BILL ANALYSIS Ó AB 266 Page 1 ASSEMBLY THIRD READING AB 266 (Bonta, et al.) As Amended June 2, 2015 Majority vote ----------------------------------------------------------------- |Committee |Votes |Ayes |Noes | | | | | | | | | | | |----------------+------+--------------------+--------------------| |Business & |13-0 |Bonilla, Baker, | | |Professions | |Bloom, Burke, | | | | |Chang, Dodd, | | | | |Eggman, Gatto, | | | | |Holden, Mullin, | | | | |Ting, Wilk, Wood | | | | | | | |----------------+------+--------------------+--------------------| |Appropriations |12-0 |Gomez, Bonta, | | | | |Calderon, Daly, | | | | |Eggman, | | | | | | | | | | | | | | |Eduardo Garcia, | | | | |Gordon, Holden, | | | | |Quirk, Rendon, | | | | |Weber, Wood | | | | | | | | | | | | ----------------------------------------------------------------- AB 266 Page 2 SUMMARY: Establishes a licensing and regulatory framework for medical cannabis under the Medical Cannabis Regulation and Control Act (Act), and would establish the Office of Marijuana Regulation within the Office of the Governor, the Division of Medical Cannabis Regulation within the State Board of Equalization, the Division of Medical Cannabis Manufacturing and Testing within the California Department of Public Health, and the Division of Medical Cannabis Cultivation within the California Department of Food and Agriculture, and would set forth the duties of the respective regulatory authorities. Specifically, this bill: Definitions 1)Defines terms, including: a) "Commercial cannabis activity" means any cultivation, possession, manufacture, processing, storing, laboratory testing, labeling, transporting, distribution, or sale of cannabis or cannabis product, or any Internet platform that facilitates any of these functions for the purpose of selling medical cannabis or medical cannabis products to qualified patients or caregivers, except as provided; b) "Licensed cultivation site" means a person that plants, grows, cultivates, harvests, dries, or processes medical cannabis, or that does all or any combination of those activities, and that is issued a state license pursuant to these provisions and a local license or permit; AB 266 Page 3 c) "Licensed dispensing facility" means a person that provides medical cannabis, medical cannabis products, or devices for the use of medical cannabis or medical cannabis products, either individually or in any combination, that is issued a state license pursuant to these provisions and a local license or permit; d) "Licensed manufacturer" means a person that conducts the production, preparation, propagation, compounding, or processing of medical cannabis or medical cannabis products, either directly or indirectly or by extraction processes, or independently by means of chemical synthesis or by a combination of extraction and chemical synthesis, and includes a location that packages or repackages medical cannabis or medical cannabis products or labeling or relabeling of its container, and that have been issued a state license pursuant to this part; e) "Licensed transporter" means a person issued a state license by the Board of Equalization (BOE) to transport medical cannabis or medical cannabis products above a limit determined by the BOE to and from facilities that have been issued conditional licenses pursuant to these provisions; f) "Licensing authority" means the state agency responsible for granting and renewing state licenses and regulating the relevant licensees: i) For licensed cultivators, the licensing authority is the Division of Medical Cannabis Cultivation in the AB 266 Page 4 California Department of Food and Agriculture (CDFA). ii) For dispensaries and transporters, the licensing authority is the BOE. iii) For licensed manufacturers and certified testing laboratories, the licensing authority is the Division of Medical Cannabis and Testing within the California Department of Public Health (CDPH). Administrative Provisions 2)Creates the Governor's Office of Marijuana Regulation (Office), under the supervision and control of the Director of the Office of Marijuana Regulation (Director), appointed by the Governor, which shall have overall executive authority and responsibility for implementation of all aspects of marijuana regulation pursuant to this Act. 3)Makes the Director the appointing power of all employees within the Office, and makes all heads of divisions, bureaus and other employees in the Office responsible to the Director for the proper carrying out of the duties and responsibilities of their respective positions. 4)Requires the Director to consult with state agencies possessing expertise in licensure and enforcement, including the Department AB 266 Page 5 of Alcoholic Beverage Control and the Department of Consumer Affairs. 5)Requires the Office to coordinate and provide oversight of all activities described in the Act, and to lead all state and local authorities regarding the tracking of medical cannabis, medical cannabis products, and licensees pursuant to the Act. 6)Requires the Office to maintain a registry of all permit holders and a record of all licenses and commercial cannabis activity of the permit holder throughout the length of licensure and for a minimum of seven years following the expiration of each license, and to make limited licensee information available to a licensee to verify whether it is engaging with a properly licensed entity. 