BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 1262
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          Date of Hearing:   August 13, 2014

                                  Mike Gatto, Chair

                   SB 1262 (Correa) - As Amended:  August 4, 2014 

          Policy Committee:                             Public Safety  
          Vote:        6-1
                       Business and Professions                      10-2

          Urgency:     No                   State Mandated Local Program:  
          Yes    Reimbursable:              No


          This bill creates a licensing and regulatory framework for the  
          cultivation, transportation, testing, and sale of medical  
          marijuana, administered by the Bureau of Medical Marijuana  
          Regulation (bureau) in the Department of Consumer Affairs (DCA).  
          Specifically, this bill:  

          1)Requires the Medical Board of California to include in the  
            cases it prioritizes for investigation and prosecution,  
            repeated acts of excessively recommending marijuana to a  
            patient for medical purposes without an examination of the  
            patient and a medical rationale.   

          2)Makes it a misdemeanor for a physician who recommends medical  
            marijuana to a patient to accept, solicit, or offer any form  
            of remuneration from or to a licensed medical marijuana  
            facility if the physician or immediate family has a financial  
            interest in that facility. 

          3)Prohibits a physician from recommending medical marijuana to a  
            patient unless that person is the patient's attending  
            physician as defined by the Compassionate Use Act (CUA).

          4)Exempts from licensure a patient who cultivates or possesses  
            marijuana for personal medical use, or a primary caregiver who  
            cultivates, possesses or provides marijuana to no more than  
            five patients, as specified. 

          5)Creates in DCA the Bureau of Medical Marijuana Regulation  
            (bureau), and provides the bureau with authority to license  


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            the cultivation, manufacture, transportation, distribution and  
            sale of marijuana and to collect related licensing fees.   
            Specifies protection of the public is the paramount priority  
            of the bureau. Provides the bureau the authority to:

             a)   Set application, licensing and renewal fees necessary to  
               cover the costs of administration and enforcement.
             b)   Establish licensing procedures.
             c)   Establish standards for cultivation, manufacturing,  
               transportation, storage, distribution, and provision of  
               medical marijuana.
             d)   Impose penalties.

          6)Requires the bureau, by July 1, 2016, to promulgate  
            regulations for implementation and enforcement, as specified. 

          7)Requires, Beginning Jan. 1, 2015, the bureau to provide for  
            provisional licensure, as follows:

             a)   Cities or counties that authorize cultivation and  
               provision of marijuana shall provide the bureau a list of  
               approved entities. If the entity has been operating in  
               compliance with local laws and regulations for at least six  
               months, the bureau shall issue a provisional license until  
               the entity's licensure application is accepted or denied. 
             b)   Applicants shall pay a fee of up to $8,000 to cover  
               administration and enforcement and provide specified  
             c)   The bureau shall not issue a provisional license if  
               there are pending proceedings against an applicant related  
               to applicable local ordinances.

          8) Beginning Jan. 1, 2016, the bureau shall provide for standard  
            licensure, as follows:

             a)   Applicants shall pay required fees (amounts not  
               specified) and provide specified information, including  
               detailed operating procedures and fingerprints for  
               Department of Justice background checks.
             b)   Cities or counties that authorize cultivation and  
               provision of marijuana shall provide the bureau a list of  
               approved entities. If the entity has been operating in  
               compliance with local laws and regulations, the bureau may  
               issue a license.
             c)   A licensee may not hold a license in more than one class  


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               of activities, except as specified, and a licensee may not  
               be a member, owner, or operator in another licensed entity.
             d)   Licensure may be denied, suspended or revoked for  
               specified circumstances, including criminal history,  
               violation of local ordinances, untrue or misleading  
               statements related to the application, or failure to  

          9)Creates the fee-based and continuously appropriated Medical  
            Marijuana Fund; specifies all penalties are deposited into the  
            GF; and authorizes the bureau to administer a grant program to  
            allocate funds to state and local entities to assist with  
            administration and enforcement.

          10)Specifies medical marijuana transportation requirements,  
            including secure vehicles and minimum staffing.

          11)Provides cities and counties authority to enforce this  
            statute and rules and regulations adopted by the bureau. 

          12)Requires licensed facilities to implement specified security  
            measures, including access and storage and inventory.

          13)Requires annual audits of all licensees, the cost of which is  
            paid by licensees.  

          14) Makes licensees subject to local jurisdiction restrictions,  
            including prohibitions on operation.

          15)Makes willful violations of this act punishable by a civil  
            fine of up to $35,000. Technical violations are punishable by  
            fines of up to $10,000.

