BILL ANALYSIS                                                                                                                                                                                                    

                                                                       AB 266

                                                                      Page  1


          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:  


          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  

          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  

          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  

               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  

             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  

          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  


                                                                       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  

          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  

             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  

          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  


                                                                       AB 266

                                                                      Page  15

          34)Requires an applicant for a state license, among other things,  

             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  

             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


          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  

             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  

          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  

             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  

          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  

          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  


                                                                       AB 266

                                                                      Page  31


          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  

          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


          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  

          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,, 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  

          Analysis Prepared by:                     Eunie Linden / B. & P. /  
          (916) 319-3301                                      FN: 0000882


                                                                       AB 266

                                                                      Page  37