BILL ANALYSIS Ó
AB 34
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Date of Hearing: May 27, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
34 (Bonta) - As Amended May 20, 2015
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Urgency: No State Mandated Local Program: YesReimbursable: No
SUMMARY:
This bill, titled the Medical Cannabis Regulation and Control
Act, creates a comprehensive state licensing and regulatory
framework for the cultivation, processing, distribution, testing,
and sale of medical cannabis. The bill includes provisions
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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. Specifies it does not intend to
preempt any local ordinance or prevent local jurisdictions from
adopting or enforcing ordinances that ban or regulate cannabis.
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.
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Requires CDFA to adopt regulations and standards 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 a task force be convened to further specify the
appropriate roles of regulatory authorities, and establish
communication guidelines. Requires a report to the Legislature
by August 1, 2016.
7)Requires the three divisions to issue tiered licenses specified
in the bill, which depend 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.
8)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.
9)Establishes the Medical Cannabis Control Fund as a continuously
appropriated fund with four specified accounts. 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.
10)Requires specified state departments to enter into an
interagency agreement to set forth their respective duties and
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reimbursement from the fund.
11)Requires regulatory authorities to adopt, as soon as
practicable, emergency regulations establishing provisional
licenses. Requires issuance of provisional licenses to
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.
12)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.
13)Makes licensure for persons who are not local permitholders
contingent on proof the applicant has received permission from
local authorities for commercial cannabis activities.
14)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.
15)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.
16)Specifies civil penalties of up to twice the amount of the
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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.
17)Requires the California Highway Patrol (CHP) to 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.
18)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.
19)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
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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
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.
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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.
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 CHP
to develop a test 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.
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COMMENTS:
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:
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a) 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.
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).
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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,
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, Peace Officers Research Association of
California, the California Statewide Law Enforcement
Association, 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 unless amended the California
Police Chiefs Association and League of California Cities. The
police chiefs do not believe 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 on local
enforcement with state enforcement being secondary. The
League of California Cities writes several of this bill's
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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.
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.
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1)Prior Legislation.
a) AB 1262 (Correa) of 2014, would have 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, would have 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, would have 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, would have 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
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authority be provided in a manner sufficient to fund these
regulatory activities without GF or other special fund support.
Analysis Prepared by:Lisa Murawski / APPR. / (916)
319-2081