Amended in Assembly May 3, 2016

Amended in Assembly April 26, 2016

California Legislature—2015–16 Regular Session

Assembly BillNo. 2243


Introduced by Assembly Member Wood

(Coauthor: Senator Runner)

February 18, 2016


An act to add Part 13.5 (commencing with Section 31001) to Division 2 of the Revenue and Taxation Code, relating to medical cannabis, and making an appropriation therefor.

LEGISLATIVE COUNSEL’S DIGEST

AB 2243, as amended, Wood. Medical cannabis: taxation: cannabis production and environment mitigation.

The Medical Marijuana Regulation and Safety Act, administered by the director of the Bureau of Medical Marijuana Regulation, provides for the licensure of persons engaged in specified activities relating to medical cannabis, including cultivation and distribution.

The Fee Collection Procedures Law, the violation of which is a crime, provides procedures for the collection of certain fees and surcharges.

This bill would impose a tax in specified amountsbegin delete onend deletebegin insert uponend insert the distributionbegin delete in this state by a licensed cultivator, as defined,end delete of medical cannabis flowers, medical cannabis leaves, and immature medical cannabisbegin delete plants to a licensed distributor, as specified, and would require the licensed distributor to collect the tax from the cultivator and remit it to the State Board of Equalization.end deletebegin insert plants.end insert The bill would require the State Board of Equalization to administer and collect the tax pursuant to the procedures set forth in the Fee Collection Procedures Law.begin insert The bill would require a distributor to register for a permit with the board and would allow the board to suspend or revoke a permit. The bill would authorize the board to prescribe by regulation a method and manner for payment of the tax that utilizes tax stamps or state-issued product bags.end insert The bill would require all moneys, less refunds and costs of administration, to be deposited into the Cannabis Production and Environment Mitigation Fund, which this bill would establish in the State Treasury.

This bill would continuously appropriate the moneys in that fund in specified percentages to fund competitive grants for local law enforcement-related activities pertaining to illegal cannabis cultivation; to fund a competitive grant program for environmental cleanup restoration and protection of public and private lands that have been damaged by illegal cannabis cultivation; to address the environmental impacts of cannabis cultivation on public and private lands in California and fund other state enforcement-related activities pertaining to illegal cannabis cultivation; and to fund ongoing studies and reports of areas that may create challenges to compliance of the Medical Marijuana Regulationbegin insert andend insert Safety Act. This bill would require the bureau or other state agencies and departments to submit reports to the Legislature on the results of those studies funded by this tax by January 1, 2020, and every 2 years thereafter.

begin insert

This bill, except as provided, would become inoperative on January 1, 2018, if the Secretary of State Initiative Number 1762, also known as the Control, Regulate and Tax Adult Use of Marijuana Act, is approved by the voters at the November 8, 2016, statewide general election and takes effect.

end insert

By expanding the application of the Fee Collection Procedures Law, which imposes criminal penalties for various acts, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 23 of the membership of each house of the Legislature.

Vote: 23. Appropriation: yes. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

P3    1

SECTION 1.  

Part 13.5 (commencing with Section 31001) is
2added to Division 2 of the Revenue and Taxation Code, to read:

3 

4PART 13.5.  Medical Cannabis Tax Law

5

 

6Chapter  1. General Provisions and Definitions
7

 

8

31001.  

This part shall be known and may be cited as the
9Medical Cannabis Tax Law.

10

31002.  

As used in this part, the following terms have the
11following definitions:

12(a) “Board” means the State Board of Equalization.

13(b) “Cannabis” has the same meaning as that term is defined in
14Section 19300.5 of the Business and Professions Code.

begin delete

15(c) “Distribution” has the same meaning as that term is defined
16in Section 19300.5 of the Business and Professions Code.

end delete
begin insert

17
(c) “Cultivator” means a person subject to licensing as a
18cultivator for purposes of the Medical Marijuana Regulation and
19Safety Act (Chapter 3.5 (commencing with Section 19300) of
20Division 8 of the Business and Professions Code).

end insert
begin insert

21
(d) “Distribution” means all of the following:

end insert
begin insert

22
(1) The sale of untaxed medical cannabis flowers, medical
23cannabis leaves, and immature medical cannabis plants in this
24state.

