BILL ANALYSIS Ó AB 2243 Page 1 (Without Reference to File) ASSEMBLY THIRD READING AB 2243 (Wood) As Amended June 2, 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 Hernández, | | | | |Holden, Santiago, | | AB 2243 Page 2 | | |Weber, Wood | | | | | | | | | | | | ------------------------------------------------------------------- SUMMARY: Enacts the Medical Cannabis Tax Law (MCTL). Specifically, this bill: 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) Nine dollars twenty five cents ($9.25) per ounce of "medical cannabis flowers"; b) Two dollars seventy five cents ($2.75) per ounce of "medical cannabis leaves"; and, c) One dollar twenty five cents ($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 AB 2243 Page 3 California under the Compassionate Use Act of 1996 (Proposition 215), found in Health and Safety Code Section 11362.5. 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 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 AB 2243 Page 4 quarter. 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 prescribes. 12)Establishes the Cannabis Production and Environment Mitigation Fund (Fund) in the State Treasury. All taxes, 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 manner: a) Thirty percent (30%) 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 activities from organized crime, as defined, related to illegal cannabis cultivation. Such funds shall be allocated on a competitive grant application process administered by the Board of State and Community Corrections; b) Two percent (2%) to the Department of Justice to fund and create Regional Marijuana Enforcement Officers who shall coordinate enforcement efforts, related to illegal AB 2243 Page 5 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 activities from organized crime related to illegal cannabis cultivation. c) Thirty percent (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 lands; d) Eight percent (8%) to the Open Space Subvention Payment Account of the California Land Conservation Act of 1965. 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% of the 8%; and, e) 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. AB 2243 Page 6 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 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 county. 19)Takes immediate effect as an urgency measure. AB 2243 Page 7 20)Sunsets on January 1, 2025. EXISTING STATE LAW: 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 19300.5] 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 Committee: 1)Increased revenue of up to $77 million annually. 2)Significant administrative costs to the BOE of approximately $3.5 million annually. COMMENTS: 1)The author has provided the following statement in support of this bill: We are seeing unpermitted land grading and road AB 2243 Page 8 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: 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. AB 2243 Page 9 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 (MMRSA): 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, 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 AB 2243 Page 10 following: (1) The amount of tax due by the designated entity; (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 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: 0003404 AB 2243 Page 11