BILL ANALYSIS                                                                                                                                                                                                    



                                                                  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  








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            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,  








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            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  








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               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  








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               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,  








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            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,  








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            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.  









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           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  








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               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