BILL ANALYSIS                                                                                                                                                                                                    ”

                                                                    AB 2243

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          2243 (Wood)

          As Amended  May 31, 2016

          2/3 vote.  Urgency

          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |Revenue &       |5-0  |Ridley-Thomas,        |                    |
          |Taxation        |     |Dababneh, Gipson,     |                    |
          |                |     |Mullin, O'Donnell     |                    |
          |                |     |                      |                    |
          |Appropriations  |13-1 |Gonzalez, Bloom,      |Quirk               |
          |                |     |Bonilla, Bonta,       |                    |
          |                |     |Calderon, Daly,       |                    |
          |                |     |Eggman, Eduardo       |                    |
          |                |     |Garcia, Roger         |                    |
          |                |     |HernŠndez, Holden,    |                    |
          |                |     |Santiago, Weber, Wood |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |

          SUMMARY:  Enacts the Medical Cannabis Tax Law (MCTL).   
          Specifically, this bill:  


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          1)Imposes, for the privilege of distributing "medical cannabis  
            flowers", "medical cannabis leaves", and "immature medical  
            cannabis plants", a tax upon every "distributor" at the  
            following rates:

             a)   $9.25 per ounce of "medical cannabis flowers";

             b)   $2.75 per ounce of "medical cannabis leaves"; and, 

             c)   $1.25 per "immature medical cannabis plant".  

          2)Requires the Legislative Analyst's Office to review regularly  
            the tax levels established by this bill, at a minimum of every  
            other year, beginning in 2020, and to make recommendations to  
            the Legislature on appropriate adjustments that would further  
            the goals of addressing public safety and the environmental  
            impacts caused by the proliferation of cannabis cultivation.  

          3)Defines "medical cannabis flowers" as the flowers of a  
            cannabis plant, excluding the leaves and stems, that are  
            intended to be sold for use by medical cannabis patients in  
            California under the Compassionate Use Act of 1996  
            (Proposition 215), found in Health and Safety Code Section  

          4)Defines "medical cannabis leaves" as all parts of a cannabis  
            plant, other than cannabis flowers, that are intended to be  
            sold for use by medical cannabis patients in California under  
            Proposition 215.  

          5)Defines an "immature medical cannabis plant" as a cannabis  


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            plant with no observable flowers or buds, that is intended to  
            be sold for use by medical cannabis patients in California  
            under Proposition 215.  

          6)Defines a "distributor" as a "distributor" under Business and  
            Professions Code (B&PC) Section 19300.5.  

          7)Charges the State Board of Equalization (BOE) with  
            administering and collecting the new tax under the Fee  
            Collection Procedures Law, found in Revenue and Taxation Code  
            (R&TC) Section 55001 et seq., except as specified.    

          8)Authorizes the BOE to prescribe, adopt, and enforce  
            regulations relating to the implementation, administration,  
            and enforcement of the MCTL, including applicant requirements,  
            collections, reporting, refunds, and appeals.  

          9)Authorizes the BOE to prescribe, adopt, and enforce any  
            emergency regulations as necessary to implement the MCTL.  

          10)Provides that the tax is due and payable to the BOE quarterly  
            on or before the last day of the month following each calendar  

          11)Requires a return for the preceding calendar quarter to be  
            filed with the BOE on or before the last day of the month  
            following each calendar quarter.  Returns shall be  
            authenticated in a form or pursuant to methods as the BOE  

          12)Establishes the Cannabis Production and Environment  
            Mitigation Fund (Fund) in the State Treasury.  All taxes,  


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            interest, penalties, and other amounts collected and paid to  
            the BOE, less payments of refunds and costs of administration,  
            shall be deposited in the Fund.

          13)Provides that, notwithstanding Government Code Section 13340,  
            all moneys deposited in the Fund are to be continuously  
            appropriated, without regard to fiscal year, in the following  

             a)   30% to the Board of State and Community Corrections for  
               disbursement for local law enforcement-related activities  
               pertaining to illegal cannabis cultivation.  Such funds  
               shall be allocated on a competitive grant application  
               process administered by the Board of State and Community  

             b)   30% to the Natural Resources Agency 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, as  
               specified.  Such funds shall be prioritized to restoration  
               and cleanup projects, on public or private lands, based on  
               the level of damages that have occurred.  At least 35% of  
               the funds shall be used for these purposes related to  
               public lands, including parks managed by the California  
               Department of Parks and Recreation, and at least 20% of the  
               funds shall be used for these purposes related to private  

             c)   30% to the multiagency task force, the Department of  
               Fish and Wildlife and the State Water Resources Control  
               Board, 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,


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             d)   10% to the Bureau of Medical Marijuana Regulation, and  
               other state agencies or departments that the bureau  
               determines are appropriate, to conduct ongoing studies of  
               areas that may create challenges to compliance of the  
               MMRSA, including financial transactions, allowable tax  
               deductions, and the public safety implications of a cash  
               industry.  The bureau or other state agencies or  
               departments shall prepare reports on the results of those  
               studies and submit those reports to the Legislature on or  
               before January 1, 2020, and on or before January 1, every  
               two years thereafter.  

          14)Requires the BOE to submit a report to the Legislature on the  
            total amount of revenue that was collected for the two-year  
            period beginning on this tax's operative date.  The report  
            shall be due on or before the last day of the month commencing  
            180 days after the two-year period.  

