BILL ANALYSIS Ó
AB 34
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Date of Hearing: May 20, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
34 (Bonta) - As Amended May 5, 2015
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Urgency: No State Mandated Local Program: YesReimbursable:
Yes
SUMMARY:
This bill, titled the Medical Cannabis Regulation and Control
Act, creates a comprehensive state licensing and regulatory
framework for the cultivation, processing, distribution,
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testing, and sale of medical cannabis. The bill includes
provisions related to health and safety standards, which include
medical cannabis testing and labeling; record-keeping; security;
transportation; taxation; and certification of employees.
Specifically, this bill:
1)Provides that, without limiting the authority of a city or
county, the state shall have the exclusive right and power to
regulate and license persons for the cultivation, manufacture,
transportation, sale, and other related activities regarding
medical cannabis in the state.
2)Exempts patients and primary caregivers, as defined, from
commercial cannabis activity regulation. States it shall not
apply to, and shall have no diminishing effect on, the rights
and protections granted to a patient or a primary caregiver
pursuant to the Compassionate Use Act of 1996.
3)Establishes the Division of Medical Cannabis Regulation and
Enforcement, within the Department of Alcoholic Beverage
Control (ABC), as the primary regulatory agency as it pertains
to the sale, distribution, and transportation of commercial
cannabis activity.
4)Establishes the Division of Medical Cannabis Manufacturing and
Testing, within the State Department of Public Health (CDPH),
to administer provisions related to manufacturing, testing,
and certification of testing laboratories. Requires CDPH to
adopt labeling, packaging, sanitation, and testing standards.
5)Establishes the Division of Medical Cannabis Cultivation
within the Department of Food and Agriculture (CDFA), to
administer provisions related to cultivation of medical
cannabis. Requires CDFA to adopt regulations and standards
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ensuring cultivation is in compliance with specified
environmental and agricultural regulations and practices, and
to establish weight and measure standards. Prohibits cannabis
cultivation on public lands.
6)Requires the three divisions to issue tiered licenses,
depending on the level and type of activity, for commercial
cannabis activity within their jurisdictions; establish
licensing fees; establish applicant and employee
qualifications, and requirements related to security, product
disposal, marketing, and labeling; and enforce licensure
provisions. Prohibits unlicensed activity.
7)Requires regulatory authorities to charge application
processing fees to process licenses and license fees that
reflect licensure regulatory costs. Requires license fees to
be charged upon issuing a license. Requires fees to be set at
an amount that will fairly and proportionately generate
sufficient total revenue to fully cover the total regulatory
costs.
8)Establishes the Medical Cannabis Control Fund as a
continuously appropriated fund. Requires fines and penalties
to be deposited into an account in the fund, which is
available upon appropriation by the Legislature, for the
purposes of funding an enforcement grant program.
9)Requires specified state departments to enter into an
interagency agreement to set forth their respective duties and
reimbursement from the fund.
10)Requires regulatory authorities to adopt, as soon as
practicable, emergency regulations establishing provisional
licenses. Requires issuance of provisional licenses to
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individuals and entities that determined to have been, during
the 3 months prior to January 1, 2016, conducting commercial
cannabis activity in compliance with local ordinances.
Considers entities provided immunity under Los Angeles's
Measure D as compliant.
11)States it does not prevent local jurisdictions from adopting
or enforcing a zoning or other law, ordinance, or regulation
that regulates the location, operation, or establishment of
commercial cannabis activity. States it does not prevent a
city or county from adopting specified local ordinances
inconsistent with its provisions.
12)Makes licensure for persons who are not local permitholders
contingent on proof the applicant has received permission from
local authorities for commercial cannabis activities.
13)Allows local jurisdictions to impose a temporary local
suspension of the license of a commercial licensee for up to
30 days for violations of this chapter or a local ordinance.
14)Authorizes boards of supervisors to impose, by ordinance,
applicable to voter approval requirements, a tax on
cultivation, storing, distributing or selling marijuana by a
licensee. Limits total taxation of state and local
authorities to 25 percent of retail prices.
15)Specifies civil penalties of up to twice the amount of the
license fee for each incident of unlicensed activity.
Requires penalties collected pursuant to action brought by the
Attorney General to be deposited into the General Fund.
