BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 243 (Wood) - Medical marijuana cultivation
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|Version: July 2, 2015 |Policy Vote: GOV. & F. 5 - 0, |
| | E.Q. 5 - 0 |
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|Urgency: Yes |Mandate: Yes |
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|Hearing Date: August 17, 2015 |Consultant: Marie Liu |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 243 would: (1) establish a tax on the cultivation
of medical marijuana and the allowable uses of the proceeds, (2)
create the Division of Medical Cannabis Cultivation within the
Department of Food and Agriculture (CDFA) that would license
cultivation and implement a unique identification program for
marijuana cultivated in California, and (3) require regional
water quality boards to address waste discharges of marijuana
cultivation including specified issues.
Fiscal
Impact:
Unknown tax revenues, potentially in the mid-tens of millions
of dollars annually, that would be deposited into the
Marijuana Production and Environment Mitigation Fund
(special).
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Unknown increased sales tax revenues, potentially in the low
millions of dollars, (General Fund) as a result of increased
marijuana prices.
Ongoing costs of approximately $3.7 million annually
(special*) to the Board of Equalization (BOE) for the
administration of the marijuana tax.
Unknown ongoing annual costs, likely in the high hundreds of
thousands of dollars or low millions, for the BOE to contract
out the administration of the track and trace program.
Unknown ongoing annual costs, likely in the low millions of
dollars, (special*) to CDFA to administer the cultivation
licenses, identification program, and grant programs.
Ongoing annual costs of $9.9 million (special*) for the
Department of Fish and Wildlife (DFW) for necessary
enforcement.
Onetime costs of $4.7 million (special*) for taskforce
equipment needs.
Ongoing costs of $6.2 million from the Waste Discharge Permit
Fund (special) for the State Water Resources Control Board's
(SWRCB) enforcement of waste discharges from marijuana
cultivation.
Unknown annual costs, likely in the high hundreds of thousands
of dollars, (special*) to the Natural Resources Agency to
administer a competitive grant program for environmental
cleanup and restoration of public and private lands that have
been damaged by illegal marijuana cultivation. These costs are
dependent on the ultimate size of the grant program.
Unknown cost pressures, likely in the tens of millions of
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dollars (special*) for local law enforcement.
Unknown costs (General Fund) for the potential reimbursement
of local permitting costs.
*Marijuana Production and Environment Mitigation Fund
Background: Proposition 215, passed by the voters on November 5, 1996,
established the Compassionate Use Act that authorized the use
and cultivation of marijuana for medical purposes. The act also
made it a crime to plant, cultivate, harvest, dry, or process
marijuana, except as otherwise authorized by law.
Under current practice, there is no state licensing or
regulation of medical marijuana cultivation or dispensing. At
the local level, oversight and regulation is limited and varies
by city and county. Some cities or counties have prohibited the
operation of commercial medical marijuana operations while
others have enacted outright bans on medical marijuana,
including personal possession and use. In 2013, the voters in
the City of Los Angeles passed Measure D which authorizes a
limited number of existing medical marijuana dispensaries that
had been in continuous operation since 2007 and had been
registered with the City to remain open
The Budget Act of 2014 appropriated $1.5 million and seven
positions to DFW and $1.8 million and 11 positions to the SWRCB
to create a multi-disciplinary marijuana task force to address
the natural resources damages from cultivation on private lands
in northern California and on high conservation public lands. In
July 2014, DFW and SWRCB prepared a strategic plan that called
for DFW to investigate and enforce violations of illegal
streambed alterations associated with marijuana production
(implemented by the "Watershed Enforcement Team" or WET) and
SWRCB to investigate and enforce violations of water quality law
including unauthorized diversions of surface water. As a result
of the program, regional boards are developing conditional
waivers of waste discharge requirements, DFW and SWRCB have
conducted public education and outreach about safe environmental
practices for cultivations, the WET has performed 42 site
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inspections of which most will result in administrative civil
liability actions and cleanup orders, and improved interagency
coordination. DFW and SWRCB submitted a report on their
progress, as required by the budget, titled "Joint Report to the
Legislature on the Department of Fish and Wildlife and State
Water Resources Control Board pilot project to address the
Environmental Impacts of Cannabis Cultivation (Watershed
Enforcement Team)." The report also included recommendations to
the Legislature on needed statutory changes including enhanced
streambed alteration agreement fees, additional laws related to
water trucks diverting stream flow on fish-bearing waterways,
and public funds to remediate orphaned and abandoned sites.
