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