BILL ANALYSIS Ó
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Date of Hearing: September 8th, 2015
ASSEMBLY COMMITTEE ON FINANCE
Shirley Weber, Chair
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(Cooper) - As Amended August 27, 2015
SUBJECT: Electronic cigarettes
SUMMARY: Defines the term smoking for purposes of the Stop
Tobacco Access to Kids Enforcement (STAKE) Act; expands the
definition of a tobacco product to include electronic cigarettes
(e-cigarettes) and extend current restrictions and prohibitions
against the use of tobacco products to electronic cigarettes.
Extends current licensing requirements for manufacturers,
importers, distributors, wholesalers, and retailers of tobacco
products to electronic cigarettes. Specifically, this bill:
1)Defines smoking as inhaling, exhaling, burning, or carrying
any lighted or heated cigar, cigarette, or pipe, or any other
lighted or heated tobacco or plant product intended for
inhalation, whether natural or synthetic, in any manner or in
any form. Includes the use of an electronic smoking device
that creates an aerosol or vapor, in any manner or in any
form, or the use of any oral smoking device for the purpose of
circumventing the prohibition of smoking.
2)Expands the definition of tobacco product to include an
electronic device that delivers nicotine or other vaporized
liquids to the person inhaling from the device, including, but
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not limited to an electronic cigarette, cigar, pipe, or
hookah. Includes in the definition any component, part, or
accessory of a tobacco product, whether or not sold
separately.
3)Clarifies that a tobacco product does not include a product
that has been approved by the United States Food and Drug
Administration (FDA) for sale as a tobacco cessation product
or for other therapeutic purposes where the product is
marketed and sold solely for such an approved purpose.
4)Requires all cartridges for electronic cigarettes and solution
for filling or refilling an electronic cigarette to be in
child-resistant packaging. Defines child-resistant packaging
as packaging that meets current federal regulations.
5)Requires the Board of Equalization (BOE) to determine a
one-time license fee for retailers of tobacco products who are
not subject to tax pursuant to the Cigarette and Tobacco
Products Tax Law.
EXISTING LAW:
1)Authorizes the California Department of Public Health (DPH),
under the STAKE Act, to assess civil penalties ranging from
$400 to $6,000, depending on the number of infractions,
against any person, firm, or corporation that sells, gives, or
in any way furnishes tobacco products to a person who is under
the age of 18.
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2)Establishes smoke-free laws, which prohibit the smoking of
tobacco products in various places, including, but not limited
to, school campuses, public buildings, places of employment,
apartment buildings, day care facilities, retail food
facilities, health facilities, and vehicles when minors are
present, and makes a violation of some of the prohibitions
punishable as an infraction.
3)Defines a tobacco product as any product containing tobacco
leaf, including, but not limited to, cigarettes, cigars, pipe
tobacco, snuff, chewing tobacco, dipping tobacco, bidis, or
any other preparation of tobacco.
4)Defines e-cigarette as a device that can provide an inhalable
dose of nicotine by delivering a vaporized solution.
Prohibits a person from selling or otherwise furnishing an
electronic cigarette to a person under the age of 18.
5)Requires the Board of Equalization (BOE), under the Cigarette
and Tobacco Products Licensing Act, to administer a statewide
program to license cigarette and tobacco products
manufacturers, importers, distributors, wholesalers, and
retailers. Prohibits selling tobacco products without a valid
license, and makes violations punishable as a misdemeanor.
6)Requires a retailer, for purposes of collecting a tobacco tax,
to obtain a separate license for each retail location that
sells cigarettes and tobacco products and pay a one-time fee
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of $100. Requires BOE to suspend or revoke a retailer's
license upon notification by DPH of certain STAKE Act
violations.
7)Prohibits, under the STAKE Act, any person from distributing
or selling tobacco products via the United States Postal
Service (USPS), or any other public or private postal or
package delivery service, to any purchaser who is a minor.