Proposed Law:
This bill would generally require that indoor and outdoor
medical marijuana cultivation be conducted in accordance with
state and local laws and that the following state agencies are
required to address environmental impacts of medical marijuana
cultivation: State Board of Forestry and Fire Protection
(board), the Department of Fish and Wildlife (DFW), the State
Water Resources Control Board (SWRCB) and the regional water
quality control boards, and traditional state law enforcement
agencies.
Tax on marijuana cultivation: This bill would establish the
Medical Marijuana Tax Law which would establish a tax on all
cannabis flowers, leaves, and immature plants. The tax would be
imposed on cultivators but collected by the "designated entity,"
which is defined in the bill as a blank or an entity designated
by the Board of Equalization (BOE). The tax would be assessed on
the amounts of flowers, leaves, and immature plants sold to the
designated entity and the amount of taxes would be required to
be reflected on the sales receipt given to the cultivator. Any
claim for exemption from the tax would be required to be in a
process prescribed by the BOE. The BOE would be authorized to
prescribe, adopt, and enforce regulations to implement this law.
The BOE would be authorized to adopt emergency regulations in
accordance with the Administrative Procedures Act.
The tax would be implemented no earlier than the first day of
the first calendar quarter that is more than 270 days after
adequate funding has been received by the BOE to implement these
requirements.
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The BOE would be required to adopt a track and trace process for
the purpose of reporting the movement of cannabis and cannabis
products throughout the distribution chain.
Tax revenues would be deposited into the Marijuana Production
and Environment Mitigation Fund (fund), which would be created
by this bill in the State Treasury, less BOE's administrative
costs. The fund would also collect all interest, penalties, and
other amounts collected under these provisions. The fund would
be continuously appropriated as follows:
10% to the Division of Medical Cannabis Cultivation to
administer the unique identifier program (see below).
30% to the Division of Medical Cannabis Cultivation to fund
competitive grants to local and state law enforcement-related
activities related to illegal marijuana cultivation. The
division would be required to promulgate guidelines for the
program by April 1, 2016.
30% to the Natural Resources Agency (CNRA) to fund competitive
grants for environmental cleanup and restoration of public and
private lands that have been damaged by illegal marijuana
cultivation. Projects should be prioritized based on the level
of damages that have occurred with at least 35% of the funds
to be used on public lands and at least 20% of the funds to be
used on private lands. Grants may be given to the state, local
governments, and nonprofit organizations that engage in
environmental cleanup and restoration. CNRA would be required
to promulgate guidelines for this grant program by April 1,
2016.
30% to the multiagency taskforce (see below) to respond to the
damages caused by marijuana cultivation on public and private
lands.
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Licensing: This bill would create the Division of Medical
Cannabis Cultivation (division) CDFA. The division would license
marijuana cultivation. A cultivator would be required to first
receive a permit from the relevant county or city. However,
after March 1, 2016, if the county or city has expressly chosen
not to administer a permit for cultivation, the division may be
the sole licensing authority.
Identification Program: The division would also be required to
implement a unique identification program, in consultation with
SWRCB and DFW, which considers water use and environmental
impacts. The identification program would be required to include
a unique identifier that would be attached to the base of each
plant. The division would be authorized to charge a fee to cover
the reasonable costs of issuing the unique identifier and
monitoring, tracking, and inspecting each plant.
This bill would allow a county board of supervisors or city
council to choose to be the responsible entity of administering
the unique identification program, in which case, the county or
city would be authorized to charge a fee to cover their
administrative costs in addition to any other local fees or
taxes imposed by the local government.
The multiagency taskforce : This bill would codify the
multiagency task force that was created by the "DFW and SWRCB
pilot project to address the Environmental Impacts of Cannabis
Cultivation" (taskforce) and charge it with responding to the
damages caused by marijuana cultivation on public and private
lands in California. The bill would require the taskforce to
continue on a permanent basis and to expand its efforts on a
statewide level.
Water quality impacts: This bill would allow the SWRCB, and
require the regional water quality control boards, to address
waste discharges from medical marijuana cultivation and
associated activities. This bill would require the regional
boards' efforts to address items including, but not limited to,
stream crossings, riparian and wetland protection, soil
disposure, water storage and use, irrigation runoff, fertilizers
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and soils, and cultivation-related waste.
Reporting requirements: This bill would require the BOE to
report the total amount of revenue that was collected for a five
year period after five years and 180 days past the operative
date of the tax.
Additionally, this bill would require the following reports to
be submitted to the Legislature by January 1, 2021 for the
purpose of determining the necessity of readjusting the
marijuana tax:
The taskforce to report on the addressing of the environmental
impacts of marijuana cultivation and how the tax revenues have
been used to address the environmental impacts.