7)Establishes the following entities to report to and be directly accountable to the Office for their respective designated responsibilities within the regulatory and enforcement framework, as follows: a) Division of Medical Cannabis Regulation, which is established within the BOE, which shall be administered by a person who is appointed by the BOE to administer the Act as it pertains to commercial cannabis activity relating to dispensaries and transporters. b) Division of Medical Cannabis Manufacturing and Testing, which is established within the CDPH, which shall be AB 266 Page 6 administered by a person who is appointed by the Governor to administer the Act as it pertains to manufacturing, testing, and certification of testing laboratories for medical cannabis and medical cannabis products. c) Division of Medical Cannabis Cultivation which is established within the CDFA, which shall be administered by a person who is appointed by the Governor to administer this Act as it pertains to cultivation of medical cannabis. d) The California Environmental Protection Agency and the California Natural Resources Agency shall coordinate and direct the following entities in the discharge of their designated regulatory responsibilities: i) The State Water Resources Control Board (SWRCB) shall promulgate regulations related to discharge into waterways, and diversion therefrom, resulting from marijuana cultivation. ii) The Department of Fish and Wildlife shall promulgate regulations for the protection of any species affected by cultivation activity, and regulations for any cultivation-related development, including alteration of waterways. e) The Department of Justice (DOJ) shall perform criminal background checks of applicants for licensure; develop uniform security standards for dispensaries and all phases of AB 266 Page 7 transport covered by this Act; and provide supplemental enforcement on an as-needed basis at the request of the Office. 8)Gives the Office and licensing authorities the authority necessary to implement this Act, including: a) Establishing rules or regulations necessary to carry out the purposes and intent of this Act and to exercise the powers and perform the duties conferred by this Act, which shall not limit the authority of a city, county, or city and county specified in this Act or in the California Constitution Article XI, Section 7, or any other law. The Office shall review all regulations and guidance promulgated by the licensing authorities in the administration of this Act to ensure no duplication, overlap, or inconsistent regulations occur. b) Issuing state licenses to persons for the cultivation, manufacture, transportation, and sale of medical cannabis within the state, and setting application, licensing, and renewal fees for state licenses. c) Establishing standards for commercial cannabis activity, and establishing procedures for the issuance, renewal, suspension, denial, and revocation of state licenses. d) Imposing a penalty authorized by this Act or any rule or regulation adopted pursuant to this Act, and taking action AB 266 Page 8 with respect to an application for a state license in accordance with procedures established pursuant to this Act. e) Overseeing the operation of the Medical Cannabis Regulation Fund, established pursuant to this Act. f) Consulting with other state or local agencies, departments, representatives of the medical cannabis community, or public or private entities for the purposes of establishing statewide standards and regulations. 9)Provides that protection of the public shall be the highest priority for the Office and the licensing authorities in exercising its licensing, regulatory, and disciplinary functions pursuant to the Act. 10)Requires the Office, by March 1, 2016, to convene a task force which shall advise the Office on the development of standards, and be responsible for recommending to the Office the appropriate roles of each state entity as it pertains to this Act and guidelines on communication and information sharing between state entities, and with local agencies, and to submit a report on this information to the Legislature by August 1, 2016. Requires the task force to be comprised of representatives of medical cannabis consumer advocates, environmental experts, public health experts, medical cannabis industry representatives, related regulatory authorities, labor, and law enforcement. AB 266 Page 9 11)Requires the Director to prepare and submit to the Legislature each year, beginning on or before March 1, an annual report on the Office's activities, including specified information. Enforcement and Local Control Provisions 12)Requires each licensing authority to work in conjunction with law enforcement agencies for the purposes of implementing, administering, and enforcing the Act and taking appropriate actions against licensees and others for failure to comply. 13)Provides that Director and persons employed by the licensing authorities for the administration and enforcement of the Act are peace officers in the enforcement of the penal provisions of the Act, the regulations adopted pursuant to the Act, and any other penal provisions prohibiting or regulating the cultivation, processing, storing, manufacturing, testing, transporting, or selling of medical cannabis, and that these persons are authorized, while acting as peace officers, to enforce any penal provisions of state law while in the course of their employment. 14)Requires the Office, in consultation with local governments, to develop an enforcement framework that clarifies the enforcement roles of the state and local governments, and authorizes local agencies to enforce any state statutory or regulatory standard. 15)Authorizes a city to enforce these provisions for licensed facilities located within an incorporated area of a city, and AB 266 Page 10 requires the city to assume complete responsibility for any regulatory function relating to those licensees within city limits that would otherwise be performed by the county, without liability, cost, or expense to the county, and authorizes a county to enforce these provisions for licensed facilities located within the unincorporated area of a county. 16)Provides that is the intent of the Legislature to provide for statewide regulation of commercial cannabis activity and the enforcement of laws relating to commercial cannabis activities without preempting city, county, or city and county ordinances regulating or banning those activities. 17)Authorizes the director of a licensing authority or a district attorney, county counsel, city attorney, or city prosecutor to bring an action to enjoin a violation or the threatened violation of these provisions, as specified. 