8)Bans, under the federal Prevent All Cigarette Trafficking Act
(PACT Act), the shipment of tobacco products through the USPS.
9)Federal law, the Poison Prevention Packaging Act of 1970
requires the use of child-resistant packaging for prescription
drugs, over-the-counter drugs, household chemicals, and other
hazardous materials that could be considered dangerous for
children.
FISCAL EFFECT:
1.Approximately $115,00 (Proposition 99) for the Department of
Public Health (DPH) for purchasing retailer lists, revising
informational materials, and conducting annual scientific
surveys, and General Fund cost pressure to increase STAKE Act
enforcement activities.
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2.Approximately $3.8 million in costs for the Board of
Equalization in 2015-16, minor savings in 2016-27, $1.8
million in costs in 2017-18, and minor costs in out-years for
the proposed BOE licensing program.
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DPH estimates the following costs, which are described in the
narrative below the chart:
-----------------------------------------------------------------
| DPH Cost & Fund Source | 2015-16 | 2016-17 | 2017-18 |
| | | | |
| | | | |
|------------------------------+-----------+-----------+----------|
|Revise regulations (0236 | $0| $64,400| $0|
|Unallocated Account, | | | |
|Proposition 99 Funds) | | | |
| | | | |
| | | | |
|------------------------------+-----------+-----------+----------|
|E-cig retailer lists for | $8,000| $8,000| $8,000|
|enforcement (0066 STAKE | | | |
|Special Fund) | | | |
| | | | |
| | | | |
|------------------------------+-----------+-----------+----------|
|Revise informational | $107,172| $0| $0|
|materials (0236 Unallocated | | | |
|Account, Proposition 99 | | | |
|Funds) | | | |
| | | | |
| | | | |
|------------------------------+-----------+-----------+----------|
|Annual scientific survey for | $0| $400,000| $400,000|
|monitoring illegal e-cig | | | |
|sales to youth (0236 | | | |
|Unallocated Account, | | | |
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|Proposition 99 Funds) | | | |
| | | | |
| | | | |
|------------------------------+-----------+-----------+----------|
|STAKE Act program | $1,600,000| $1,600,000|$1,600,000|
|requirements to monitor | | | |
|illegal E-cig sales to youth | | | |
|(General Fund) | | | |
| | | | |
| | | | |
|------------------------------+-----------+-----------+----------|
| NET COSTS | $1,715,172| $2,072,400|$2,008,000|
| | | | |
| | | | |
| | | | |
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Revise regulations. According to DPH, this bill would require
the DPH Food and Drug Branch (FDB) to revise STAKE Act
regulations for conducting compliance checks in vape shops and
vape lounges. DPH, Office of Regulations (OOR) estimates that
regulations would be complete within 18 months. Regulations
would also be required to be revises related to signage.
E-cig retailer lists. In order to incorporate e-cigarette
retailers that are not already BOE-licensed as a tobacco
retailer into STAKE Act compliance checks, DPH/FDB would
purchase an e-cigarette vendor list developed by a database
company for an estimated minimum cost of $4,000-$8,000 per year.
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Revise informational materials. DPH would need to revise STAKE
Act signage, educational materials, and training materials to
include the e-cigarette provisions. The cost of revising and
printing STAKE Act signs and clean air materials (signs,
posters, cards, manuals/booklets) and the Tobacco Control Laws
brochure is estimated at $100,000. DPH staff time associated
with revising educational materials and training materials is
estimated at ten percent Full-Time Equivalent (FTE), Health
Program Specialist (HPS) I for one year at $7,172.
Annual scientific survey. Business & Professions Code Section
22959 requires the annual transfer of $2 million from the
Department of Health Care Services' federal Substance Abuse
Prevention & Treatment (SAPT) Block Grant to CDPH to administer
the provisions of the Synar Amendment. The FDB STAKE Program's
portion of these funds is $1.6 million. This funding is used for
conducting STAKE Act compliance inspections that include
undercover youth tobacco purchase inspections with an undercover
youth decoy, operating a STAKE Act complaint line, and following
up on illegal youth tobacco sales complaints. The remaining
$400,000 is used to conduct a scientific youth tobacco purchase
survey in order to annually report the annual illegal youth
sales rate, as required by the federal Synar Amendment.
