BILL ANALYSIS                                                                                                                                                                                                    



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          Date of Hearing:  January 21, 2016


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                                 Jimmy Gomez, Chair


          AB  
          26 (Jones-Sawyer) - As Amended January 13, 2016


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          Urgency:  No  State Mandated Local Program:  YesReimbursable:   
          No


          SUMMARY:


          This bill requires applicants for medical marijuana licenses to  
          institute training programs as a condition of licensure.  It  
          also:


          1)Requires licensing authorities, including the Bureau of  
            Medical Marijuana Regulation (Bureau), the California  








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            Department of Public Health (CDPH), and the California  
            Department of Food and Agriculture (CDFA) to deny license  
            applications or revoke licenses if an applicant or licensee  
            fails to institute approved training programs.


          2)Requires the Bureau to adopt standards for the approval of  
            training programs, and to be the sole state agency responsible  
            for approving and regulating training programs.


          FISCAL EFFECT:


          This estimate is subject to significant uncertainty, as the  
          number of licensees, the number of training programs, the  
          complexity of the training, and numerous operational decisions  
          are all unknown at this time.  Staff estimates the Bureau may  
          incur the following costs (funded through a previously  
          authorized GF loan to the Medical Marijuana Regulation and  
          Safety Act Fund, to be repaid through licensure fee revenue): 





          1)Developing training program standards and developing processes  
            for application and review of training programs, would likely  
            result in contract or staff costs in the hundreds of thousands  
            of dollars.  The bill requires approved training on  
            substantive legal requirements, industry best practices, and  
            occupational health and safety standards for numerous types of  
            industries.



          2)Costs for initial verification of training programs could  
            range from minor to significant, depending on how many  
            training programs apply for approval.  If only a few larger  








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            training programs apply, costs would be lower because one  
            approved training program would serve multiple licensees.  If  
            more licensees develop their own training programs, approval  
            costs could be much more significant. If a large number of  
            training programs apply, it may also require a more  
            sophisticated Information Technology (IT) solution to track  
            applicants. 



          3)To verify licensees are implementing training programs should  
            be fairly minor and absorbable, assuming the check is  
            paper-based.  If on-site visits are required, costs would  
            increase.  Any ongoing costs for this activity will be  
            recovered through license fees.






          COMMENTS:


          1)Purpose. This bill, sponsored by the United Food and  
            Commercial Workers Union, Western States Council (UFCW), is  
            intended to ensure workers in the medical cannabis industry  
            are well-trained on safety rules, industry best practices, and  
            legal compliance.  



          2)Background. Medical marijuana, though illegal under federal  
            law, has been legal under state law since the passage of  
            Proposition 215 in 1996.  The Medical Marijuana Regulation and  
            Safety Act (MMRSA) was a package of three bills enacted  
            together in 2015 to regulate the medical marijuana industry  
            and license its participants. The bills created a  
            comprehensive state regulatory system for the commercial  








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            cultivation, manufacture, retail sale, transport,  
            distribution, delivery, and testing of medical cannabis.   
            Among other things, the MMRSA establishes the new Bureau under  
            the Department of Consumer Affairs, which is responsible for  
            licensing and regulating dispensaries, transporters, and  
            distributors.  The MMRSA charges CDPH with regulating  
            manufacturers, testing laboratories, and the production and  
            labeling of edible medical marijuana products, and CDFA with  
            regulating cultivation. Other state agencies, such as the  
            Department of Pesticide Regulation and the State Water  
            Resources Control Board, are responsible for developing  
            environmental standards.   The MMRSA went into effect on  
            January 1, 2016, though licensure will not be required until  
            the responsible licensing authorities pass regulations.  