18)Requires a state or local agency to immediately notify the Office and the appropriate licensing authority of any violations or arrests made for violations over which the licensing authority has jurisdiction that involve a licensee or licensed premises, and requires the Office or licensing authority to promptly investigate whether grounds exist for suspension or revocation of the state license. 19)Requires the Office to establish procedures to provide state and local law enforcement, upon their request, with 24-hour access to information to verify a state license, track transportation manifests, and track the inventories of state-licensed facilities. AB 266 Page 11 20)Authorizes licensing authorities and relevant local agencies to examine the books and records of a licensee and to visit and inspect the premises as deemed necessary, and requires the cultivation and dispensing facilities to be subject to an annual audit, as specified by the licensing authority, in order to ensure proper documentation is kept at each facility. 21)Provides that these provisions in no way supersede the provisions of Measure D, approved by the voters of the City of Los Angeles on May 21, 2013, and that cannabis businesses and dispensaries subject to the provisions of Measure D and its qualified immunity shall continue to be subject to the ordinances and regulations of the City of Los Angeles. Provides that it is the intent of the Legislature to recognize the unique circumstances of the City of Los Angeles with respect to Measure D and associated rules related to commercial cannabis activity. 22)Provides that actions of a licensee or provisional licensee, its employees, and its agents, that are permitted pursuant to a state or provisional license and a license or permit issued by the local jurisdiction, following the requirements of applicable local ordinances, and that are conducted in accordance with this Act, are lawful under state law, as specified, and that conduct within the scope of a license but not fully in compliance with the Act shall not be subject to the enforcement provisions of the Act and shall not be subject to the penal provisions generally prohibited cannabis-related activity, unless and until the license is revoked. AB 266 Page 12 23)Provides that a person who engages in commercial cannabis activity and operates an unlicensed facility, building, structure, vehicle, mobile unity, or location in violation of the Act is subject to civil penalties of twice the amount of the license fee for each violation, and each day of operation constitutes a separate violation. 24)Provides that the Act does not prevent a local government from: adopting local ordinances inconsistent with the Act, as specified; providing for the administrative, civil, or criminal enforcement of those local ordinances; establishing a fee or tax for the operation of a licensee within its jurisdiction; or enacting and enforcing other laws or ordinances pursuant to the California Constitution. 25)Provides that nothing in the Act provides a local government from adopting or enforcing an ordinance or other law that bans or regulates the location, operation, or establishment of a licensee or other person that engages in commercial cannabis activity. Licensing Provisions 26)Exempts from licensure patients who do not provide, donate, sell, or distribute cannabis to any other person or entity, and primary caregivers who otherwise provide cannabis exclusively for the personal medical purposes of no more than five specified qualified patients for whom he or she is the primary caregiver, as specified. AB 266 Page 13 27)Authorizes the state to conduct state licensure activities and to regulate commercial cannabis activity pursuant to the Act, and authorizes local governments to grant permits and regulate commercial cannabis activity within their jurisdiction pursuant to local ordinances. 28)Requires a licensing authority to issue state licenses to qualified applicants engaging in commercial cannabis activities, and beginning January 1, 2018, prohibits a person from engaging in those activities without a state license and a local permit. 29)Requires local permits to be determined by local ordinances, and that licensing authorities issuing state licenses shall have sole authority to revoke a state license, and that local agencies issuing local permits shall have the sole authority to revoke a local permit. 30)Requires, if a local agency notifies the Office or a licensing authority that a licensee or applicant within its jurisdiction is in violation of local ordinances relating to commercial cannabis activity, a licensing authority to revoke the state license within 20 working days. 31)On or before July 1, 2017, require a licensing authority to promulgate regulations for implementation and enforcement of the Act, including: AB 266 Page 14 a) A description of the various specific forms of commercial cannabis activity to be authorized by the various types of licenses. b) Procedures for the issuance, renewal, suspension, denial, and revocation of state licenses, and for the appeal of a denial, suspension, or revocation of those licenses, and a time period not to exceed 90 days to approve or deny a conditional license. c) Qualifications for licensees and security requirements. d) Requirements to ensure that all licensees and certified testing laboratories conform with applicable standards equivalent to state statutory environmental, agricultural, consumer protection, and food and product safety requirements. 32)Provides that each application approved by the respective licensing authority is separate and distinct, and requires each approved license application to be reported to the Office within 24 hours. 