BILL ANALYSIS Ó AB 26 Page 1 Date of Hearing: January 21, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Jimmy Gomez, Chair AB 26 (Jones-Sawyer) - As Amended January 13, 2016 ----------------------------------------------------------------- |Policy |Business and Professions |Vote:|13-0 | |Committee: | | | | | | | | | | | | | | |--------------+------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- 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 AB 26 Page 2 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 AB 26 Page 3 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 AB 26 Page 4 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. AB 26 Page 5 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 AB 26 Page 6 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 AB 26 Page 7 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