16)Requires the Department of Transportation (Caltrans) to
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conduct research to determine whether a driver is operating a
vehicle under the influence of cannabis, and to assist law
enforcement agencies to establish best practices. Funds this
activity through the fines and penalties account.
17)Requires the Division of Labor Standards Enforcement in the
Department of Industrial Relations (DIR) to develop employee
competency and training certification standards for
cultivation and dispensing. Creates a one-time $25
registration fee which is deposited in the Fund. Requires
employee certification by January 1, 2019.
18)Requires the Division of Occupational Safety and Health (in
DIR) to convene an advisory committee to evaluate whether
there is a need to develop industry-specific regulations.
Requires the Division of Apprenticeship Standards (in DIR) to
adopt regulations governing apprenticeship programs.
FISCAL EFFECT:
1)Significant annual costs, likely in excess of $15 million
(Medical Cannabis Control Fund / GF or special funds), to
create the Division of Medical Cannabis Regulation and
Enforcement within the ABC to regulate the medical marijuana
industry. Significant costs would be incurred before fees are
collected, and the bill does not specify a funding source
startup costs. Funds would likely come from the GF for at
least the first year, until sufficient fee revenue is
generated. If authorized, a loan could also be made from the
Alcohol Beverages Control Fund for a portion of startup costs,
but it appears the fund's projected $25 million balance will
be needed to support an imbalance between expenditures and
revenues for ABC's current programs.
The current budget of ABC is approximately $60 million and 450
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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 budget.
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 25% of
the ABC budget.
2)Annual costs, likely in the range of several million dollars
to CDPH for regulation of manufacturing and testing (Medical
Cannabis Control Fund / GF or special funds), as well as CDFA
for regulation of cultivation sites ((Medical Cannabis Control
Fund / GF or special funds). Funds would likely come from
the GF or special funds for at least first year until
sufficient fee revenue is generated.
3)This bill establishes unspecified fees that must be sufficient
to cover regulatory costs. The costs of creating and
maintaining the regulatory infrastructure would require
significant application fees. For purpose of illustration, the
average fee to cover a $20 million cost, if there were 2,000
annual applications, would be $10,000 per application.
4)This bill creates a continuous appropriation from the Medical
Cannabis Control Fund to support specified departments.
Continuous appropriations are contrary to the general practice
of this committee, which prefers annual budget review of
expenditures.
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5)Minor and absorbable costs to the Medical Board of California
associated with provisions defining specified employment and
prescribing behavior as unprofessional conduct.
6)One-time costs to DIR to certify cultivation and dispensing
employees, adopting regulations related to apprenticeship
programs, and examining the need for industry-specific
regulations, in the range of $1.3 million (GF or special
funds), and $900,000 annually ongoing (fee-supported Cannabis
Certification Fund /GF or special funds).
7)Unknown costs, potentially in the range of $1 million GF to
Caltrans to contract for research determining whether a driver
is operating a vehicle under the influence of cannabis, and to
develop related protocols.
8)Minor ongoing costs to DOJ for background checks, covered by
applicant fees.
Tax and penalty revenue:
1)Unknown moderate local revenue increase, potentially in the
millions of dollars, from a permissive and unspecified local
tax.
2)Unknown fine and penalty will be deposited in the fines and
penalties account in the Fund. Penalties are specified as
twice license fees, which are unknown. Additionally, each
regulatory authority is authorized to define fines and
penalties. Potential GF revenue if actions are brought by the
Attorney General.
COMMENTS:
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1)Purpose. According to the author, California has fallen behind
the nation and failed to implement a comprehensive licensing
and regulatory structure to ensure patient access and protect
our environment, public safety, and public health. This bill
would create a structure in which patients can safely exercise
their right to medical cannabis. It applies existing
regulatory frameworks to this new industry, while adapting for
the unique and historical circumstances surrounding medical
cannabis. To this end, the bill divides the licensing
structure among multiple agencies that have expertise in
various industries that have similarities to that of medical
cannabis, in addition to requiring these agencies to
promulgate appropriate regulations for the medical cannabis
industry. AB 34 also ensures that all licensees and
transactions between them are tracked in order to fight
diversion of medical cannabis.