end insert
begin insert

25
(2) The use or consumption of untaxed medical cannabis flowers,
26medical cannabis leaves, and immature medical cannabis plants
27in this state.

end insert
begin insert

28
(3) The placing in this state of untaxed medical cannabis
29flowers, medical cannabis leaves, or immature medical cannabis
30plants in retail stock for the purpose of selling the medical cannabis
31flowers, medical cannabis leaves, or immature medical cannabis
32plants.

end insert
begin insert

33
(e) “Distributor” has the same meaning as that term is defined
34in Section 19300.5 of the Business and Professions Code.

end insert
begin delete

35(d)

end delete

P4    1begin insert(f)end insert “Immature medical cannabis plant” means a plant described
2in subdivision (b) with no observable flowers or buds, that is
3intended to be sold for use by medical cannabis patients in
4California pursuant to the Compassionate Use Act of 1996
5(Proposition 215), found in Section 11362.5 of the Health and
6Safety Code.

begin delete

7(e) “Licensed cultivator” means a person that is licensed as a
8cultivator under the Medical Marijuana Regulation and Safety Act
9(Chapter 3.5 (commencing with Section 19300) of Division 8 of
10the Business and Professions Code).

end delete
begin delete

11(f) “Licensed distributor” means “distributor” as defined in
12Section 19300.5 of the Business and Professions Code.

end delete

13(g) “Medical cannabis flowers” means the flowers of a plant
14described in subdivision (b), which excludes the leaves and stems,
15that are intended to be sold for use by medical cannabis patients
16in California pursuant to the Compassionate Use Act of 1996
17(Proposition 215), found in Section 11362.5 of the Health and
18Safety Code.

19(h) “Medical cannabis leaves” means all parts of a plant
20described in subdivision (b), other than cannabis flowers, that are
21intended to be sold for use by medical cannabis patients in
22California pursuant to the Compassionate Use Act of 1996
23(Proposition 215), found in Section 11362.5 of the Health and
24Safety Code.

begin delete

25(i) “Sale” means the transfer of title or possession for
26consideration in any manner or by any means whatever.

end delete
begin insert

27
(i) “Medical cannabis product” means “medical cannabis” as
28defined in Section 19300.5 of the Business and Professions Code.

end insert

29(j) “Qualified nonprofit organization” means an organization
30exempt from tax as an organization described in Section 501(c)(3)
31of the Internal Revenue begin delete Code .end delete begin insert Code.end insert

begin insert

32
(k) “Person” includes any individual, firm, partnership, joint
33venture, limited liability company, association, social club,
34fraternal organization, corporation, estate, trust, business trust,
35receiver, assignee for the benefit of creditors, trustee, trustee in
36bankruptcy, syndicate, or any other group or combination acting
37as a unit.

end insert
begin insert

38
(l) “Sale” means the transfer of title or possession for
39consideration in any manner or by any means whatever.

end insert
begin insert

P5    1
(m) “Use” includes the exercise of any right or power over
2medical cannabis flowers, medical cannabis leaves, and immature
3medical cannabis plants, except that it does not include the sale
4of medical cannabis flowers, medical cannabis leaves, and
5immature medical cannabis plants in the regular course of
6business. “Use” includes a withdrawal of medical cannabis
7flowers, medical cannabis leaves, and immature medical cannabis
8plants from inventory and use in the manufacture of a medical
9cannabis product.

end insert

10 

11Chapter  2. Imposition of Tax
12

 

13

31005.  

(a) On and after the operative date set forth in Section
1431030, for the privilege of distributing medical cannabis flowers,
15medical cannabis leaves, and immature medical cannabis plants,
16
begin delete a tax is hereby imposed upon all licensed cultivators at a rate of
17nine dollars and twenty-five cents ($9.25) per ounce of medical
18cannabis flowers, two dollars and seventy-five cents ($2.75) per
19ounce of medical cannabis leaves, and one dollar and twenty-five
20cents ($1.25) per immature medical cannabis plant from the sale
21of all medical cannabis flowers, medical cannabis leaves, and
22immature medical cannabis plants distributed to a licensed
23distributor in this state.end delete
begin insert every distributor shall pay a tax upon any
24distribution of medical cannabis flowers, medical cannabis leaves,
25and immature medical cannabis plants at the following rates:end insert

begin insert

26
(1) Nine dollars and twenty-five cents ($9.25) per ounce of
27medical cannabis flowers.