33)Requires each licensing authority to adopt regulations as needed to implement the relevant licensing program within one year following the establishment of provisional licenses, as specified. AB 266 Page 15 34)Requires an applicant for a state license, among other things, to: a) Pay required fees and provide specified information to the licensing authority, including detailed operating procedures, including procedures for facility and operational security, prevention of diversion, employee screening, storage of medical cannabis, personnel policies, and recordkeeping procedures. b) Provide fingerprint images, including for each person within an ownership interest in, or participating in the direction, control, or management of, the proposed facility. c) If applicable, provide documentation that the applicant will be in compliance with all local ordinances and regulations, including Measure D and evidence of the legal right to occupy and use an established location. d) For an applicant with 20 or more employees, provide a statement that the applicant will enter into, or demonstrate that it has already entered into, and abide by the terms of a labor peace agreement. 35)Requires regulatory authorities, upon receipt of an application and fee, to make a thorough investigation to determine whether the applicant and the premises for which a license is applied qualify for a license and whether the Act has been complied AB 266 Page 16 with. 36)Authorizes a regulatory authority to place reasonable conditions upon licensure if grounds exist for denial of the license and the licensing authority finds those grounds may be removed by the imposition of those conditions. Provides that specified limitations shall not be waived. 37)Requires a licensing authority to deny the application for licensure or renewal, or suspend or revoke a state license if: a) The applicant makes or authorizes an untrue or misleading statement, engages in fraudulent or grossly negligent conduct, or fails to comply with this Act, or engages in conduct that constitutes grounds for denial of licensure; b) Local agencies have notified the licensing authority or the Office and provided evidence that a licensee or applicant is in violation of local ordinances relating to medical cannabis activities; c) The applicant fails to meet the requirements of this Act or any applicable local ordinance. d) Granting or continuation of a license would be contrary to the public welfare or morals, or the applicant has violated any law prohibiting conduct involving moral turpitude. AB 266 Page 17 e) The applicant fails to state with sufficient specificity the jurisdiction and location at which the applicant proposes to establish operations or fails to provide notarized proof that the owner of real property or landlord has acknowledged and consented to the tenant's activities. f) The applicant, or any of its officers, directors, or owners, has been convicted of a felony criminal conviction for drug trafficking involving a minor, a violent felony, a serious felony, a felony involved fraud or deceit, or any other felony, as determined by the licensing authority. g) The applicant has been sanctioned by a regulatory authority or a local government for unlicensed medical cannabis activities or has had a license revoked in the last three years. h) The applicant, or any of its officers, directors, or owners, has been subject to fines or penalty for cultivation or production of a controlled substance on public or private lands, as specified. 38)Authorizes a licensing authority to issue a state license and send proof of issuance to the applicant, if the applicant has not committed an act or crime constituting grounds for denial of licensure, and requires a licensing authority to prescribe conditions upon which a person whose state license has previously been denied, suspended, or revoked may be issued a AB 266 Page 18 state license. 39)Authorizes the Office to adopt regulations to limit the number of state licenses issued upon a finding that the otherwise unrestricted issuance of state licenses is dangerous to public health and safety. Regulation of Medical Cannabis 40)Prohibits, beginning on July 1, 2017, except as specified under the Compassionate Use Act of 1996 and the Medical Marijuana Program, persons from selling medical cannabis to a patient or caregiver other than at a licensed dispensing facility or through delivery from a licensed dispensing facility; growing medical cannabis other than at a licensed cultivation site; manufacturing medical cannabis or medical cannabis products without a license; or transporting medical cannabis from one facility to another without a license. 41)Requires licensees to keep accurate records at the licensed premises, as specified, and authorizes the Office and an appropriate state or local agency to examine the books and records of a state licensee, and to visit and inspect the premises of a state licensee. 42)Authorizes a licensee to only hold a state license in up to two separate license categories, as specified, and specifies that it is the intent of the Legislature to further develop which licensees may hold more than one license type. AB 266 Page 19 43)Deletes the criminal immunity for qualified patients, persons with valid identification cards, and the designated primary caregivers of qualified patients and persons with identification cards who collectively and cooperatively cultivate marijuana for medical purposes 180 days after the Division of Medical Cannabis Regulation within the BOE posts a notice on its Internet Web site that the licensing authorities have commenced issuing provisional licenses under the Act. Provisional Licensing 44)Requires each licensing authority to, as soon as practicable, allow a qualified applicant to apply for, and receive, a provisional license to engage in commercial cannabis activity so as to ensure an adequate supply of medical cannabis upon full implementation of the Act, and to establish appropriate fees for the issuance of the provisional license. 