2)Current Medical Marijuana Law. 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. A
brief history of relevant law is below:
a) In 1996, California voters passed Prop 215, the
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Compassionate Use Act (CUA), which prohibits prosecution
for growing or using marijuana if a person has an oral or
written recommendation of a physician.
b) In 2003, SB 420 (Vasconcellos, Statutes of 2003), the
Medical Marijuana Program Act, 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.
c) 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.
d) In 2010, the CA Supreme Court ruled in People v. Kelly
that the MMP section limiting quantities of cannabis is
unconstitutional because it amends a voter initiative.
e) 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).
f) Also in 2013, the U.S. Department of Justice (USDOJ)
issued guidance that stated, "In jurisdictions that have
enacted laws legalizing marijuana in some form and that
have also implemented strong and effective regulatory and
enforcement systems to control the cultivation,
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distribution, sale, and possession of marijuana, conduct in
compliance with those laws and regulations" is less likely
to threaten federal priorities which include the most
significant public threats, including disrupting gang and
cartel activities, preventing revenue diversion, etc. DOJ
states where strong state and local regulatory systems
exist, "enforcement of state law by state and local law
enforcement and regulatory bodies should remain the primary
means of addressing marijuana-related activity."
California is the only state that permits medical marijuana
in the absence of a robust statewide regulatory system;
half of all states have some such system.
3)Support. A coalition of marijuana growers, the United Food and
Commercial Workers Union, American Nurses
Association/California, and other organizations support this
bill. The Emerald Grower's Association argues the
multi-agency approach in this bill ensures that agencies are
only responsible for regulating things they are capable of
regulating, and also points out the tiered licensing scheme
accommodates the different levels and types of activity to be
licensed. They note deference to the regulatory process for
the many details, given the complexity and multitude of
stakeholders.
4)Opposition. This bill is opposed by law enforcement and local
governments. California Police Chiefs Association states they
do not believe that the ABC is an appropriate administrative
department for medical marijuana regulation, and raises
concerns regarding the efficacy of state enforcement, instead
advocating for an enforcement structure based off of local
enforcement with state enforcement being secondary. The
League of California Cities writes several of this bill's
provisions set the stage for future litigation, pitting local
governments against the state, and against industry
participants who have attempted to set up shop in direct
violation of local ordinances. The Family Winemakers of
California oppose placement in ABC and are concerned about the
potential redirection of alcohol-related license fee revenue.
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5)Related Legislation.
a) AB 266 (Cooley and Lackey), also on today's calendar,
creates a similar statewide regulatory framework, but tasks
the Department of Consumer Affairs with licensure duties.
b) AB 243 (Wood), also on today's calendar, requires
medical marijuana cultivation (MMC) to be conducted in
accordance with state and local laws and best practices, as
specified, and would require state agencies to address
environmental impacts of MMC and coordinate with local
governments in enforcement efforts, and establishes a MMC
permitting system.
c) SB 643 (McGuire), pending in the Senate Appropriations
Committee, establishes within DCA a Bureau of Medical
Marijuana Regulation, under the supervision and control of
the Chief of the Bureau of Medical Marijuana Regulation,
and requires the bureau to license and regulate dispensing
facilities, cultivation sites, transporters, and
manufacturers of medical marijuana and medical marijuana
products, subject to local ordinances, and enforced
primarily at the local level.
1)Prior Legislation.
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a) AB 1262 (Correa) of 2014, which established a licensing
and regulatory framework for the cultivation, processing,
transportation, testing, recommendation and sale of medical
marijuana to be administered by the Department of Consumer
Affairs (DCA) and enforced primarily at the local level,
was held on the Suspense File of this committee.
b) 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.
c) 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).
d) 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.
7)Staff Comments. The DIR is tasked with certifying and annually
renewing registration for cannabis workers. The bill
establishes a fee not to exceed $25 for initial registration,
but it specifies there shall not be a fee for the annual
renewal of registration. This puts pressure on the GF or
special funds to fund whatever ongoing costs are incurred for
registration in absence of fee support. Staff suggests fee
authority be provided in a manner sufficient to fund these
regulatory activities without GF or other special fund
support.
Staff notes the single fund to support several department's
licensing activities offers some benefit but could pose
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significant fiscal risk to departments or fee payers if some
license fee amounts are under- or overestimated.
Analysis Prepared by:Lisa Murawski / APPR. / (916)
319-2081