end insert
begin insert

28
(2) Two dollars and seventy-five cents ($2.75) per ounce of
29medical cannabis leaves.

end insert
begin insert

30
(3) One dollar and twenty-five cents ($1.25) per immature
31medical cannabis plant.

end insert
begin delete

32(b) The licensed distributor shall collect the tax from the licensed
33cultivator and shall separately state the amount of the tax imposed
34under this part on the purchase order, which shall be given by the
35licensed distributor to the licensed cultivator at the time of sale.

36(c) There are exempted from the taxes imposed by this part,
37sales by a licensed cultivator that the state is prohibited from taxing
38under the Constitution or laws of the United States or the
39Constitution of this state. Any claim for exemption from the tax
P6    1imposed by this part shall be made to the board in the manner
2prescribed by the board.

end delete
begin insert

3
(b) The rates of tax imposed by this section shall apply
4proportionately to quantities of less than one ounce.

end insert
begin insert

5
(c) The tax imposed by this part shall not apply to the sale of
6medical cannabis flowers, medical cannabis leaves, and immature
7medical cannabis plants by a cultivator to the distributor.

end insert
begin insert
8

begin insert31005.3.end insert  

The board may prescribe by regulation a method and
9manner for payment of the tax imposed by this part that utilizes
10tax stamps or state-issued product bags that indicate that all
11required tax has been paid on the distribution of the medical
12cannabis flowers, medical cannabis leaves, and immature medical
13cannabis plants to which the tax stamp is affixed or in which the
14medical cannabis flowers, medical cannabis leaves, and immature
15medical cannabis plants are packaged.

end insert
16

31006.  

The Legislative Analyst’s Office shall regularly review
17the tax levels established under this part, at a minimum of every
18other year, beginning inbegin delete 2018,end deletebegin insert 2020,end insert and make recommendations
19to the Legislature, as appropriate, regarding adjustments that would
20further the goal of addressing public safety and the environmental
21impacts caused by the proliferation of cannabis cultivation.

22 

23Chapter  3. Administration
24

 

25

31010.  

begin delete(a)end deletebegin deleteend deleteThe board shall administer and collect the tax
26imposed by this part pursuant to the Fee Collection Procedures
27Law (Part 30 (commencing with Sectionbegin delete 55001) of Division 2 of
28the Revenue and Taxation Code) with those changes as may be
29necessary to conform to this section.end delete
begin insert 55001)), except that Article
301.1 (commencing with Section 55050) of Chapter 3 of Part 30 shall
31not apply.end insert
For purposes of this part, the references in the Fee
32Collection Procedures Law to “fee” shall include the tax imposed
33by this part, and references to “feepayer” shall include a person
34required to pay the tax imposed by this part.

begin delete

35(b) The tax that is required to be collected by the licensed
36distributor and any amount unreturned to the licensed cultivator
37that is not owed as part of the tax, but was collected from the
38licensed cultivator under the representation by the licensed
39distributor that it was owed as a tax, constitutes debts owed by the
40licensed distributor to the state.

P7    1(c) A licensed cultivator is liable for the tax until it has been
2paid to the state, except that payment to the licensed distributor
3relieves the licensed cultivator from further liability for the tax.
4Any tax collected from a licensed cultivator that has not been
5remitted to the board shall be a debt owed to the state by the
6licensed distributor required to collect and remit the tax. This part
7does not impose any obligation upon the licensed distributor to
8take any legal action to enforce the collection of the tax imposed
9by this part.

end delete
10

31011.  

(a) The board may prescribe, adopt, and enforce
11regulations relating to the implementation, administration, and
12enforcement of this part, including, but not limited to, applicant
13requirements, collections, reporting, refunds, and appeals.