          16)Provides this act does not supersede in any way the City of  
            L.A.'s Measure D.

          17)Requires the bureau to limit the number of licensed  
            cultivation sites, as specified, to prevent diversion of  
            marijuana for non-medical use.  

          18)Authorizes boards of supervisors to impose, by ordinance,  
            applicable to voter approval requirements, a tax on  
            cultivation, storing, distributing or selling marijuana by a  


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          19)Requires the bureau to establish quality assurance protocols  
            to ensure uniform testing standards of medical marijuana,  
            including a list of certified labs. Licensees bear testing  

           FISCAL EFFECT  


          1)Significant annual costs, likely in excess of $20 million, to  
            create the Bureau of Medical Marijuana Regulation (bureau) in  
            the Department of Consumer Affairs (DCA) to regulate the  
            medical marijuana industry. It is not clear these costs would  
            be fully covered by the unspecified fees authorized by this  
            bill, as the division will be created regardless of the number  
            of applications. (The bill specifies a maximum $8,000 fee for  
            a provisional registration, but is silent regarding a ceiling  
            for ongoing mandatory applications.) 

            The bill specifies startup costs for establishment of the  
            bureau are to be advanced as a loan from the DCA.   

            For order of magnitude comparisons, the entire budget of the  
            ABC is $58 million and 430 positions. The ABC is charged with  
            licensing and regulating persons and businesses engaged in the  
            manufacture, importation and distribution of alcoholic  
            beverages, and administering the provisions of the ABC Act to  
            protect the health, safety, welfare and economic well-being of  
            the state. In addition, the ABC Appeals Board has a $1 million  

            Based on funding and staffing levels of the ABC, 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 appears reasonable to assume the costs of providing  
            statewide regulation for cultivation, manufacture, testing,  
            transportation, distribution, and sale of medical marijuana,  
            along with associated hearings, appeals, litigation and  
            enforcement, would conservatively be in the range of 35% of  
            the ABC budget.  

          2)This bill establishes unspecified registration fees. The costs  
            of creating and maintaining the bureau, as specified, within  
            the DCA would require significant application fees. For  


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            purpose of illustration, the average fee to cover the cost of  
            a $20 million entity, if there were 1,000 annual applications,  
            would be about $20,000 per application. (Colorado charges up  
            to $18,000.)

            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, it is not clear there would be  
            a sufficient number of applications to fully fund the bureau.   

          3)This bill creates a continuous appropriation from the Medical  
            Cannabis Regulation Fund, supported by registration fees, to  
            support the division. Continuous appropriations are contrary  
            to the general practice of this committee, which prefers  
            annual budget review of expenditures.

          4)Unknown special fund costs to the California Medical Board,  
            likely in excess of $1 million, for investigating physicians  
            who overprescribe marijuana without an exam.

          5)Unknown, potentially significant, likely in the low millions  
            of dollars, non-reimbursable local law costs for enforcement  
            of medical marijuana regulation. 

          6)Minor ongoing costs to DOJ for background checks; covered by  
            applicant fees. 

          7)Unknown, potentially significant litigation costs to DOJ to  
            defend DCA. Costs would be reimbursed by DCA, presumably with  
            applicant fee revenue, if sufficient.

          Tax and penalty revenue:

          1)Unknown moderate local revenue increase, potentially in the  
            millions of dollars, from a permissive and unspecified local  
            tax. For order of magnitude purposes, based on a 2009 BOE  
            estimate that 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.


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          2)Unknown GF revenue from fines of up to $35,000 for willful  
            violations and up to $10,000 for technical violations of the  


           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, "Since the approval of the  
            Compassionate Use Act (Proposition 215) and passage of SB 420  
            (2003) no broader, feasible regulatory structure has been  
            established, and the implementation of these laws has been  
            marked by conflicting authorities, regulatory uncertainty,  
            intermittent federal enforcement action, and a series of  

            "Nearly all recent attempts to regulate medical marijuana do  
            not have appropriate health and safety standards and neglect  
            the importance of local control.

            "SB 1262 will require licensing, set quality assurance and  
            testing standards, and establish for the sale of medical  
            marijuana while protecting public safety and local control."

           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 CA Supreme Court ruled in People v. Kelly that  


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            the MMP section limiting quantities of cannabis is  
            unconstitutional because it amends a voter initiative. 

            In 2013, the CA Supreme Court held medical marijuana statutes  
            do not preempt a local ban on facilities that distribute  
            medical marijuana, and that municipalities may prohibit such  
            conduct as a public nuisance (City of Riverside v. Inland  
            Empire Patient's Health & Wellness Center).