The Department of Justice (DOJ) to report on how law
enforcement agencies have used tax revenues to address illegal
marijuana cultivation and related activities.
CNRA to report on how the tax revenues have been used for
environmental cleanup and restoration of public and private
lands that have been damaged from illegal cultivation.
This bill is an urgency measure.
Related
Legislation: SB 643 (McGuire) would enact the Medical Marijuana
Public Safety and Environmental Protection Act and creates a
regulatory structure for many aspects of medical marijuana
including licensing of dispensing facilities, cultivation sites,
transporters, and manufacturers; allows local jurisdictions to
level local taxes; distributes funding to various environmental
agencies to enforce regulations related to marijuana
cultivation.
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AB 266 (Bonta) would enact the Medical Cannabis Regulation and
Control Act which would create a state and local licensing and
regulatory structure for the regulation of medical cannabis in
the state. The bill would establish a new Office of Medical
Cannabis Regulation within the Office of the Governor to oversee
state regulatory efforts and would also require several other
state agencies to assume licensing and regulatory
responsibilities.
Staff
Comments: Tax revenues: By creating a new tax, this bill will
result in new revenue. As the amount of the tax is not specified
in the current version of the bill, the potential revenues are
unknown. For reference, an earlier version of this bill
specified a $50 tax per medical marijuana plant. The BOE has
estimated that there are approximately 1.18 million marijuana
plants cultivated in California. Under this assumption, a
$50/plant tax would result in approximately $59 million in
revenue. While in the current version of the bill changes the
method by which the tax is assessed and the rates are not
specified, the author's staff has expressed intent to set the
rates at a level that would have produced the same revenues as
$50/plant rate.
The BOE also anticipates additional sales tax revenues under the
assumption that the new tax on cultivators will be incorporated
into the selling price of marijuana. The increase in price will
thereby increase the amount of sales tax revenue received by the
state, perhaps in the low millions of dollars.
BOE administrative costs: The BOE's estimates on administrative
costs are preliminary, but are currently estimated at
approximately $3.7 million ongoing. There may also be some
additional start-up costs in the low hundreds of thousands of
dollars. These costs do not include the cost of the track and
trace program required by the bill. Staff estimates that the
magnitude of these costs will likely be dependent on the overlap
with the division's identification program but will likely be at
least in the high hundreds of thousands of dollars.
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The BOE noted in its analysis of the July 2nd version of this
bill that a tax administered and collected by the division on
each unique identifier would save BOE-related implementation,
administrative, and collection costs and would eliminate the
need for an entity to collect the tax from a licensed
cultivator. Reducing administrative costs would maximize
revenues that may be used for the bill's specified uses.
CDFA costs : Under this bill, CDFA would be responsible for
licensing all marijuana cultivation, administering the unique
identification program, and disbursing local law-enforcement
related grants. These costs are likely in the low-millions of
dollars.
SWRCB and DFW costs: To make the taskforce permanent and
statewide, DFW anticipates needing $9.9 million annually for 75
enforcement, scientific, and administration positions which will
be phased in over two years. Additionally, the first year will
have $4.7 million in onetime costs including warden equipment
and training and equipment. DFW notes that equipment needs
include a helicopter which is necessary because the most
egregious environmental violations are occurring in areas that
are inaccessible to vehicle traffic. A helicopter will allow DFW
to properly remove garbage, pesticides, and other grow site
infrastructure with less personnel hours and less risk for
injury. These costs would come from tax revenues deposited in
the fund.
The SWRCB anticipates needing an additional $6.2 million for 44
positions and $100,000 in contracts for its responsibilities as
part of the task force and for enforcement of waste discharge
permits. The SWRCB notes that bringing illegal operations into
legal cultivation will require an enormous enforcement and
education campaign and therefore there is uncertainty in its
estimates. Because the SWRCB has fee authority to enforce its
permitting program, it would anticipate that the tax revenue in
the fund would cover DFW's costs, while its costs would come
from the Waste Discharge Permit Fund. The SWRCB notes that it
anticipates having difficulties in collecting the permit fees
from the industry and it may need support from the General Fund
or the fund in the early years of the program until sufficient
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fee revenue is collected and compliance is high.
Potential legal costs: The DOJ notes that it will potentially
have significant legal costs for its client agencies (i.e. CDFA,
the SWRCB and regional boards, and DFW). Specifically, the DOJ
notes that it would represent CDFA should license denials be
challenged. Additionally, there may be significant new
litigation costs associated with the enforcement of state and
federal environmental and water quality laws especially given
the impacts associated with illegal and unauthorized marijuana
cultivation and current water shortages.