14(b) The board may prescribe, adopt, and enforce any emergency
15regulations as necessary to implement this part. Any emergency
16regulation prescribed, adopted, or enforced pursuant to this section
17shall be adopted in accordance with Chapter 3.5 (commencing
18with Section 11340) of Part 1 of Division 3 of Title 2 of the
19Government Code, and, for purposes of that chapter, including
20Section 11349.6 of the Government Code, the adoption of the
21regulation is an emergency and shall be considered by the Office
22of Administrative Law as necessary for the immediate preservation
23of the public peace, health and safety, and general welfare.

24

31012.  

(a) The tax is due and payable to the board quarterly
25on or before the last day of the month following each calendar
26quarter.

27(b) On or before the last day of the month following each
28calendar quarter, a return for the preceding calendar quarter shall
29be filed with thebegin delete board.end deletebegin insert board using electronic media.end insert

30(c) Returns shall be authenticated in a form or pursuant to
31methods as may be prescribed by the board.

begin insert
32

begin insert31012.1.end insert  

(a) A distributor required to pay the tax imposed
33under this part shall register for a permit with the board. Every
34application for registration shall be made in a form prescribed by
35the board and shall set forth the name under which the applicant
36transacts or intends to transact business, the location of the
37distributor’s place or places of business, and any other information
38that the board may require. An application for registration shall
39be authenticated in a form or pursuant to methods as may be
40prescribed by the board.

P8    1
(b) The board shall grant and issue to each applicant that
2complies with subdivision (a) a separate permit for each place of
3business within the state.

4
(c) A permit issued pursuant to this section is not assignable
5and is valid only for the person in whose name it is issued and for
6the transaction of business at the place designated therein. It shall
7at all times be conspicuously displayed at the place for which it is
8issued.

end insert
begin insert
9

begin insert31012.3.end insert  

Whenever any distributor fails to comply with any
10provision of this part or any rule or regulation of the board
11prescribed and adopted under this part, the board upon hearing,
12after giving the distributor at least 10 days’ notice in writing
13specifying the time and place of the hearing and requiring the
14distributor to show cause why the permit should not be suspended
15or revoked, may suspend or revoke the permit held by the
16distributor. The board shall give to the distributor written notice
17of the suspension or revocation of any of the distributor’s permits.
18The notices herein required may be served personally or by mail
19in the manner prescribed for service of notice of a deficiency
20determination. The board shall not issue a new permit after the
21revocation of a permit unless it is satisfied that the former holder
22of the permit will comply with the provisions of this part and the
23regulations of the board prescribed and adopted under this part.

end insert
24

31013.  

(a) The Cannabis Production and Environment
25Mitigation Fund is hereby created in the State Treasury. All taxes,
26interest, penalties, and other amounts collected and paid to the
27board pursuant to this part, less payments of refunds and costs of
28administration, shall be deposited in the fund.

29(b) Notwithstanding Section 13340 of the Government Code,
30all moneys deposited in the Cannabis Production and Environment
31Mitigation Fund are hereby continuously appropriated, without
32regard to fiscal years, in the following manner:

33(1) Thirty percent to the Board of State and Community
34Corrections for disbursement for local law enforcement-related
35activities pertaining to illegal cannabis cultivation. Funds allocated
36pursuant to this paragraph shall be allocated on a competitive grant
37application process administered by the Board of State and
38Community Corrections. Applicants may include local entities
39that support enforcement activities related to unpermitted activity.
40The Board of State and Community Corrections shall promulgate
P9    1guidelines for the grant process as soon as administratively
2 possible.

3(2) Thirty percent to the Natural Resources Agency to fund a
4competitive grant program for environmental cleanup restoration
5and protection of public and private lands that have been damaged
6by illegal cannabis cultivation. Where appropriate, the agency may
7administer funds using programs established pursuant to Chapter
83.8 (commencing with Section 5750) of Division 5 of the Public
9Resources Code and described in subdivision (a) and paragraph
10(1) of subdivision (l) of Section 75050 of the Public Resources
11Code. Funds allocated pursuant to this paragraph shall be
12prioritized to restoration and cleanup projects, on public or private
13lands, based on the level of damages that have occurred. Not less
14than 35 percent of the funds shall be used for these purposes related
15to public lands, including, but not limited to, parks managed by
16the Department of Parks and Recreation, and not less than 20
17percent of the funds shall be used for these purposes related to
18private lands. The agency shall consult and partner with counties,
19cities, or cities and counties and may partner with qualified
20nonprofit organizations, other appropriate state agencies, and the
21appropriate federal entities, including, but not limited to, the United
22States Department of Agriculture and the United States Department
23of the Interior, for the purposes of awarding grants to state or local
24government entities and qualified nonprofit organizations that
25engage in environmental cleanup and restoration. The agency shall
26promulgate guidelines for the grant process as soon as
27administratively possible.