45)Requires each licensing authority to, if the applicant meets all the requirements, issue a provisional license to individuals and entities the licensing authority determines were, during the three months prior to January 1, 2016, regularly cultivating, processing, manufacturing, transporting, or distributing medical cannabis collectively or cooperatively in full compliance with any applicable local ordinance to continue to do so until the licensee's application for state licensure has been approved or denied, but no later than 90 days after the licensing authority begins accepting applications for regular state licenses. AB 266 Page 20 46)Beginning July 1, 2017, all commercial cannabis activity shall be conducted between licensees of commercial cannabis activity pursuant to the Act, except as specified. Licensing Categories 47)Requires the Division of Medical Cannabis Cultivation within the CDFA to promulgate regulations governing the licensing of cultivation sites, and: a) Requires the Secretary of CDFA to declare medical cannabis to be an agricultural product. b) Requires the CDFA to develop standards for the production and labeling of all edible medical cannabis products, standards for the use of pesticides and rodenticides in cultivation, and in consultation with the CDPH, maximum tolerances for pesticides, rodenticides, and other foreign object residue in harvested cannabis. c) Gives the CDFA the authority to implement the Act, and adopt regulations that, among other things, require that indoor and outdoor cannabis cultivation by licensees in conducted in accordance with state and local laws and best practices, as specified. AB 266 Page 21 d) Requires state licenses issued by the Division of Medical Cannabis Cultivation to be tiered based on square footage and the number of plants on the property, as specified. e) Requires all license fees to be deposited into the Medical Cannabis Cultivation Fees Account, to be available upon appropriation for the purposes of fully funding and administering these provisions. f) Provides that it is the intent of the Legislature to establish appropriate protocols for the collection of the specific location of cultivation sites. 48)Requires the BOE to promulgate regulations governing the licensing and regulation of wholesalers, dispensing facilities, and transporters, and: a) Requires state enforcement to be conducted in coordination with local authorities. b) Requires state licenses issued by the BOE to be tiered based on type of activity and the number of employee, as specified. c) Requires licensed transporters, prior to transporting or delivering medical cannabis or medical cannabis products, to: AB 266 Page 22 i) Complete an electronic shipping manifest, as prescribed by the licensing authority, and to securely transmit the manifest to the licensing authority and the licensee that will receive the shipment. i) During transportation or delivery, maintain a physical copy of the shipping manifest and make it available to agents of the licensing authority, local law enforcement officers, or any other designated enforcement agency. a) Requires a licensee receiving the shipment to submit to the licensing authority a record verifying receipt of the shipment and details of the shipment. b) Requires the licensing authority to develop a database containing the electronic shipping manifests, which shall include specified information and be designed to flag irregularities for a regulatory authority to investigate. c) Requires all license fees collected by the licensing authority to be deposited into the Medical Cannabis Retail Fees Account, to be made available, upon appropriation, for the purposes of fully funding and administering the Act. 49)Requires the Division of Medical Cannabis Manufacturing and Testing within the CDPH to promulgate regulations governing the AB 266 Page 23 licensing of cannabis manufacturers, and: a) Requires licenses to be tiered based on the number of pounds of medical cannabis each year used to product medical cannabis products and whether volatile or nonvolatile solvents are used, as specified, and for testing licensees. b) Requires license fees to be deposited into the Medical Cannabis Manufacturing and Testing Fees Account, to be made available upon appropriation for the purposes of fully funding and administering the Act. c) Requires the CDPH to promulgate standards for certification of testing laboratories to perform random sample testing of medical cannabis products, including standards for onsite testing, as specified, which shall apply to all entities engaged in the testing of medical cannabis pursuant to these provisions. d) Prohibits a certified testing laboratory from acquiring, processing, possessing, storing, transferring, transporting, or dispensing medical cannabis or medical cannabis products except through a patient, primary caregiver, or a facility issued a state license. e) Require the CDPH to develop procedures to ensure that testing of cannabis occurs prior to delivery to a dispensary or other business, and, among other things, specify how often licensees shall test cannabis. AB 266 Page 24 Health and Safety Standards 50)Requires the Division of Medical Cannabis Manufacturing and Testing to promulgate health and safety standards applicable to all medical cannabis and medical cannabis products, including maximum potency standards, and standards for licensed manufacturers of medical cannabis and medical cannabis products, including edible products. Requires standards to: a) Prescribe sanitation standards consistent with the California Retail Food Code for food preparation, storage, handling, and sale of edible medical cannabis products, and requires facilities in which these products are prepared to meet applicable building, health, and safety standards. b) Require that edible medical cannabis products produced, distributed, provided, donated, or sold by licensees shall be limited to non-potentially hazardous food and that facilities in which these products are prepared shall be constructed in accordance with applicable building and health and safety standards, as specified. 51)Prior to sale or distribution at a licensed dispensing facility, requires edible medical cannabis products to be labeled and in a tamper-evident package, and requires labels and packages to meet specified requirements, including listing pharmacologically active ingredients, the tetrahydrocannabinol content, and having a warning of the delayed effect of the AB 266 Page 25 product. Packages and labels shall not be made attractive to children. 