          3)Marijuana Regulation Startup Costs and Fees. Among other  
            provisions, AB 243 (Wood), Chapter 688, Statutes of 2015, one  
            of the bills establishing MMRSA, appropriated $10 million to  
            the Medical Marijuana Regulation and Safety Act Fund for  
            start-up activities.  MMRSA requires each licensing authority  
            for medical marijuana, including the Bureau, CDPH, and CDFA,  
            to charge fees commensurate with regulatory costs.  Further,  
            each licensing authority is required to generate sufficient  
            fee revenue to cover the specific licensure program  
            administered by that authority.  The Governor's 2016-17 budget  
            requests positions and between $3-$4 million (for a total of  
            $10.5 million in 2016-17) for startup activities of each  
            licensing authority.  



          4)Prior Legislation.  AB 266 (Bonta, Cooley, Jones-Sawyer,  
            Lackey, and Wood), Chapter 689, Statutes of 2015; SB 643  
            (McGuire), Chapter 719, Statutes of 2015; and AB 243,  
            described above, were companion bills that formed the MMRSA.    
            









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          5)Related Legislation. AB 567 (Gipson) limits third-party  
            marijuana delivery services, restricts licensed dispensaries  
            from employing persons under age 21, and requires tax penalty  
            amnesty programs for medical cannabis-related businesses. 

          AB 1548 (Wood) imposes a marijuana distribution tax to be  
            deposited into the Marijuana Production and Environment  
            Mitigation Fund.  



          6)Staff Comments. 
               


             a)   Lack of Clarity on Reimbursements for Work Done by the  
               Bureau on Behalf of a Different Department.  Current law  
               related to fees could be clarified to ensure the regulatory  
               entity performing the activity can be compensated.   
               Business and Professions Code 19350 provides only for  
               licensure and renewal fees to support activities of the  
               licensing authority.  Given current law requires the  
               regulatory programs be fee-supported, it appears the Bureau  
               could recover costs through licensure and renewal fees, for  
               their licensees.   However, although the law allows fees to  
               "vary depending upon the varying costs associated with  
               administering the various regulatory requirements," current  
               law limits fees to the "reasonable regulatory costs to the  
               licensing authority."  For laboratories, for example, the  
               licensing authority is CDPH.  If the bureau is approving  
               laboratory training programs on behalf of CDPH, it appears  
               unclear whether CDPH can charge laboratories to support the  
               Bureau's workload costs.  In order to ensure transparency  
               and accurately account for costs and revenues, it appears  
               advisable to clarify current law to ensure the Bureau can,  
               for example, be reimbursed for any costs related to  
               approval of training programs for entities regulated by  








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               CDPH or CDFA.  A similar allocation will assumedly be made  
               to the Bureau for shared, centralized activities such as IT  
               infrastructure required by MMRSA, so clarifying allowable  
               funding flows would appear to form a firmer and more  
               transparent legal basis for such transfers in cases where  
               centralized work is performed.  
                


               Alternatively, the task of approving training programs  
               could be assigned to the appropriate licensing authority,  
               such that CPDH would approve training for laboratories and  
               manufacturers, and CDFA would approve training for  
               cultivators. Even if this is done, it may still make sense  
               on principle to clarify allowable transfers of funds based  
               on centralized work.





             b)   Cost Recovery Through Licensure Fees? Because this bill  
               requires a license applicant to institute a bureau-approved  
               training program as a condition of licensure, this approval  
               must happen before a potential licensee even applies for  
               licensure.  This means the standards, and a significant  
               number of training programs, must be approved before any  
               license fees are collected, and thus that revenue recovery  
               for this purpose may initially be limited, similar to many  
               other start-up activities of the bureau.  On an ongoing  
               basis, all regulatory costs are recoverable through  
               licensure fees. However, it is worth considering charging  
               the training programs directly for the approval. The bill  
               does not currently specify such a fee. Authorizing training  
               program approval fees would allow cost recovery for the  
               activity directly.  It would also ensure any third-party  
               training programs that are not licensees pay for the cost  
               of their training program approval.  Such third-party  
               entity would likely charge fees to licensees to train their  








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               employees.  In this context, a fee for training program  
               approval would appropriately be a cost of doing business  
               for the third-party entity instead of for the licensee.
          


          Analysis Prepared by:Lisa Murawski / APPR. / (916)  
          319-2081