BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 2243 (Wood) - Medical cannabis: taxation: cannabis
production and environment mitigation
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|Version: August 1, 2016 |Policy Vote: GOV. & F. 5 - 1 |
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|Urgency: Yes |Mandate: Yes |
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|Hearing Date: August 8, 2016 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 2243 would require every distributor to pay tax upon
the distribution of medical cannabis flowers, immature medical
cannabis plants, and medical cannabis products.
Fiscal
Impact:
The Board of Equalization (BOE) would incur annual costs
of $25,000 in 2016-17, $747.000 in 2017-18, $1.3 million
for FY 2018-19, and $1.6 million in the out-years to
implement the provisions of the bill (special fund).
Administrative costs would include taxpayer identification,
notification, and registration; regulation development;
manual and publication revisions; tax return design;
computer programming; return, payment, and refund claim
processing; audit and collection tasks; staff training; and
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public inquiry responses.
BOE estimates that the bill would result in annual
revenue increases ranging from $71 million to $286 million
(special fund). The range is provided because the nature of
this market makes the assumptions used to develop the
estimates subject to considerable uncertainty.
The Department of Justice (DOJ) would incur annual costs
in excess of $10 million by 2018-19 to fund six marijuana
investigative teams (special fund). Additionally, DOJ would
incur unknown, reimbursable expenses to conduct research
and advise client agencies regarding the bill's
interactions with requirements under the California
Environmental Quality Act.
Background: Prior to 1996, federal and state law both prohibited the
possession, cultivation, sale, transportation, importation, or
furnishing of marijuana. However, in 1996, California voters
approved Proposition 215, the Compassionate use Act of 1996
(CUA). Under CUA, qualified patients with specified illnesses,
and their primary caregivers, cannot be prosecuted for
possessing or cultivating medical marijuana upon specified
approval of an attending physician. Consequently, CUA allowed
qualified patients and primary caregivers to obtain and use
medical marijuana.
The Legislature clarified CUA in 2003 with the enactment of SB
420 (Vasconcellos, 2003). This bill (1) exempted qualified
patients and caregivers from prosecution for using/ cultivating
medical marijuana, and (2) established a medical marijuana card
program for patients to use on a voluntary basis. The bill
provides a safe harbor for qualified patients regarding both the
amount of marijuana they may possess and the number of plants
they may maintain. It also protects patients with valid
identification cards from both arrest and criminal liability for
possession, transportation, delivery, or cultivation of
marijuana. Consequently, California's medical marijuana industry
operates amid a conflict between federal and state law, and
within state law itself.
The industry remained largely unregulated until 2015. That year,
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the Legislature enacted a package of legislation that
comprehensively regulates many aspects of medical marijuana
including cultivation, manufacturing, transportation,
distribution, sale, and product safety. Three bills comprise the
package-SB 643 (McGuire, 2015), AB 243 (Wood, 2015), and AB 266
(Bonta, 2015), which are collectively known as the Medical
Marijuana Regulation and Safety Act (MMRSA). Among other things,
MMRSA does the following:
Creates the Bureau of Medical Marijuana Regulation
(Bureau) within the Department of Consumer Affairs to
oversee and enforce the State's medical marijuana
regulations, in collaboration with the Board of
Equalization (BOE), the California Department of Public
Health, and the California Department of Food and
Agriculture (CDFA).
Establishes categories of licenses for various medical
marijuana activities, such as cultivation, manufacturing,
distribution, transportation, and sale, and provides
certain state agencies with the authority to issue those
licenses and enforce their terms.
Requires BOE and CDFA to implement a program that allows
regulators to uniquely identify each legally cultivated
medical marijuana plant and trace that plant throughout the
distribution chain.
Prohibits licensees from commencing activity under the
authority of a state license until the applicant has
obtained a license or permit pursuant to the applicable
local ordinance.
Protects the ability of local governments to pass and
enforce laws, licensing requirements, and zoning
ordinances.
Authorizes local governments to establish a licensing
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system for the cultivation of medical marijuana through
their current or future land use authority, and prohibits
the cultivation of medical marijuana without obtaining both
a state license-issued by CDFA-and a local license.
Requires the Medical Board of California to consult with
the California Marijuana Research Program on developing and
adopting medical guidelines for the appropriate
administration and use of medical cannabis.
Prohibits the recommendation of medical cannabis to a
patient unless the physician is the patient's attending
physician.
Declares that recommending medical cannabis to a patient
for a medical purpose without an appropriate prior
examination and a medical indication constitutes
unprofessional conduct.
Declares that it is unprofessional conduct for an
attending physician recommending medical cannabis to be
employed by, or enter into any other agreement with, any
person or entity dispensing medical cannabis.
Requires any distribution of any form of advertising for
physician recommendation for medical cannabis in California
to include a consumer notice.
Requires advertising for attending physician
recommendations for medical cannabis to meet all the
requirements of existing law related to medical
advertising, and states that price advertising shall not be
fraudulent, deceitful, or misleading, including statements
or advertisements of bait, discounts, premiums, gifts, or
statements of a similar nature.