Cost and revenue uncertainty : The revenue estimates given above
assume high levels of compliance by the marijuana cultivation
industry. However, the distribution chain is not fully
established in this bill, thereby making it unclear whether OBE
will be able to properly track all cultivation and sales. For
example, while all cultivators would be required to obtain a
permit from the division, there are no requirements that all
marijuana must be sold to a "designated entity." Without
establishing an explicit distribution chain, and significant
penalties for exchanges outside the chain, it is unclear whether
the tax can effectively be collected.
Relatedly, the lack of an explicit distribution chain can
increase enforcement costs as it may be difficult to identify
compliant and illegal operations.
Continuous appropriation: The tax revenues from the marijuana
tax would continuously appropriated under this bill. Staff notes
that continuous appropriations undermine the ability, and the
constitutional responsibility, for the Legislature to provide
oversight through the budget process on the funded programs.
Legislative oversight over the use of the tax proceeds is
especially important given the large new program expansions
created in this bill.
Potential reimbursable mandate: This bill creates a state
mandated-local program by increasing the duties of local
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officials relative to issuing a conditional permit to cultivate
medical marijuana, specifically the local permit cannot become
active upon licensing by the division. If the Commission on
State Mandates determines that this is a mandate, the state
would be required to reimburse locals for their associated
costs.
State funds for local law enforcement responsibilities: This
bill would direct a portion of the tax monies to fund local law
enforcement efforts in regards to illegal marijuana cultivation.
While recognizing that local law enforcement needs related to
marijuana cultivation likely far exceeds local resources, the
committee may wish to consider whether state funds should be
provided for local responsibilities.
At a minimum, the Legislature may wish to ensure that these
funds are used to supplement rather than supplant local
resources. As an example, the state provides law enforcement
agencies grants to enforce off-highway vehicle (OHV) recreation.
That grant program subjects law enforcement entities that
receive funds to be subject to a financial and performance audit
at least once every five years and requires the local law
enforcement program related to OHV to have specified elements.
By creating a grant program for local law enforcement
activities, this bill creates cost pressures at least in the
tens of millions of dollars on the state to fund those
activities.
Other issues: In addition to issues previously discussed, staff
notes that the following are policy and fiscal issues that may
still need to be resolved in this bill:
The "designated entity" needs to be defined.
The tax rate needs to be specified.
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Guidelines for the competitive grant programs for law
enforcement costs and environmental cleanup and restoration
costs implemented by the division and CNRA, respectively, are
required to be developed by April 1, 2016. This deadline is
likely too short given that regulations typically take at
least one year to develop.
This bill allows the division to both receive a portion of the
tax for administrative costs but also to impose a fee to cover
its administrative costs. Staff recommends that costs be
recovered either by a fee or tax revenues, but not both.
This bill specifies that the division is to license marijuana
cultivation; however there are no conditions for licensing
other than local permits have been obtained, if applicable. It
is unclear if the licensing program is solely for the purpose
of registration for the purpose of the unique identification
program.
This bill specifies that the unique identification program
consider water use and environmental impacts. It is unclear
how an identification program is to accomplish this.
This bill intends on codifying the WET, the task force formed
by DFW and SWRCB as a result of funding provided in the 2014
budget , by referring to the title of its report to the
Legislature, "Department of Fish and Wildlife and State Water
Resources Control Board pilot project to address the
Environmental Impacts of Cannabis Cultivation." Staff notes
that this is an awkward reference and it may be clearer either
to just require DFW and the SWRCB to form a taskforce to
address marijuana cultivation impacts or perhaps to reference
the strategic plan developed by the two agencies.
This bill would create a permanent funding source for the
taskforce to address the impacts of marijuana cultivation.
Staff recommends that the bill limit the taskforce's
responsibilities to illegal marijuana cultivation and orphaned
sited as the impacts of legal operations should be the
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responsibility of the cultivator.
This bill appears to use the words marijuana and cannabis
interchangeably even in the definition of "marijuana." For the
sake of clarity, the author may choose to use a single term
unless a difference is intended.
The DOJ will likely have minor and absorbable costs to
complete the reporting on the use of grants to law enforcement
agencies from the Marijuana Production and Environment
Mitigation Fund. However, staff notes that it is not clear why
this reporting responsibility should be assigned to the DOJ
rather than the division given that the division is the entity
that is responsible for administering the grants.
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