           3)Current support and opposition is somewhat murky  as the  
            current version of this bill was in print less than a week at  
            the time of this analysis. Proponents - police chiefs and the  
            League of Cities - continue to propose substantive amendments  
            to address numerous concerns from marijuana industry entities,  
            most of whom oppose the bill, as well as CSAC and the City of  
            L.A., who also oppose the measure.

           4)Support  . The  California Police Chiefs Association  , a  
            co-sponsor of this bill, states, "Among the most troublesome  
            issues with Proposition 215 includes the ability of virtually  
            anyone to obtain a medical marijuana recommendation from a  
            compliant doctor; unreliable quality control for consumers  
            with respect to potency and the presence of carcinogenic  
            pesticides or other contaminants, as well as retail outlets  
            that often become magnets for criminal activity.

          "Senate Bill 1262 establishes an improved regulatory structure  
            to ensure that Prop. 215 works as originally envisioned to  
            assist patients with legitimate medical needs, in a manner  
            that works for law enforcement, city and county governments,  
            local community organizations, and medical professionals."

            According to the  League of Cities  , the other co-sponsor of  
            this bill, "This legislation, in contrast to nearly all  
            previous attempts, acknowledges local regulatory authority by  
            establishing a state licensing scheme that defers to local  
            land use powers; under SB 1262, it will not be possible for a  
            prospective operator to obtain a state license to operate a  
            dispensary or other facility until and unless that operator  
            can produce evidence of local permitting approval.  This  
            protects both the jurisdictions that have enacted bans on such  
            facilities, as well as those that have elected to allow and  
            actively regulate them.

            "SB 1262 addresses the many public safety concerns that arise  


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            with a marijuana regulatory scheme by requiring minimum  
            security requirements that must be observed at dispensaries,  
            as well as transport and inventorying procedures, to minimize  
            the possibility of diversion of marijuana for  
            non-medical/recreational uses which could stimulate cartel  

           5)Opposition  . Most industry groups, who supported Assemblymember  
            Ammiano's regulation bill (AB 1894, which failed on the  
            Assembly floor earlier this year), appear to oppose SB 1262,  
            stating it is too restrictive and costly - by limiting the  
            number of licensees, and encouraging the punishment of  
            physicians who overprescribe without an good faith exam, when  
            the Compassionate Use Act, adopted by statewide initiative,  
            clearly states, "Notwithstanding any other provision of law,  
            no physician in this state shall be punished, or denied any  
            right or privilege, for having recommended marijuana to a  
            patient for medical purposes (HSC 11362.5(b)(2). 

             The California National Organization for the Reform of  
            Marijuana Laws  states the bill "fails to provide a realistic,  
            economically viable framework for state regulation. Unless it  
            is substantially revised SB 1262 will not attract sufficient  
            applicants or licensing fees to establish a statewide industry  
            or pay for the substantial costs of regulation and will only  
            exacerbate chaos in California's medical cannabis industry."

             The Drug Policy Alliance  cites divers criticisms of the bill,  
            from concerns the bill would disproportionately impact poor  
            people of color as they are most likely to be convicted of a  
            felony for marijuana sales (and therefore under the bill could  
            be prohibited from licensure), to the contention that the bill  
            "creates a system of unworkable regulations."

             The Marijuana Policy Project  cites 24 points of opposition,  
            stating, "The upending of the current system of access, couple  
            with a failure to replace it with a workable system that would  
            be operational before mid to late 2016. With a few notable  
            exceptions, the vast majority of medical marijuana is  
            currently produced by individual patients who provide excess  
            amounts to other patients through collectives and  
            cooperatives. SB 1262 would make this system impractical or  
            illegal, while failing to replace it with something else that  
            works during the transition period." 


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            In addition, in a joint letter, the  CA State Association of  
            Counties  (CSAC) , the  Urban and Rural County Caucuses  , and the  
             County Health Executives Association  , oppose the bill, citing  
            numerous local control issues.

           6)This bill will not end confusion 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.  

           7)Prior Legislation.  

             a)   AB 1894 (Ammiano), 2014, which established the Medical  
               Cannabis Regulation and Control Act to regulate the  
               cultivation, testing, transportation, distribution, and  
               sale of medical cannabis, and created the Division of  
               Medical Cannabis Regulation (division) in the ABC, failed  
               passage on the Assembly floor, 26-33.

             b)   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).

             c)   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  
                Analysis Prepared by  :    Geoff Long / APPR. / (916)  


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