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State law imposes a sales and use tax on retailers for the
privilege of selling tangible personal property, absent a
specific exemption. The tax is based upon the retailer's gross
receipts from sales in California. Generally, medicine is exempt
from the sales and use tax, but medical marijuana does not
qualify for the exemption. To be exempt, medication must be (1)
prescribed by an authorized person and dispensed on a
prescription filled by a pharmacist, (2) furnished by a licensed
physician to his or her own patient, or (3) furnished by a
health facility for treatment pursuant to a licensed physician's
order, or sold to a licensed physician. Consequently, the sale
of medical marijuana is subject to both the state and local
sales and use tax.
Proposed Law:
This bill would do, among other things, the following:
Impose upon every distributor a tax on all distributions
of medical cannabis flowers, medical cannabis products, and
immature medical cannabis plants to a dispensary at the
following rates:
o For medical cannabis flowers, (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, (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, and (3)
thirteen dollars and twenty-five cents ($13.25) amount
per ounce of medical cannabis flowers cultivated by a
licensee with, or subject to, a Type 3, Type 3A, or
Type 3B classification.
o For immature medical cannabis plants, one
dollar and twenty five cents ($1.25) per immature
medical cannabis plant.
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o For medical cannabis products, 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 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. The current rate would be 6.25
percent.
Require distributor to maintain record-keeping
requirements, as specified for the medical cannabis product
tax to document "wholesale cost."
Specify that the tax rates imposed apply proportionately
to quantities of less than one ounce.
Require BOE to administer and collect the tax from
medical marijuana distributers. The bill also requires BOE
to issue permits to every retailer. The permits are not
assignable and are valid only for the person whose name it
is issued and the place of business listed.
Allow BOE to revoke or suspend a permit after the
retailer is given 10 days' notice in writing detailing the
reason for suspension or revocation. The notice shall also
specify a time and place for a hearing so the retailer may
have an opportunity to show why the permit should not be
revoked or suspended.
Allow BOE to refuse to issue a permit if the retailer
has an outstanding final liability due for any amount under
the bill, unless the retailer has entered into an
installment agreement with BOE.
Require BOE to collect the tax quarterly, on or before
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the last day of the month succeeding each quarterly period.
Authorize BOE to prescribe, adopt, and enforce
regulations relating to administration and enforcement. In
addition, the Law authorizes BOE to prescribe, adopt, and
enforce any emergency regulations as necessary for
implementation, including utilizing tax stamps or
state-issued product bags.
Establish the Marijuana Value Tax Fund in the State
Treasury. The bill would require that all revenues, less
refunds, collected from the Marijuana Value Tax must be
deposited into the Marijuana Value Tax Fund, for continuous
appropriations, as follows:
o 30 percent to the Board of State and Community
Corrections for disbursement for local law
enforcement-related activities pertaining to illegal
cannabis cultivation. Funds must be allocated on a
competitive grant process. Applicants may include
local entities that support enforcement activities
related to unpermitted activity.
o 2 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.
o 30 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.
o 8 percent to the Open Space Subvention Payment
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Account of the California Land Conservation Act of
1965.
o 30 percent to 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.
The bill would only become operative if Proposition 64 is not
approved by the voters on November 8, 2016. It would take
immediate effect as an urgency measure, and would sunset on
January 1, 2025.
Related
Legislation: SB 987 (McGuire) would impose a 10 percent fee on
medical marijuana purchased from a retailer of medical
marijuana, beginning January 1, 2018. The bill failed passage in
the Assembly Revenue and Taxation Committee.
Staff
Comments: BOE research staff employed the following assumptions
in developing its revenue estimate: (1) 3.2 million ounces are
produced and regulated by Type 1 licensees, (2) 6.4 million
ounces are produced and regulated by Type 2 licensees, and (3)
6.4 million ounces are produced and regulated by Type 3
licensees. Assuming full compliance, BOE estimates that
resulting revenues under the bill would total $159 million per
year. In addition, BOE cites an industry estimate of 2016
California medical marijuana sales to be about $2.7 billion. BOE
obtained dispensary recent dispensary prices and "street prices"
for 34 selected cities across the State. BOE assumes that the
average street price percentage of the dispensary prices for
these cities is a reasonable estimate of the wholesale
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percentage of retail sales. This average is about 75 percent. At
a tax rate of 6.25 percent, revenues would be $126 million with
one hundred percent compliance. Thus, total revenues from the
measure (assuming full compliance) would be about $286 million.
However, full compliance is unlikely, especially in the
near-term. Accordingly, BOE notes that revenues would fall as
compliance drops, and would be $71 million annually with 25
percent compliance.
Any local government costs resulting from the mandate in this
measure are not state-reimbursable because the mandate only
involves the definition of a crime or the penalty for conviction
of a crime.
Recommended
Amendments: Staff recommends deleting the bill's continuous
appropriation authority, as continuous appropriations limit
legislative oversight.
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