provisional
registration, as specified, beginning on January 1, 2015 (the
bill states 2014) and requires the department to charge a
$5,000 application fee.
8)States that an approved application is valid for a period not
to exceed one year from the date of approval, unless revoked
or suspended.
9)Requires the department to limit the number of registrations
to a number sufficient to meet statewide need.
10)Prohibits a physician from recommending medical marijuana to
a patient while that physician is a commercial registrant, or
an officer, employee, or financial beneficiary of a
registrant.
11)Specifies this chapter does not apply to the rights and
protections granted to individual patients and primary
caregivers under the Compassionate Use Act (CUA).
12)Exempts individual patients and caregivers cultivating
marijuana who do not sell or charge for the cultivation of
marijuana from mandatory commercial registration.
13)States that entities provided immunity under Los Angeles
Measure D of 2013 are to be considered the equivalent of
registered entities and in compliance for purposes of this
Act.
14)Requires, effective January 1, 2016, that products containing
cannabis offered for sale be subject to testing and labeling
requirements, except in the case of a primary caregiver
distributing to a qualified patient.
15)Makes it a misdemeanor for a person to steal or fraudulently
use a registrant's identification card or status to possess,
AB 1894
Page 6
cultivate, transport, use, produce, or distribute cannabis, or
to tamper with or fraudulently produce an identification card
or registration status.
16)Subjects a person operating an unregistered medical cannabis
facility to civil penalties of up to $25,000 and authorizes
destruction of marijuana associated with violations.
17)Requires the department to create and maintain a searchable
database to allow state and local law enforcement to verify a
mandatory commercial registration.
18)Requires the Medical Board of California to include in the
cases it prioritizes for investigation those involving
excessively recommending marijuana for medical purposes.
19)Provides recommending marijuana to a patient for medical
purposes without conducting an appropriate prior examination,
including an in-person examination, constitutes unprofessional
conduct.
20)Confers peace officer status on the director and persons
employed by the ABC for administration and enforcement of this
chapter, and authorize those persons to enforce any penal
provisions of law while in the course of their employment.
COMMENTS
1)Rationale . The author's intent is to create statewide
regulation and a model to resolve the considerable confusion
and controversy in cities and counties where elected officials
have expressed contradictory opinions about the legality of
activities related to medical marijuana.
According to the author, "Greater certainty and uniformity are
urgently needed regarding the rights and obligations of
medical marijuana facilities, and for the imposition and
enforcement of regulations to prevent unlawful cultivation and
the diversion of marijuana to nonmedical use. This bill
utilizes an existing state regulatory agency with law
enforcement functions to oversee a regulated chain of
commerce, similar to what ABC does with alcohol. It provides
for locals to have the ultimate say in what types of medical
cannabis activities can happen in that local jurisdiction.
This locals-first approach requires that growers, processers,
AB 1894
Page 7
manufacturers, testing and labeling, transporters, and
retailers will all be required to have
local zoning approval and a local business permit in order to
even apply for state registration."
2)Current Medical Marijuana Law . In 1996, California voters
passed Prop 215, the Compassionate Use Act (CUA), which
prohibits prosecution for growing or using marijuana if a
person has an oral or written recommendation of a physician.
In 2003, SB 420 (Vasconcellos, Statutes of 2003), the Medical
Marijuana Program Act (MMP), created a voluntary
identification card that patients and caregivers could obtain
to protect them from arrest, and limited the amount of
marijuana that could be legally grown and possessed.
In 2005, the U.S. Supreme Court ruled in Gonzales v. Raich
(2005) that the federal government can enforce marijuana
prohibitions despite state medical marijuana law.
In 2010, the California Supreme Court ruled in People v. Kelly
that the MMP section limiting quantities of cannabis is
unconstitutional because it amends a voter initiative.
In 2013, the California Supreme Court held that medical
marijuana statutes do not preempt a local ban on facilities
that distribute medical marijuana and that municipalities can
prohibit such conduct as a public nuisance (City of Riverside
v. Inland Empire Patient's Health & Wellness Center).
3)This bill will not end confusion and disagreement between
federal, state and local governments . Possession and sale of
marijuana is a crime under federal law, and federal law
preempts state law. California patients who obtain a
physician's recommendation are protected from prosecution for
possessing or cultivating an amount of cannabis reasonably
related to their current medical needs, as are patients'
caregivers. Patients and caregivers who obtain a state MMP
identification card from their county health department are
protected from arrest and prosecution for possessing,
delivering, or cultivating cannabis. Patients and caregivers
who engage in these activities, however, remain liable to
federal arrest and prosecution, and those who operate
dispensaries face frequent federal enforcement actions.
AB 1894
Page 8
4)Support includes the Drug Policy Alliance, CA Norml, and the
CA Cannabis Industry Association, and the City of Oakland.
According to the CA Public Defenders Association, "This bill
is a commonsense approach to establishing statewide standards
for the cultivation, manufacturing, testing, transportation,
distribution, and sales of medical marijuana and medical
marijuana products. Its even-handed approach protects the
interests of patients, their caregivers, municipalities and
medical marijuana businesses. It provides a measure of
regulatory certainty to medical marijuana businesses and
protects patients and citizens from unauthorized purveyors of
medical marijuana. Moreover, by barring local law enforcement
from participating in federal harassment of legitimate medical
marijuana businesses, this bill protects California citizens,
especially the ill and infirm."
5)Opposition is primarily from law enforcement. According to the
CA Narcotic Officers' Association, "This bill will open the
door to virtual unfettered trafficking in so-called medical
marijuana. AB 1894 contemplates vesting jurisdiction over
commercial medical marijuana in the Department of Alcoholic
Beverage Control. There is no little irony in the selection of
the Department of Alcoholic Beverage Control as the
administering agency for the medical marijuana trade. We know
of no other area of law where an agency charged with
regulating recreational substances such as alcohol is also
given portfolio over matters which are alleged to be medical."
6)Prior Legislation.
a) AB 473 (Ammiano), 2013, which created the Division of
Medical Marijuana Regulation and Enforcement within the ABC
to regulate cultivation, testing, transportation,
distribution, and sale of medical marijuana failed passage
on the Assembly floor (35-37).
b) AB 2312 (Ammiano), 2012 , which established the Medical
Marijuana Regulation and Control Act, authorizing local
taxes on medical cannabis and creating a board to regulate
the medical cannabis industry, was never heard in the
Senate.
c) SB 626 (Calderon), 2011, required the Board of
Equalization (BOE) to establish a nine-member task force to
AB 1894
Page 9
determine ways to enhance collections of sales and use
taxes on retail sales of marijuana and ensure proper
regulation of the cultivation, transportation, and
distribution of marijuana and marijuana products. SB 626
was held on the Senate Appropriations Committee's Suspense
File.
d) AB 390 (Ammiano), 2009, legalized the possession, sale,
cultivation and other conduct relating to marijuana, and
required ABC to administer and enforce the terms of
legalized marijuana. AB 390 passed Assembly Public Safety
and was never heard by the Assembly Health Committee.
e) SB 420 (Vasconcellos), Statutes of 2003, established the
Medical Marijuana Program Act, a statewide voluntary
program for the issuance of identification cards to
identify persons authorized to engage in the medical use of
marijuana under the Compassionate Use Act.
f) Proposition 215, of the November 1996 General Election,
prohibits prosecution for possession and cultivation of
cannabis by a patient or a patient's primary caregiver with
a physician's written or oral recommendation.
Analysis Prepared by : Geoff Long / APPR. / (916) 319-2081