          15)Provides that this act shall become operative on or after  
            [sic] the first day of the first calendar quarter commencing  
            more than 270 days after adequate funding has been received by  
            the BOE to implement and administer this bill.  The BOE shall  
            post a notice on its Internet Web site when this condition has  
            been satisfied.  

          16)Specifies that funds for the establishment and support of the  
            activities required under this bill shall be advanced as a  
            General Fund or special fund loan, and shall be repaid by the  
            BOE from the initial proceeds from taxes collected, no later  
            than six months after the bill's operative date.

          17)Provides that the MCTL shall become inoperative on January 1,  
            2018, if the Secretary of State Initiative Number 1762, known  


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            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.

          18)Provides that the tax shall be in addition to, and shall not  
            limit, any taxes or fees imposed by a county or city and  

          19)Takes immediate effect as an urgency measure.


          1)Defines "cannabis" as all parts of the plant Cannabis sativa  
            Linnaeus, Cannabis indica, or Cannabis ruderalis, whether  
            growing or not;  the seeds thereof;  the resin, whether crude  
            or purified, extracted from any part of the plant;  and every  
            compound, manufacture, salt, derivative, mixture, or  
            preparation of the plant, its seeds, or resin.  [B&PC Section  

          2)Defines "distribution" as the procurement, sale, and transport  
            of medical cannabis and medical cannabis products between  
            licensed entities.  [B&PC Section 19300.5]   

          FISCAL EFFECT:  According to the Assembly Appropriations  

          1)Increased revenue of up to $77 million annually.   

          2)Significant administrative costs to the BOE of approximately  
            $3.5 million annually.   


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          1)The author has provided the following statement in support of  
            this bill:

               We are seeing unpermitted land grading and road  
               construction, illegal stream diversions, discharge of  
               sediments, and pollutants into waterways, as well as  
               contamination of water and soil by pesticides,  
               rodenticides, fertilizers and fuels.  Mammals, birds and  
               fish are dying horrible deaths from poisons used to  
               protect crops and left behind long after the growers  
               leave an area.  These toxins seep into our water supply.

               Water is being held from traditional agriculture to  
               ensure there is water in the streams for endangered fish,  
               but instead it is being pumped onto illegal marijuana  
               farms and poisoned by chemicals.  Last year, Sproul  
               Creek, in Humboldt County, ran dry for the first time and  
               officials believe it was due in large part to illegal  
               diversions of water for marijuana.

               The Medical Marijuana Regulation Safety Act, specifically  
               AB 243 (Wood), Chapter 688, Statutes of 2015, created an  
               environmental regulatory structure to address many of  
               these environmental damages, such as the establishment of  
               a permanent and statewide Watershed Enforcement Team  
               (WET), but the funding component was removed in AB 243  
               before the bill reached the Governor's desk. 

          2)Committee staff comments: 


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             a)   An overview of state law:  The California Uniform  
               Controlled Substances Act prohibits, except as authorized,  
               the possession, cultivation, transportation, and sale of  
               marijuana and marijuana derivatives.  Under Proposition  
               215, however, existing law does authorize a patient (or the  
               patient's primary caregiver) to cultivate or possess  
               marijuana for the patient's medical use when recommended by  
               a physician, as specified.

               i)     SB 420:  SB 420 (Vasconcellos), Chapter 875,  
                 Statutes of 2003, established statewide guidelines for  
                 Proposition 215 enforcement.  Specifically, SB 420 called  
                 for the establishment of a voluntary program for the  
                 issuance of identification cards to qualified patients.   
                 SB 420 further specified that no patient or primary  
                 caregiver in possession of a valid identification card  
                 shall be subject to arrest for possession,  
                 transportation, delivery, or cultivation of medical  
                 marijuana, as specified.    

               ii)    Medical Marijuana Regulation and Safety Act:  In  
                 2015, the Legislature enacted the 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.  

                 Among its provisions, the MMRSA established the Bureau of  
                 Medical Marijuana Regulation within the Department of  
                 Consumer Affairs to oversee and enforce the state's  
                 medical marijuana regulations, in collaboration with the  
                 California Department of Public Health and the California  
                 Department of Food and Agriculture (CDFA).  Additionally,  


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                 the law established categories of licenses for various  
                 medical marijuana activities, such as cultivation,  
                 manufacturing, distribution, transportation, and sale.   
                 AB 266 also added R&TC Section 31020 to require the BOE,  
                 in consultation with the CDFA, to adopt a system to  
                 report commercial cannabis and cannabis product movement  
                 throughout the distribution chain (i.e., "track and  
                 trace").  The adopted system must employ secure packaging  
                 and provide information to the BOE.  Section 31020 also  
                 requires the system to capture, at a minimum, all of the  

                  (1)       The amount of tax due by the designated  

                  (2)       The name, address, and license number of the  
                    designated entity that remitted the tax;  

                  (3)       The name, address, and license number of the  
                    succeeding entity receiving the product;

                  (4)       The transaction date; and, 

                  (5)       Any other information the BOE deems necessary  
                    for the taxation and regulation of marijuana and  
                    marijuana products.  

             b)   What would this bill do?  This bill would impose, for  
               the privilege of distributing medical cannabis flowers,  
               medical cannabis leaves, and immature medical cannabis  
               plants, a tax on distributors of cannabis.  Funds generated  
               from the new tax would be used for, among other things,  
               both cannabis-related law enforcement activities and  


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               efforts to address the environmental impacts of cannabis  
               cultivation on public and private lands in California.  

          Analysis Prepared by:                                             
                          M. David Ruff / REV. & TAX. / (916) 319-2098   
          FN: 0003336