Pursuant to guidance received from the federal Center for
Substance Abuse Prevention (CSAP) Project Officer, if this bill
passes, California would have the option to include e-cigarettes
in its Synar inspections since these products would be
considered eligible for Synar compliance activities. The annual
youth tobacco survey which is a random survey of approximately
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725 stores and results in a sample that is sufficient in size to
provide a statewide rate. While this bill does not require a
separate survey, absent additional resources, DPH would be
required to split the funds between two separate enforcement
requirements. This could result in a diminished survey on
tobacco retailers to accommodate e-cigarette only retailers. For
fiscal years beyond 2015-2016, DPH would request additional
funds in the amount of $400,000 to augment the annual scientific
survey to monitor the illegal e-cigarette sales rate to youth.
STAKE Act program requirements. The DPH STAKE enforcement
program's portion fund is $1.6 million. This funding is used for
conducting STAKE Act compliance inspections that include
undercover youth tobacco purchase inspections with an undercover
youth decoy, operating a STAKE Act complaint line, and following
up on illegal youth tobacco sales complaints. Current DPH STAKE
Act enforcement activities include any activity subsequent to a
violation of the STAKE Act, including issuance of the notice of
violation and civil penalty, administrating and preparing the
STAKE Act case package for an administrative hearing. Fines and
penalties collected as a result of STAKE Act activities are
collected by DPH and used to pay for a portion of legal staff.
The budget for the STAKE Act program has been flat since the
program was created 20 years ago and the funds collected from
penalties have decreased due to increased compliance with the
tobacco sales to minors law.
Currently, DPH performs approximately 2,000 buys with the $1.6
million block grant funds. CDPH currently spends approximately
$5-$6 per tobacco purchase resulting in approximately $10,000 to
$12,000 to buy the cigarettes during compliance buys. DPH
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conducted online research and found e-cigarettes range in cost
from $10-$50. The variety in inventory for
e-cigarettes and availability from one retailer to another is
much wider than for regular cigarettes.
While this bill authorizes DPH to enforce e-cigarette sales
compliance through the STAKE Act, absent additional resources,
DPH would be required to enforce both e-cigarette and tobacco
sale compliance with the funds available currently for tobacco.
Given the comparably high cost of e-cigarettes, this requirement
could result in diminished oversight of tobacco retailers to
accommodate e-cigarette retailers. In order to mirror the
current STAKE Act program, DPH would request additional funds in
the amount of $1.6 million in General Fund to monitor the
illegal e-cigarette sales rate to youth.
By including electronic devices in the definition of tobacco,
this bill could impact California's ability to maintain no more
than a 20 percent rate of illegal tobacco sales to minors.
Pursuant to 42 United States Code (U.S.C.) 300x-26, commonly
known as the Synar Amendment, if California does not meet the 20
percent threshold, the Department of Health Care Services (DHCS)
could lose up to 40 percent of its SAPT Block Grant allocation.
This means that DHCS could lose approximately $100 million of
its SAPT Block Grant award if illegal tobacco sales to minors
exceeds 20 percent. Nevertheless, it is unclear how likely it is
that these new legal requirements threaten California's ability
to meet the federal threshold, and also unclear how much new
resources would be needed to ensure that California continue to
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meet the federal threshold.
