Amended in Senate August 1, 2016

Amended in Senate June 29, 2016

Amended in Senate June 15, 2016

Amended in Assembly June 2, 2016

Amended in Assembly May 31, 2016

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 and repeal Part 13.5 (commencing with Section 31001) of Division 2 of the Revenue and Taxation Code, relating to medical cannabis, making an appropriation therefor, and declaring the urgency thereof, to take effect immediately.

LEGISLATIVE COUNSEL’S DIGEST

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

The Medicalbegin delete Marijuanaend deletebegin insert Cannabisend insert Regulation and Safety Act, administered by the director of the Bureau of Medicalbegin delete Marijuanaend deletebegin insert Cannabisend insert 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 billbegin delete wouldend deletebegin insert would, for the privilege of doing business as a distributor in this state,end insert impose a tax in specified amountsbegin delete upon the distribution of medical cannabis flower, immature medical cannabis plant, and medical cannabis product.end deletebegin insert on every distributor upon all medical cannabis and medical cannabis products distributed to a dispensary in this state, as specified.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. 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. 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, among other things, fund competitive grants for local law enforcement-related activities pertaining to illegal cannabis cultivation; to fund 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 Regional Marijuana Enforcement Officers.

This bill, except as provided, would become inoperative on January 1, 2018, ifbegin delete the Secretary of State Initiative Number 1762,end deletebegin insert Proposition 64,end insert 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. This bill would repeal all of its provisions as of January 1, 2025.

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 declare that it is to take effect immediately as an urgency statute.

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.

begin insert
10

begin insert31001.5.end insert  

Unless the context otherwise requires, the definitions
11set forth in this chapter and those in the Medical Cannabis
12Regulation and Safety Act (Chapter 3.5 (commencing with Section
1319300) of Division 8 of the Business and Professions Code) shall
14govern the construction of this part.

end insert
15

31002.  

As used in this part, the following terms have the
16following definitions:

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

begin delete

18(b) “Cannabis” has the same meaning as that term is defined in
19Section 19300.5 of the Business and Professions Code.

20(c) “Cultivator” means a person subject to licensing as a
21cultivator for purposes of the Medical Marijuana Regulation and
22Safety Act (Chapter 3.5 (commencing with Section 19300) of
23Division 8 of the Business and Professions Code).

24(d) “Distribution” means both of the following:

25(1) The sale of untaxed medical cannabis flower, immature
26medical cannabis plant, and medical cannabis product in this state.

27(2) The use or consumption of untaxed medical cannabis flower,
28immature medical cannabis plant, and medical cannabis product
29in this state.

30(e) “Distributor” has the same meaning as that term is defined
31in Section 19300.5 of the Business and Professions Code.

P4    1(f)

end delete

2begin insert(b)end insert “Immature medical cannabis plant” means abegin insert live cannabisend insert
3 plantbegin delete described in subdivision (b)end delete with no observable flowers or
4buds, that is intended to be sold for use by medical cannabis
5patients in California pursuant to the Compassionate Use Act of
61996 (Proposition 215), found in Section 11362.5 of the Health
7and Safety Code.

begin delete

8(g)

end delete

9begin insert(c)end insert “Medical cannabis flower”begin delete means the flower of a plant
10described in subdivision (b), which excludes the leaves and stems,
11that areend delete
begin insert has the same meaning as a “dried flower” as defined in
12the Medical Cannabis Regulation and Safety Act (Chapter 3.5
13(commencing with Section 19300) of Division 8 of the Business
14and Professions Code), that isend insert
intended to be sold for use by
15medical cannabis patients in California pursuant to the
16Compassionate Use Act of 1996 (Proposition 215), found in
17Section 11362.5 of the Health and Safety Code.

begin delete

18(h) “Medical cannabis product” means “medical cannabis” as
19defined in Section 19300.5 of the Business and Professions Code.

end delete
begin delete

20(i)

end delete

21begin insert(d)end insert “Qualified nonprofit organization” means an organization
22exempt from tax as an organization described in Section 501(c)(3)
23of the Internal Revenue Code.

begin delete

24(j) “Person” includes any individual, firm, partnership, joint
25venture, limited liability company, association, social club, fraternal
26organization, corporation, estate, trust, business trust, receiver,
27assignee for the benefit of creditors, trustee, trustee in bankruptcy,
28syndicate, or any other group or combination acting as a unit.