28(3) Thirty percent to the multiagency task force, the Department
29of Fish and Wildlife andbegin insert theend insert State Water Resources Control Board,
30to address the environmental impacts of cannabis cultivation on
31public and private lands in California and fund other state
32enforcement-related activities pertaining to illegal cannabis
33cultivation.

34(4) Ten percent to the Bureau of Medical Marijuanabegin delete Regulations,end delete
35begin insert Regulation,end insert and other state agencies or departments that the bureau
36determines is appropriate, to conduct ongoing studies of areas that
37may create challenges to compliance of the Medical Marijuana
38Regulation Safety Act (Chapter 3.5 (commencing with Section
3919300) of Division 8 of the Business and Professions Code),
40including, but not limited to, financial transactions, allowable tax
P10   1deductions, and the public safety implications of a cash industry.
2The bureau or other state agencies or departments shall prepare
3reports on the results of those studies and submit thosebegin delete reportend delete
4begin insert reportsend insert to the Legislature, in compliance with Section 9795 of the
5Government Code, on or before January 1, 2020, and on or before
6Januarybegin delete 1,end deletebegin insert 1end insert every two years thereafter.

7 

8Chapter  4. Report to the Legislature
9

 

10

31020.  

(a) The board shall submit a report to the Legislature
11on the total amount of revenue that was collected for the two-year
12period commencing on the operative date of this part. The report
13is due to the Legislature on or before the last day of the month
14commencing 180 days after the two-year period commencing on
15the operative date of this part.

16(b) The report required by this section shall be submitted in
17compliance with Section 9795 of the Government Code.

18 

19Chapter  5. Operative Date and Funding
20

 

21

31030.  

This part shall become operative on or after the first
22day of the first calendar quarter commencing more than 270 days
23after adequate funding has been received by the board to implement
24and administer this part. The board shall post a notice on its Internet
25Web site when this condition has been satisfied.

26

31031.  

Funds for the establishment and support of the activities
27required pursuant to this part shall be advanced as a General Fund
28or special fund loan, and shall be repaid by the board from the
29initial proceeds from taxes collected pursuant to this part, no later
30than six months after the operative date specified in Section 31030.

begin insert
31

begin insert31032.end insert  

(a) Except as provided in subdivision (b), this part
32shall become inoperative on January 1, 2018, if the Secretary of
33State Initiative Number 1762, also known as the Control, Regulate
34and Tax Adult Use of Marijuana Act, is approved by the voters at
35the November 8, 2016, statewide general election and takes effect.

36
(b) The provisions of this part relating to the collection of the
37tax, refunds, allowance for credits, disposition of moneys deposited
38into the Cannabis Production and Environment Mitigation Fund,
39and the commencement of an action or proceeding shall remain
P11   1operative with respect to taxes for which the liability accrued
2before January 1, 2018.

end insert

3 

begin insert
4Chapter  begin insert6.end insert begin insertNo Preemption of Local Taxation Authorityend insert
end insert
5

 

begin insert
6

begin insert31035.end insert  

The tax shall be in addition to, and shall not limit, any
7taxes or fees imposed by a county or city and county.

end insert
8

SEC. 2.  

No reimbursement is required by this act pursuant to
9Section 6 of Article XIII B of the California Constitution because
10the only costs that may be incurred by a local agency or school
11district will be incurred because this act creates a new crime or
12infraction, eliminates a crime or infraction, or changes the penalty
13for a crime or infraction, within the meaning of Section 17556 of
14the Government Code, or changes the definition of a crime within
15the meaning of Section 6 of Article XIII B of the California
16Constitution.



O

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