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The Board of Equalization (BOE) estimates the following costs
and revenues:
-----------------------------------------------------------------
| Costs | 2015-16 | 2016-17 | 2017-18 |2018-19 |
| | | | | |
| | | | | |
| (In Millions) | | | | |
| | | | | |
| | | | | |
|----------------------+-----------+----------+----------+--------|
|BOE Administrative | $3.8| $3.1| $2.5| $1.3|
|Costs | | | | |
| | | | | |
| | | | | |
|----------------------+-----------+----------+----------+--------|
| Revenue | | | | |
| | | | | |
| | | | | |
| (In Millions) | | | | |
| | | | | |
| | | | | |
|----------------------+-----------+----------+----------+--------|
|BOE Licensing Revenue | $0| $3.4| $0.7| $0.7|
| | | | | |
| | | | | |
|----------------------+-----------+----------+----------+--------|
| NET COSTS | $3.8| -$0.3| $1.8| $0.6|
| | | | | |
| | | | | |
| | | | | |
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| | | | | |
| | | | | |
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BOE Costs. According to BOE, the bill results in additional BOE
administrative costs to identify, notice, and license
e-cigarette and tobacco device retailers and to suspend or
revoke retailer licenses for e-cigarette and tobacco device
sales to minors violations. These costs include: e-cigarette
identification, notification, and registration; publication and
form revisions; compliance, inspection and enforcement tasks;
public inquiry responses; and related computer programming.
BOE Revenue. The anticipated revenue would be generated by the
new licensing fee proposed in the bill to which e-cigarette
retailers would be subject. AB X2 11 (Nazarian) addresses
related issues that might have an impact on this bill. AB X2 11
proposes to increase existing licensing fees on tobacco
retailers in light of reported insufficient resources for the
tobacco licensing program within the BOE. This bill (AB X2 6)
creates a new licensing fee that mirrors the existing fee by
creating a one-time fee for e-cigarette retailers who are not
already tobacco retailers who have already paid the one-time
tobacco licensing fee of $100.
COMMENTS: (According to the Assembly Committee on Public Health
and Developmental Services):
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1)PURPOSE OF THIS BILL. According to the author e-cigarette
usage by youth is exploding, for example, amongst high school
students use has shot up from 600,000 in 2013 to around 2
million in 2014. The author states this bill is about
preventing an entire new generation of nicotine addicts. The
author contends that licensing e-cigarette retailers like
tobacco retailers will prevent young people from accessing
e-cigarettes. The author points out that prohibiting the use
of e-cigarettes in all the places where smoking is currently
prohibited is important because, while the health effects of
e-cigarettes are still being determined, we do know that both
inhaled and exhaled e-cigarette aerosol contains particulate
matter that has shown to be potentially harmful to the lungs
and that 10 chemicals in the Prop 65 warning on chemicals that
cause cancer and birth defects have been found in
e-cigarettes.
2)BACKGROUND. E-cigarettes are defined in California law as a
device that can provide an inhalable dose of nicotine by
delivering a vaporized solution. Typically, they are composed
of a rechargeable, battery-operated heating element, a
replaceable cartridge that may contain nicotine or other
chemicals, and an atomizer that, when heated, converts the
contents of the cartridge into a vapor. This vapor can then
be inhaled by the user. These products are often made to look
like such products as cigarettes, cigars, and pipes. They are
also sometimes made to look like everyday items such as pens
and USB memory sticks, for people who wish to use the product
without others noticing.
The health effects of e-cigarettes have not been fully studied,
so consumers currently don't know the potential risks of
e-cigarettes, how much nicotine or other potentially harmful
chemicals are being inhaled during use, or whether there are
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any benefits associated with using these products. According
to the January 2015 State Health Officer's report on
E-Cigarettes, A Community Health Threat, e-cigarette use is
rising rapidly. The report notes that while the long-term
health impact resulting from use of this product is presently
unknown, it is known that e-cigarettes emit at least 10
chemicals that are found on California's Proposition 65 list
of chemicals known to cause cancer, birth defects, or other
reproductive harm.
REGISTERED SUPPORT / OPPOSITION:
Support
American Heart Association / American Stroke Association
American Lung Association
Attorney General Kamala Harris
Children Now
First 5 of California
Health Officers Association of California
Opposition
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None on file.
Analysis Prepared by:Andrea Margolis / FINANCE /916-319-2099