52)Requires the Department of the California Highway Patrol to establish protocols to determine whether a driver is operating a vehicle under the influence of cannabis and to develop protocols setting forth best practices to assist law enforcement agencies. Funding and Taxation Provisions 53)Authorizes the Office and other state agencies to assist state taxation authorities in the development of uniform policies for the state taxation of state licensees. 54)Authorizes the Board of Supervisors in any county to impose, by ordinance, a tax on the privilege of cultivating, dispensing, producing, processing, storing, providing, donating, selling or distributing marijuana by a licensee, as specified. 55)Requires each licensing authority to establish a scale of application, licensing and renewal fees, based on the cost of administering and enforcing the Act, as specified. 56)Establishes the Medical Cannabis Regulation Fund. AB 266 Page 26 57)Requires all fines or penalties to be deposited into the Medical Cannabis Fines and Penalties Account, which shall be available, upon appropriation, to the Office for purposes of funding the enforcement grant program. 58)Requires the Office to establish a grant program to allocate moneys from the Medical Cannabis Fines and Penalties Account to state and local entities to assist with medical cannabis regulation and enforcement of the Act and applicable local laws and to remedy the environmental impacts of cannabis cultivation, as specified. 59)Provides that the funds for establishment and support of the regulatory activities pursuant to the Act may be advanced as a General Fund or special fund loan, and shall be repaid by the initial proceeds from fees collected pursuant to the Act, by January 1, 2022. Physician and Advertising Provisions 60)Requires the Medical Board of California (MBC) to prioritize cases involving physicians who recommend cannabis to patients for medical purposes without a good faith prior examination of the patient and medical reason therefor. 61)Makes it a misdemeanor for a physician and surgeon to recommend medical cannabis to a patient to accept, solicit, or offer any form of remuneration from or to a facility licensed to engage in AB 266 Page 27 medical marijuana activities if the physician and surgeon or his or her immediately family have a financial interest in that facility, as specified. 62)Makes it unprofessional conduct for a physician and surgeon to be employed by, or have an agreement with, a mandatory commercial licensee under the Act or a dispensary to provide recommendations for medical cannabis. 63)Requires the MBC to consult with the California Marijuana Research Program, known as the Center for Medicinal Cannabis Research, on developing and adopting medical guidelines for the appropriate administration and use of medical cannabis. 64)Prohibits a physician and surgeon from recommending medical cannabis to a patient unless that person is the patient's attending physician, as defined under existing law. Labor Provisions 65)Requires the Division of Labor Standards Enforcement (Division) to do all of the following: a) Maintain minimum standards for the competency and training of employees of a licensed cultivation site or dispensary through a system of testing and certification, and to issue certification cards to certified employees. AB 266 Page 28 b) Establish registration fees in an amount reasonably necessary to implement these provisions, not to exceed $25 for the initial registration, and prohibits annual renewal fees, and places those fees in the Medical Cannabis Cultivation Fee Account and the Medical Cannabis Retail Fee Account. c) By January 1, 2017, develop a certification program for cannabis employees, and requires, on January 1, 2019, certification for all employees, except as specified. 66)On January 1, 2019, requires the Labor Commissioner to maintain a process for referring cases to the appropriate regulatory authority when it has determined that a violation, as specified, has occurred, and upon receipt of a referral by the Labor Commissioner, requires the appropriate licensing authority to open an investigation, as specified. 67)Requires, by January 1, 2017, the Division of Occupational Safety and Health in the Department of Industrial Relations to convene an advisory committee to evaluate whether there is a need to develop industry-specific regulations related to the activities of facilities issued a conditional license and requires, by July 1, 2017, the advisory committee to present its findings and recommendations for consideration to the board, and the board to render a decision regarding the adoption of industry-specific regulations. AB 266 Page 29 68)Requires the Division of Apprenticeship Standards to investigate, approve, or reject applications for apprenticeship programs for employees of a licensed cultivation site or dispensing facility, as specified. FISCAL EFFECT: According to the Assembly Appropriations Committee: 1)Significant annual costs, likely in excess of $10 million (Medical Cannabis Regulation Fund / General Fund (GF) or special funds), to create the Division of Medical Cannabis Regulation within the BOE to license dispensaries and transporters. Significant costs would be incurred before fees are collected, and this 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. 2)Annual costs, likely in the range of several million dollars to the Department of Public Health for regulation of manufacturing and testing (Medical Cannabis Regulation Fund / GF or special funds), as well as Department of Food and Agriculture for regulation of cultivation sites (Medical Cannabis Regulation 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)Minor and absorbable costs to the MBC associated with provisions AB 266 Page 30 defining specified employment and prescribing behavior as unprofessional conduct. 