29(k) “Sale” means the transfer of title or possession for
30consideration in any manner or by any means whatever.

31(l) “Use” includes the exercise of any right or power over
32medical cannabis flower, immature medical cannabis plant, and
33medical cannabis product except that it does not include the sale
34of medical cannabis flower, immature medical cannabis plant, and
35medical cannabis product in the regular course of business. “Use”
36includes a withdrawal of medical cannabis flower and immature
37medical cannabis plant from inventory and use in the manufacture
38of a medical cannabis product.

end delete
begin insert

P5    1
(e) “Wholesale cost” means the manufacturer licensee’s or
2distributor’s sales price of medical cannabis products to the
3dispensary licensee.

end insert

4 

5Chapter  2. Imposition of Tax
6

 

begin delete
7

31005.  

(a) On and after the operative date set forth in Section
831030, for the privilege of distributing medical cannabis flower,
9immature medical cannabis plant, and medical cannabis product
10every distributor shall pay a tax upon any distribution of medical
11cannabis flower, immature medical cannabis plant, and medical
12cannabis product at the following rates:

13(1) ____ dollars ($____) per ounce of medical cannabis flower
14cultivated by a licensee with a Type 1, Type 1A, or Type 1B
15classification as described in Section 19300.7 of the Business and
16Professions Code.

17(2) Nine dollars and twenty-five cents ($9.25) per ounce of
18medical cannabis flower cultivated by a licensee with a Type 2,
19Type 2A, or Type 2B classification as described in Section 19300.7
20of the Business and Professions Code.

21(3) ____ dollars ($____) per ounce of medical cannabis flower
22cultivated by a licensee with a Type 3, Type 3A, or Type 3B
23classification as described in Section 19300.7 of the Business and
24Professions Code.

25(4) One dollar and twenty-five cents ($1.25) per immature
26medical cannabis plant.

27(5) At the rate equivalent to the combined rate of taxes on the
28privilege of selling tangible personal property at retail in this state
29that are imposed by the Sales and Use Tax Law (Part 1
30(commencing with Section 6001) and the California Constitution,
31upon the wholesale cost of any medical cannabis product
32manufactured by a licensee with a Type 6 or Type 7 classification
33as described in Section 19300.7 of the Business and Professions
34Code.

35(b) The rates of tax imposed by this section shall apply
36proportionately to quantities of less than one ounce.

37(c) The tax imposed by this part shall not apply to the sale of
38medical cannabis flower and immature medical cannabis plant by
39a cultivator to the distributor.

end delete
begin insert
P6    1

begin insert31005.end insert  

(a) On and after the operative date set forth in Section
231030, for the privilege of doing business as a distributor in this
3state, every distributor shall pay a tax on all medical cannabis
4and medical cannabis products distributed to a dispensary in this
5state, including distributions to a licensee holding a producing
6dispensary license, at the following rates:

7
(1) Four dollars and seventy-five cents ($4.75) per ounce of
8medical cannabis flowers cultivated by a licensee with, or subject
9to, a Type 1, Type 1A, or Type 1B classification as described in
10Section 19300.7 of the Business and Professions Code.

11
(2) Nine dollars and twenty-five cents ($9.25) per ounce of
12medical cannabis flowers cultivated by a licensee with, or subject
13to, a Type 2, Type 2A, or Type 2B classification as described in
14Section 19300.7 of the Business and Professions Code.

15
(3) Thirteen dollars and twenty-five cents ($13.25) per ounce
16of medical cannabis flowers cultivated by a licensee with, or
17subject to, a Type 3, Type 3A, or Type 3B classification as
18described in Section 19300.7 of the Business and Professions Code.

19
(4) One dollar and twenty-five cents ($1.25) per immature
20medical cannabis plant.

21
(5) (A) At the rate equivalent to the combined rate of taxes on
22the privilege of selling tangible personal property at retail in this
23state that are imposed by the Sales and Use Tax Law (Part 1
24(commencing with Section 6001)) and the California Constitution,
25upon the wholesale cost of any medical cannabis product
26manufactured by a licensee with a Type 6 or Type 7 classification
27as described in Section 19300.7 of the Business and Professions
28Code.

