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 Bill No. 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 Medical begin delete Marijuana end delete begin insert Cannabis end insert Regulation and Safety Act, administered by the director of the Bureau of Medical begin delete Marijuana end delete begin insert Cannabis end 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 bill begin delete would end delete begin insert would, for the privilege of doing business as a distributor in this state, end insert impose a tax in specified amounts begin delete upon the distribution of medical cannabis flower, immature medical cannabis plant, and medical cannabis product. end delete begin 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, if begin delete the Secretary of State Initiative Number 1762, end delete begin 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: ²⁄₃. Appropriation: yes. Fiscal committee: yes. State-mandated local program: yes.

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

SECTION 1.  

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

 

PART 13.5.  Medical Cannabis Tax Law

 

Chapter  1. General Provisions and Definitions

 

31001.  

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

begin insert

begin insert 31001.5. end insert   

Unless the context otherwise requires, the definitions
set forth in this chapter and those in the Medical Cannabis
Regulation and Safety Act (Chapter 3.5 (commencing with Section
19300) of Division 8 of the Business and Professions Code) shall
govern the construction of this part.

end insert

31002.  

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

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

begin delete

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

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

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

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

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

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

(f)

end delete

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

begin delete

(g)

end delete

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

begin delete

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

end delete begin delete

(i)

end delete

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

begin delete

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

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

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

end delete begin insert

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

end insert

 

Chapter  2. Imposition of Tax

 

begin delete

31005.  

(a) On and after the operative date set forth in Section
31030, for the privilege of distributing medical cannabis flower,
immature medical cannabis plant, and medical cannabis product
every distributor shall pay a tax upon any distribution of medical
cannabis flower, immature medical cannabis plant, and medical
cannabis product at the following rates:

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

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

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

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

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

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

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

end delete begin insert

begin insert 31005. end insert   

(a) On and after the operative date set forth in Section
31030, for the privilege of doing business as a distributor in this
state, every distributor shall pay a tax on all medical cannabis
and medical cannabis products distributed to a dispensary in this
state, including distributions to a licensee holding a producing
dispensary license, at the following rates:

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

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

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

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

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

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

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

end insert

31005.3.  

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

31006.  

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

 

Chapter  3. Administration

 

31010.  

The board shall administer and collect the tax imposed
by this part pursuant to the Fee Collection Procedures Law (Part
30 (commencing with Section 55001)), except that Article 1.1
(commencing with Section 55050) of Chapter 3 of Part 30 shall
not apply. For purposes of this part, the references in the Fee
Collection Procedures Law to “fee” shall include the tax imposed
by this part, and references to “feepayer” shall include begin delete a end delete begin insert any end insert person
required to pay the tax imposed by this part.

31011.  

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

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

31012.  

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

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

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

31012.1.  

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

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

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

31012.3.  

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

begin insert

begin insert 31012.4. end insert   

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

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

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

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

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

(c) Upon discovery by the board that a dispensary or any other
person possesses, stores, owns, or has made a retail sale of medical
cannabis flower, immature medical cannabis plant, and medical
cannabis products on which tax is due but has not been paid to
the board, a licensing authority shall affix a tag or other
appropriate marking and take other action as provided in Section
19347.8 of the Business and Professions Code.

end insert begin insert

begin insert 31012.5. end insert   

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

end insert

31013.  

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

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

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

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

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

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

(5) Thirty percent to the Department of Fish and Wildlife’s and
the State Water Resources Control Board’s multiagency task force,
the Watershed Enforcement Team, 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.

 

Chapter  4. Report to the Legislature

 

31025.  

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

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

 

Chapter  5. Operative Date and Funding

 

31030.  

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

31031.  

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

31032.  

(a) Except as provided in subdivision (b), this part shall
become inoperative on January 1, 2018, if begin delete the Secretary of State
Initiative Number 1762, end delete begin 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.

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

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

 

Chapter  6. No Preemption of Local Taxation Authority

 

31035.  

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

SEC. 2.  

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

SEC. 3.  

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

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