5)One-time costs to Department of Industrial Relations 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). 6)Unknown costs, potentially in the range of $1 million GF to California Highway Patrol to develop a test determining whether a driver is operating a vehicle under the influence of cannabis, and to develop related protocols. 7)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. AB 266 Page 31 COMMENTS: Purpose. This bill is sponsored by the League of California Cities and the California Police Chiefs Association. According to the author, "After nearly 20 years of access to medical marijuana without a reasonable framework for distribution, it is time for us to take a serious look at putting such a framework into place, whether voters are called upon to decide on legislation in 2016 or not. Periodic litigation and the lack of uniform health and safety standards are just two examples of how the status quo has not served the general public or patients with bona fide medical needs well. This measure seeks to tackle those problems head-on, but to do so in a fashion that builds consensus on this issue as we move forward." The Compassionate Use Act (CUA) and SB 420. In 1996, voters approved the CUA, which allowed patients and primary caregivers to obtain and use medical marijuana, as recommended by a physician, and prohibited physicians from being punished or denied any right or privilege for making a medical marijuana recommendation to a patient. In 2003, SB 420 (Vasconcellos), Chapter 875, Statutes of 2003, established the Medical Marijuana Program (MMP), which allowed patients and primary caregivers to collectively and cooperatively cultivate medical marijuana, and established a medical marijuana card program for patients to use on a voluntary basis. However, since the passage of Proposition 215 (1996) and SB 420, the state has not adopted a framework to provide for appropriate licensure and regulation of medical marijuana. As a result, in the nearly 20 years since the passage of Proposition 215, there has been an explosion of medical marijuana collectives and cooperatives that are largely left to the enforcement of local governments, resulting in the creation of a patchwork of local regulations for these industries and with little statewide involvement. The California Attorney General's Compassionate Use Guidelines. AB 266 Page 32 SB 420 required the California Attorney General to "?develop and adopt appropriate guidelines to ensure the security and non-diversion of marijuana grown for medical use by patients qualified under the Compassionate Use Act of 1996." In 2008, the Attorney General issued guidelines to: 1) ensure that marijuana grown for medical purposes remains secure and does not find its way to non-patients or illicit markets, 2) help law enforcement agencies perform their duties effectively and in accordance with California law, and 3) help patients and primary caregivers understand how they may cultivate, transport, possess, and use medical marijuana under California law. According to a 2011 letter, after a series of meeting with stakeholders to assess whether to clarify the 2008 guidelines to stop the exploitation of California's medical marijuana laws by gangs, criminal enterprises, and others, the Attorney General decided to postpone the issuance of new guidelines because of pending litigation and to urge the Legislature to amend the law to establish clear rules governing access to medical marijuana. California Supreme Court Affirms Local Control Over Medical Cannabis. By exempting qualified patients and caregivers from prosecution for using or from collectively or cooperatively cultivating medical marijuana, the CUA and the MMP essentially authorized the cultivation and use of medical marijuana. These laws have triggered the growth of medical marijuana dispensaries in many localities, and in response, local governments have sought to exercise their police powers to regulate or ban activities relating to medical marijuana. After numerous court cases and years of uncertainty relating to the ability of local governments to control medical marijuana activities, particularly relating to the ability to control the zoning, operation, and existence of medical marijuana dispensaries, the California Supreme Court (Court), in City of Riverside v. Inland Empire Patients (2013) 56 Cal. 4th 729, held that California's medical marijuana statutes do not preempt a local ban on facilities that distribute medical marijuana. The Court held that nothing in the CUA or the MMP expressly or impliedly limited the inherent authority of a local jurisdiction, by its own ordinances, to regulate the use of its AB 266 Page 33 land, including the authority to provide that facilities for the distribution of medical marijuana will not be permitted to operate within its borders. Federal Controlled Substances Act. Despite the CUA and SB 420, marijuana is still illegal under state and federal law. Under California law, marijuana is listed as a hallucinogenic substance in Schedule I of the California Uniform Controlled Substances Act. Yet, the CUA prohibits prosecution for obtaining, distributing, or using marijuana for medical purposes. However, under the federal Controlled Substances Act, it is unlawful for any person to manufacture, distribute, dispense or possess a controlled substance, including marijuana, whether or not it is for a medical purpose. As a result, patients, caregivers, and dispensary operators, who engage in activities relating to medical marijuana, may still vulnerable to federal arrest and prosecution. United States Department of Justice (USDOJ) Guidance Regarding Marijuana Enforcement. On August 29, 2013, the USDOJ issued a memorandum that updated its guidance to all United States Attorneys in light of state ballot initiatives to legalize under state law the possession of small amounts of marijuana and provide for the regulation of marijuana production, processing, and sale. While the memorandum noted that illegal distribution