29
(B) In the case where a distributor does not make a sale to a
30dispensary at the time of distribution, the distributor shall maintain
31a copy of the contract provided in paragraph (3) of subdivision
32(c) of Section 19326 of the Business and Professions Code
33indicating the price and quantity of medical cannabis or medical
34cannabis products to be distributed and any other information
35deemed necessary by the board. In the case of a licensee with a
36Type 10A classification (producing dispensary license) where the
37cultivator or manufacturer licensee and dispensary licensee to
38whom the medical cannabis or medical cannabis product is
39distributed are the same person, a distributor shall maintain any
P7    1information deemed necessary by the board to ascertain wholesale
2cost.

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

end insert
5

31005.3.  

The board may prescribe by regulation a method and
6manner for payment of the tax imposed by this part that utilizes
7tax stamps or state-issued product bags that indicate that all
8required tax has been paid on the distribution of the medical
9cannabis flower, immature medical cannabis plant, and medical
10cannabis product to which the tax stamp is affixed or in which the
11medical cannabis flower, immature medical cannabis plant, and
12medical cannabis product are packaged.

13

31006.  

The Legislative Analyst’s Office shall regularly review
14the tax levels established under this part, at a minimum of every
15other year, beginning in 2020, and make recommendations to the
16Legislature, as appropriate, regarding adjustments that would
17further the goal of addressing public safety and the environmental
18impacts caused by the proliferation of cannabis cultivation.

19 

20Chapter  3. Administration
21

 

22

31010.  

The board shall administer and collect the tax imposed
23by this part pursuant to the Fee Collection Procedures Law (Part
2430 (commencing with Section 55001)), except that Article 1.1
25(commencing with Section 55050) of Chapter 3 of Part 30 shall
26not apply. For purposes of this part, the references in the Fee
27Collection Procedures Law to “fee” shall include the tax imposed
28by this part, and references to “feepayer” shall includebegin delete aend deletebegin insert anyend insert person
29required to pay the tax imposed by this part.

30

31011.  

(a) The board may prescribe, adopt, and enforce
31regulations relating to the implementation, administration, and
32enforcement of this part, including, but not limited to, applicant
33requirements, collections, reporting, refunds, and appeals.

34(b) The board may prescribe, adopt, and enforce any emergency
35regulations as necessary to implement this part. Any emergency
36regulation prescribed, adopted, or enforced pursuant to this section
37shall be adopted in accordance with Chapter 3.5 (commencing
38with Section 11340) of Part 1 of Division 3 of Title 2 of the
39Government Code, and, for purposes of that chapter, including
40Section 11349.6 of the Government Code, the adoption of the
P8    1regulation is an emergency and shall be considered by the Office
2of Administrative Law as necessary for the immediate preservation
3of the public peace, health and safety, and general welfare.

4

31012.  

(a) The tax is due and payable to the board quarterly
5on or before the last day of the month following each calendar
6quarter.

7(b) On or before the last day of the month following each
8calendar quarter, a return for the preceding calendar quarter shall
9be filed with the board using electronic media.

10(c) Returns shall be authenticated in a form or pursuant to
11methods as may be prescribed by the board.

12

31012.1.  

(a) A distributor required to pay the tax imposed
13under this part shall register for a permit with the board. Every
14application for registration shall be made in a form prescribed by
15the board and shall set forth the name under which the applicant
16transacts or intends to transact business, the location of the
17distributor’s place or places of business, and any other information
18that the board may require. An application for registration shall
19be authenticated in a form or pursuant to methods as may be
20prescribed by the board.

21(b) The board shall grant and issue to each applicant that
22complies with subdivision (a) a separate permit for each place of
23business within the state.

24(c) A permit issued pursuant to this section is not assignable
25and is valid only for the person in whose name it is issued and for
26the transaction of business at the place designated therein. It shall
27at all times be conspicuously displayed at the place for which it is
28issued.

29

31012.3.  

Whenever any distributor fails to comply with any
30provision of this part or any rule or regulation of the board
31prescribed and adopted under this part, the board upon hearing,
32after giving the distributor at least 10 days’ notice in writing
33specifying the time and place of the hearing and requiring the
34distributor to show cause why the permit should not be suspended
35or revoked, may suspend or revoke the permit held by the
36distributor. The board shall give to the distributor written notice
37of the suspension or revocation of any of the distributor’s permits.
38The notices herein required may be served personally or by mail
39in the manner prescribed for service of notice of a deficiency
40determination. The board shall not issue a new permit after the
P9    1revocation of a permit unless it is satisfied that the former holder
2of the permit will comply with the provisions of this part and the
3regulations of the board prescribed and adopted under this part.

begin insert
4

begin insert31012.4.end insert  

(a) (1) Any peace officer, or board employee granted
5limited peace officer status pursuant to paragraph (6) of
6subdivision (a) of Section 830.11 of the Penal Code, upon
7presenting appropriate credentials, is authorized to enter any place
8as described in paragraph (3) and to conduct inspections in
9accordance with this section.

