BILL ANALYSIS                                                                                                                                                                                                    



                                                                    AB 2243


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          Date of Hearing:  May 11, 2016


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                               Lorena Gonzalez, Chair


          AB  
          2243 (Wood) - As Amended May 3, 2016


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          Urgency:  No  State Mandated Local Program:  YesReimbursable:   
          No


          SUMMARY:


          This bill creates a Medical Cannabis Tax Law, which is tax on  
          medical cannabis distributors that is administered by the Board  
          of Equalization (BOE). Specifically, this bill: 








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          1)Defines key terms, including "cultivator" and "distribution,"  
            for the purposes of the Medical Cannabis Tax Law. 


          2)Requires every distributor to pay a tax upon any distribution  
            of medical cannabis flowers, medical leaves, and immature  
            cannabis plants at the following rates: 


             a)   $9.25 per ounce of medical cannabis flowers, or a  
               proportional rate on quantities of less than one ounce. 


             b)   $2.75 per ounce of medical cannabis leaves, or a  
               proportional rate on quantities of less than one ounce. 


             c)   $1.25 per immature medical cannabis plant. 


          1)Authorizes BOE to establish, by regulation, a method and  
            manner for payment of the tax that utilizes tax stamps or  
            product bags that indicate all required tax has been paid and  
            to adopt regulations related to implementation,  
            administration, and enforcement of the tax. 


          2)Requires the Legislative Analyst's Office (LAO) to review the  
            tax levels established in this bill every other year beginning  
            in 2020. 


          3)Establishes the Cannabis Production and Environment Mitigation  
            Fund (Fund) and requires all taxes, interest, and penalties,  
            less payments of refunds and costs of administration, to be  
            deposited into it. Moneys in the Fund will be allocated as  
            follows:  








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             a)   30% to the Board of State and Community Corrections  
               (BSCC) for disbursement for local law enforcement  
               activities related to illegal cannabis cultivation, to be  
               allocated through a competitive grant process administered  
               by BSCC.


             b)   30% to the Natural Resources Agency to fund a  
               competitive grant program for environmental cleanup  
               restoration and protection of lands that have been damaged  
               by illegal cannabis cultivation. 


             c)   30% to the multiagency task force, the Department of  
               Fish and Wildlife and the State Water Resources Control  
               Board to address environmental impacts of cannabis  
               cultivation on California land. 


             d)   10% to the bureau of Medical Marijuana Regulations and  
               other qualified state agencies to conduct ongoing studies  
               of areas that may create challenges to compliance of  
               medical marijuana regulations, such as financial  
               transactions and the public safety implications of a cash  
               industry.


           1) Sunsets the bill on January 1, 2018, if the Control,  
             Regulate and Tax Adult Use of Marijuana Act is approved by  
             voters at the November 9, 2016 statewide election 


          FISCAL EFFECT:


          1)Increased revenue of up to $77 million annually. (Marijuana  
            Production and Environment Mitigation Fund)








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          2)Significant administrative costs to BOE of approximately $3.5  
            million annually. (Marijuana Production and Environment  
            Mitigation Fund)


          COMMENTS:


          1)Purpose. According to the author, AB 2243 will provide funds  
            necessary to help fund the environmental regulatory structure  
            that addresses many of the environmental damages caused by  
            marijuana cultivation. 


          2)Background. In 2015, the Legislature enacted the Medical  
            Marijuana Regulation and Safety Act (MMRSA) through a package  
            of bills establishing a comprehensive licensing and regulatory  
            framework for medical marijuana.  Specifically, the MMRSA  
            consists of three bills: (1) SB 643 (McGuire), Chapter 719,  
            Statutes of 2015; (2) AB 243 (Wood), Chapter 688, Statutes of  
            2015; and, (3) AB 266 (Bonta), Chapter 689, Statutes of 2015.   



            MMRSA created a comprehensive state licensing system for the  
            commercial cultivation, manufacture, retail sale, transport,  
            distribution, delivery, and testing of medical cannabis. In  
            addition, the bills affirm local control and require licensure  
            by both a local government and the state in order for a  
            licensee to operate. MMRSA went into effect on January 1,  
            2016, although licensure requirements will not go into effect  
            until the regulatory entities responsible for implementing  
            MMRSA pass necessary regulations.  


            Among other things, MMRSA establishes the new Bureau under the  
            DCA, which is responsible for licensing and regulating  








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            dispensaries, transporters, and distributors. In addition, the  
            CDPH is responsible for regulating manufacturers, testing  
            laboratories and the production and labeling of edible medical  
            marijuana products. The CDFA is responsible for regulating  
            cultivation, and other state agencies, such as the Department  
            of Pesticide Regulation and the State Water Resources Control  
            Board, are responsible for developing environmental standards.  
             

          3)Taxing distributors.  This bill imposes a tax on distributors  
            of certain medical cannabis products for sale (medical  
            cannabis flowers, medical cannabis leaves, and immature  
            medical cannabis plants).  


            The May 3rd amendments to AB 2443 changed the imposition of  
            the proposed tax from the cultivator to the distributor. The  
            introduced version of this bill required the distributor to  
            collect the tax from the cultivator upon purchase of medical  
            cannabis products. In their analysis of the introduced version  
            of AB 2443, BOE noted two administrative challenges with this  
            approach:


             a)   Not all cultivators will sell their product directly to  
               a distributor. Cultivators may opt to send their product  
               directly to a manufacturer, who then sells their product to  
               a distributor. 


             b)   The collection of taxes on the cultivator by the  
               distributor would be very complex to administer. Unlike  
               other distributor-level tax structures, the introduced  
               version of the bill would have the purchaser of the product  
               (the distributor) collect the tax from the cultivator.  


            The most recent amendments imposes the tax on the distributors  
            themselves, which puts AB 2243 in line with the cigarette tax,  








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            where the tax is imposed on whoever distributes the product  
            for first sale. 


          1)Senate bill. SB 987, which is currently pending in the Senate  
            Appropriations Committee, also imposes a tax on medical  
            marijuana. Unlike AB 2243, the tax imposed is a 15% excise tax  
            on medical marijuana sold to consumers. This bill is projected  
            to raise up to $126 million in FY 2016-17. 


          Analysis Prepared by:Luke Reidenbach / APPR. / (916) 319-2081