and sale of marijuana is a serious crime, it also noted that USDOJ is committed to using its limited investigative and prosecutorial resources to address the most significant threats. According to the USDOJ, "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 the federal priorities set forth above?In those circumstances, consistent with the traditional allocation of federal-state efforts in this area, enforcement of state law by state and local law enforcement and regulatory bodies should remain the primary means of addressing marijuana-related AB 266 Page 34 activity." Medical Cannabis Industry in California. According to the author's Sunrise Questionnaire, submitted to the Assembly Business and Professions Committee pursuant to Government Code Section 9148 et seq., there are multiple occupational groups interested in state regulation, representing a growing marijuana industry. Because marijuana remains federally prohibited, it is not recognized by the federal government as having any medicinal value. United States Attorneys with jurisdiction over California and neighboring states remain capable of launching enforcement actions at any time. In addition, many California jurisdictions, roughly estimated by the League of California Cities at 50% pending completion of a statewide survey, ban the cultivation and sale of medical marijuana altogether. It is not yet legal for recreational use in California. As a result, while some local governments have established comprehensive licensing and regulatory schemes, many practitioners in this industry are part of an underground economy that is unregulated, unlicensed, and untaxed. According to the author's Sunrise Questionnaire, and the Emerald Growers Association, there are an estimated 30,000 cultivation sites in the tri-county area of Humboldt-Mendocino-Trinity, and an estimated additional 10,000 cultivation sites throughout California. According to one Web site, www.weedmaps.com, there are over 4,000 medical marijuana dispensaries operating within California. The Los Angeles Time reports (as of April 1, 2014) that there are more than 1,100 medical marijuana dispensaries within the Los Angeles city limits alone that are actively registered to pay business tax in Los Angeles. According to the Sunrise Questionnaire, there is significant public demand for uniform standards in the field of health and AB 266 Page 35 safety, and many local jurisdictions would like to see a uniform state regulatory structure, and have refused to allow cultivation or sale of marijuana within their boundaries in the absence of such a structure. There is also widespread public demand for marijuana cultivation standards that mirror established agricultural standards and that will alleviate environmental degradation. According to the author, without regulation, harm to consumers is very likely given that no health and safety standards exist for marijuana, so there are none to be enforced. Marijuana Frameworks Established in Other States. California is the only state that permits for medical marijuana in the absence of a robust state-wide regulator system. The following states have state-wide medical marijuana regulatory systems: Alaska, Arizona, Colorado, Washington DC, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont and Washington. In addition, Colorado, Washington and Oregon have established recreational marijuana licensing schemes. Both Washington and Colorado created systems of legal production and sale, subject to licensing, regulation and taxation. However, the laws impose different industry structures and build on their existing medical systems in different ways. Colorado allows entrepreneurs to produce cannabis and sell it at retail, and such businesses are, at least initially, required to produce the majority of the marijuana they sell (vertical integration), while Washington state maintains clear separation between marijuana growers, processors and retailers (horizontal integration). Both models seek to, however, reduce diversion and increase accountability. This bill adopts a modified vertical integration approach by allowing licensees to hold more than one license type for certain license categories. In addition, the commercial market in Washington is supervised by the Washington State Liquor AB 266 Page 36 Control Board, while Colorado's law vests authority to regulate the commercial market in the newly created Marijuana Enforcement Division of the Department of Revenue. Colorado's medical marijuana program is also under that Division - prior to the recreational initiative, the Medical Marijuana Enforcement Division was regulating that part of the market. According to the Brookings Institute, since the early 1990s, United States public opinion has trended in favor of marijuana legalization. Currently, a majority of Americans support legalization by a margin of seven points-52% to 45%, according to findings from a Pew Research Center survey in March 2013. Support for marijuana legalization has risen sharply since 2010, by 11 percentage points. This increasing support for marijuana legalization is present in California as well, with recent polls showing that a majority of Californians support marijuana legalization. Currently, there are an estimated four different marijuana initiatives attempting to qualify for the 2016 ballot. In order for any marijuana scheme to be effective, it should address all parts of the industry, including establishing a robust licensing and regulatory scheme, a taxation scheme, incorporate health and safety standards, in addition to ensuring that the public is protected; however, if the measure is too prescriptive, it may hamper the ability to address any unintended consequences or fill in any policy gaps without having to go back to the ballot. As a result, if the state is able to create a comprehensive framework for medical cannabis, it may also serve a dual role by serving as a basis for a recreational cannabis scheme. Analysis Prepared by: Eunie Linden / B. & P. / (916) 319-3301 FN: 0000882 AB 266 Page 37