10
(2) Inspections shall be performed in a reasonable manner and
11at times that are reasonable under the circumstances, taking into
12consideration the normal business hours of the place to be entered.

13
(3) Inspections may be at any place at which medical cannabis
14flowers, immature medical cannabis plants, and medical cannabis
15products are sold, produced, or stored or at any site where
16evidence of activities involving evasion of the tax imposed pursuant
17to this part may be discovered.

18
(4) Inspections shall be requested or conducted no more than
19once in a 24-hour period.

20
(b) The board shall forward the business name, address, license
21number, and any other information necessary, to the appropriate
22licensing authority for any person that refuses to allow an
23inspection. Any refusal to allow an inspection shall be grounds
24for disciplinary action and subject to any disciplinary action
25imposed pursuant to the Medical Cannabis Regulation and Safety
26Act (Chapter 3.5 (commencing with Section 19300) of Division 8
27of the Business and Professions Code).

28
(c) Upon discovery by the board that a dispensary or any other
29person possesses, stores, owns, or has made a retail sale of medical
30cannabis flower, immature medical cannabis plant, and medical
31cannabis products on which tax is due but has not been paid to
32the board, a licensing authority shall affix a tag or other
33appropriate marking and take other action as provided in Section
3419347.8 of the Business and Professions Code.

end insert
begin insert
35

begin insert31012.5.end insert  

A licensing authority may enter into memoranda of
36understanding with the board for data sharing purposes for
37administration and collection of the tax imposed under this part.

end insert
38

31013.  

(a) The Cannabis Production and Environment
39Mitigation Fund is hereby created in the State Treasury. All taxes,
40interest, penalties, and other amounts collected and paid to the
P10   1board pursuant to this part, less payments of refunds and costs of
2administration, shall be deposited in the fund.

3(b) Notwithstanding Section 13340 of the Government Code,
4all moneys deposited in the Cannabis Production and Environment
5Mitigation Fund are hereby continuously appropriated, without
6regard to fiscal years, in the following manner:

7(1) Thirty percent to the Board of State and Community
8Corrections for disbursement for local law enforcement-related
9activities pertaining to illegal cannabis cultivation. The Board of
10State and Community Corrections shall give priority of funds to
11applicants that demonstrate that the area within the applicant’s
12jurisdiction has a high rate of criminal activity from organized
13crime as defined by Section 186.2 of the Penal Code related to
14illegal cannabis cultivation. Funds allocated pursuant to this
15paragraph shall be allocated on a competitive grant application
16process administered by the Board of State and Community
17Corrections. Applicants may include local entities that support
18enforcement activities related to unpermitted activity. The Board
19of State and Community Corrections shall promulgate guidelines
20for the grant process as soon as administratively possible.

21(2) Two percent to the Department of Justice to fund and create
22Regional Marijuana Enforcement Officers who shall coordinate
23enforcement efforts, related to illegal cannabis cultivation, between
24the Department of Fish and Wildlife’s Marijuana Enforcement
25Team, the Department of Justice’s Bureau of Narcotic
26Enforcement, the United States Drug Enforcement Administration,
27and local law enforcement. The Department of Justice shall
28prioritize creation of Regional Marijuana Enforcement Officers
29in counties that have demonstrated that the area within the county’s
30jurisdiction has a high rate of criminal activity from organized
31crime, as defined by Section 186.2 of the Penal Code, related to
32illegal cannabis cultivation.

33(3) Thirty percent to the Natural Resources Agency for
34environmental cleanup restoration and protection of public and
35private lands that have been damaged by illegal cannabis
36cultivation. Where appropriate, the agency may administer funds
37using competitive grant programs established pursuant to Chapter
383.8 (commencing with Section 5750) of Division 5 of the Public
39Resources Code and described in subdivision (a) and paragraph
40(1) of subdivision (l) of Section 75050 of the Public Resources
P11   1Code. Funds allocated pursuant to this paragraph shall be
2prioritized to restoration and cleanup projects, on public or private
3lands, based on the level of damages that have occurred. Not less
4than 35 percent of the funds shall be used for these purposes related
5to public lands, including, but not limited to, parks managed by
6the Department of Parks and Recreation, and not less than 20
7percent of the funds shall be used for these purposes related to
8private lands. The agency shall consult and partner with counties,
9cities, or cities and counties and may partner with qualified
10nonprofit organizations, other appropriate state agencies, and the
11appropriate federal entities, including, but not limited to, the United
12States Department of Agriculture and the United States Department
13of the Interior, for the purposes of awarding grants to state or local
14government entities and qualified nonprofit organizations that
15engage in environmental cleanup and restoration. The agency shall
16promulgate guidelines for the grant process as soon as
17administratively possible. All funds appropriated pursuant to this
18paragraph shall only be used for purposes that directly correlate
19to cleanup of damage caused by illegal cannabis cultivation and
20the restoration and protection of public or private lands by illegal
21cannabis cultivation.

22(4) Eight percent to the Open Space Subvention Payment
23Account of the California Land Conservation Act of 1965 (Chapter
247 (commencing with Section 51200) of Part 1 of Division 1 of
25Title 5 of the Government Code). Administrative costs to the
26Department of Conservation shall be no more than the reasonable
27costs to administer the program and shall be no more than 0.5
28percent of the 8 percent.

29(5) Thirty percent to the Department of Fish and Wildlife’s and
30the State Water Resources Control Board’s multiagency task force,
31the Watershed Enforcement Team, to address the environmental
32impacts of cannabis cultivation on public and private lands in
33California and fund other state enforcement-related activities
34pertaining to illegal cannabis cultivation.

35 

36Chapter  4. Report to the Legislature
37

 

38

31025.  

(a) The board shall submit a report to the Legislature
39on the total amount of revenue that was collected for the two-year
40period commencing on the operative date of this part. The report
P12   1is due to the Legislature on or before the last day of the month
2commencing 180 days after the two-year period commencing on
3the operative date of this part.

4(b) The report required by this section shall be submitted in
5compliance with Section 9795 of the Government Code.

6 

7Chapter  5. Operative Date and Funding
8

 

9

31030.  

This part shall become operative on or after the first
10day of the first calendar quarter commencing more than 270 days
11after adequate funding has been received by the board to implement
12and administer this part. The board shall post a notice on its Internet
13Web site when this condition has been satisfied.

14

31031.  

Funds for the establishment and support of the activities
15required pursuant to this part shall be advanced as a General Fund
16or special fund loan, and shall be repaid by the board from the
17initial proceeds from taxes collected pursuant to this part, no later
18than six months after the operative date specified in Section 31030.

19

31032.  

(a) Except as provided in subdivision (b), this part shall
20become inoperative on January 1, 2018, ifbegin delete the Secretary of State
21Initiative Number 1762,end delete
begin insert Proposition 64,end insert also known as the Control,
22Regulate and Tax Adult Use of Marijuana Act, is approved by the
23voters at the November 8, 2016, statewide general election and
24takes effect.

25(b) The provisions of this part relating to the collection of the
26tax, refunds, allowance for credits, disposition of moneys deposited
27into the Cannabis Production and Environment Mitigation Fund,
28and the commencement of an action or proceeding shall remain
29operative with respect to taxes for which the liability accrued before
30January 1, 2018.

31(c) This part shall remain in effect only until January 1, 2025,
32and as of that date is repealed.

33 

34Chapter  6. No Preemption of Local Taxation Authority
35

 

36

31035.  

The tax shall be in addition to, and shall not limit, any
37taxes or fees imposed by a county or city and county.

38

SEC. 2.  

No reimbursement is required by this act pursuant to
39Section 6 of Article XIII B of the California Constitution because
40the only costs that may be incurred by a local agency or school
P13   1district will be incurred because this act creates a new crime or
2infraction, eliminates a crime or infraction, or changes the penalty
3for a crime or infraction, within the meaning of Section 17556 of
4the Government Code, or changes the definition of a crime within
5the meaning of Section 6 of Article XIII B of the California
6Constitution.

7

SEC. 3.  

This act is an urgency statute necessary for the
8immediate preservation of the public peace, health, or safety within
9the meaning of Article IV of the Constitution and shall go into
10immediate effect. The facts constituting the necessity are:

11In order to address the damage done by illegal cannabis
12cultivation at the earliest time possible, it is necessary that this act
13take effect immediately.



O

    92