BILL ANALYSIS Ó AB 2516 Page 1 Date of Hearing: April 19, 2016 ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS Rudy Salas, Chair AB 2516 (Wood) - As Amended April 6, 2016 NOTE: This bill is double referred, having been previously heard by the Committee on Agriculture, and passed on a 7-2 vote. SUBJECT: Medical marijuana: state cultivator license types: specialty cottage type. SUMMARY: Clarifies the role of the of the California Department of Food and Agriculture (CDFA) is not to supersede or limit the authority of specified state agencies when implementing and enforcing their statutory obligations, or adopting regulations to protect water quality, water supply, and natural resources; creates a Type 1C, or "specialty cottage" license, to be issued by the CDFA, for cultivation using a combination of natural and supplemental artificial lighting at a maximum threshold to be determined by the licensing authority; and, authorizes the CDFA to promulgate regulations to govern the new license type. EXISTING LAW: 1) Prohibits the possession, possession with intent to sell, cultivation, sale, transportation, importation, or furnishing of marijuana, except as otherwise provided by law. (Health AB 2516 Page 2 and Safety Code (HSC) §§ 11357, 11358, 11359, and 11360) 2) Prohibits prosecution of a patient or a patient's primary caregiver, under the Compassionate Use Act (CUA), an initiative measure, for possessing or cultivating marijuana for personal medical purposes of the patient upon the written or oral recommendation or approval of a physician. (HSC § 11362.5) 3) Establishes the Bureau of Medical Marijuana Regulation (Bureau) within the Department of Consumer Affairs (DCA) to oversee state licensure and regulation of commercial cannabis activities, including cultivation, possession, manufacture, processing, storing, laboratory testing, labeling, transporting, distribution, and sale of medical cannabis or medical cannabis products; requires the Bureau, the California Department of Public Health (CDPH), and the CDFA to administer the Medical Marijuana Regulation and Safety Act (Act) and promulgate regulations for implementation of the Act. (Business and Professions Code (BPC) § 19300 et seq.) 4) Vests in the DCA the sole authority to create, issue, renew, discipline, suspend, or revoke licenses for medical marijuana activities, including licenses for dispensaries, distributors, and transporters; prohibits a licensee from holding more than one license except as specified. (BPC §§ 19302.1, 19328) 5) Specifies license classifications as follows: (BPC Section 19328) a) Type 1 = Cultivation; Specialty outdoor; Small. b) Type 1A = Cultivation; Specialty indoor; Small. c) Type 1B = Cultivation; Specialty mixed-light; Small. AB 2516 Page 3 d) Type 2 = Cultivation; Outdoor; Small. e) Type 2A = Cultivation; Indoor; Small. f) Type 2B = Cultivation; Mixed-light; Small. g) Type 3 = Cultivation; Outdoor; Medium. h) Type 3A = Cultivation; Indoor; Medium. i) Type 3B = Cultivation; Mixed-light; Medium. j) Type 4 = Cultivation; Nursery. aa) Type 6 = Manufacturer 1. bb) Type 7 = Manufacturer 2. cc) Type 8 = Testing. dd) Type 10 = Dispensary; General. ee) Type 10A = Dispensary; No more than three retail sites. ff) Type 11 = Distribution. AB 2516 Page 4 gg) Type 12 = Transporter. 6) Provides that qualified patients, persons with valid identification cards, and their designated primary caregivers who associate in order to collectively or cooperatively cultivate marijuana, are not subject to criminal liability solely on that basis, until one year after the Bureau begins issuing licenses under the Act. (HSC § 11362.775) 7) Allows the Bureau to convene an advisory committee to advise the Bureau and licensing authorities on the development of standards and regulations, including best practices and guidelines to ensure qualified patients have adequate access to medical marijuana and medical marijuana products. (BPC § 19306) 8) Provides that nothing shall be interpreted to supersede or limit existing local authority for law enforcement activity, enforcement of local zoning requirements or local ordinances, or enforcement of local permit or licensing requirements. (BPC § 19315) 9) Provides that the permitted actions of a licensee pursuant to both a state license and a license or permit issued by the local jurisdiction following the requirements of the applicable local ordinances, and conducted in accordance with the Act are not unlawful under state law. (BPC § 19317) 10)Prohibits a person from engaging in commercial cannabis activity without possessing both a state license and a local permit or other authorization upon the date of implementation of regulations by the licensing authority. (BPC § 19320) 11)Requires an applicant for a state license to, among other AB 2516 Page 5 things, submit fingerprints to the Department of Justice, and provide documentation, issued by the local jurisdiction, certifying that the applicant is in compliance with all local ordinances and regulations; evidence of the legal right to occupy the proposed location; for applicants with 20 or more employees, provide a statement that the applicant will enter into, or already has entered into, a labor peace agreement; a seller's permit number; and other specified information. (BPC § 19322) 12)Requires applicants seeking licensure to cultivate, distribute, or manufacture medical cannabis, to include a detailed description of the applicant's operating procedures for all of the following as required by the licensing authority: 1) cultivation; 2) extraction and infusion methods; 3) transportation procedures; 4) inventory procedures; and 5) quality control procedures. (BPC § 19322) 13)Requires the Bureau to deny an application if the applicant or the premises do not qualify for licensure or fail to comply with the Act. (BPC § 19323) 14)Requires all licensed cultivators and manufacturers to package all medical cannabis and medical cannabis products in tamper-evident packaging and to use a unique identifier to identify and track the product, and requires the product to be labeled as specified. (BPC § 19326) 15)Requires all licensees holding cultivation or manufacturing licensees to send all medical cannabis and medical cannabis products to a distributor for quality assurance and inspection by the distribution licensee and for batch testing by a testing licensee prior to distribution to a dispensary. (BPC § 19326) AB 2516 Page 6 16)Requires the CDFA to administer the provisions of the Act related to the cultivation of medical cannabis; to create, issue, and suspend or revoke cultivation licenses for violations of the Act; and to promulgate regulations governing the licensing of indoor and outdoor cultivation sites. (BPC § 19302.1, 19332) 17)Requires the Bureau to establish a grant program to fund activities by state and local law enforcement to remedy the environmental effects of cannabis cultivation, payable from fines and penalties charged pursuant to the Act after all outstanding loans for the program are repaid. (BPC § 19351) 18)Provides for a General Fund or special fund loan, including up to $10 million from the General Fund, to the Bureau to support the initial regulatory activities authorized by Act. (BPC § 19351) THIS BILL: 1)Clarifies the role of the of the CDFA is not to supersede or limit the authority of the State Water Resources Control Board, regional water quality control boards, or the Department of Fish and Wildlife when implementing and enforcing their statutory obligations or to adopting regulations to protect water quality, water supply, and natural resources. 2)Creates a Type 1C, or "specialty cottage" license, to be issued by the CDFA, for cultivation using a combination of natural and supplemental artificial lighting at a maximum threshold to be determined by the licensing authority, of 2,500 square feet or less of total canopy size for outdoor cultivation, or 500 square feet or less of total canopy size AB 2516 Page 7 for indoor cultivation, on one premises. 3)Authorizes the CDFA to promulgate regulations to govern the new license type. FISCAL EFFECT: Unknown. This bill is keyed fiscal by the Legislative Counsel. COMMENTS: Purpose. This bill is sponsored by the California Growers Association . According to the author, "Last year the [L]egislature passed the [Act] in order to address the environmental, public health, and public safety concerns that surfaced in the industry. In order for these new regulations to be successful we need to ensure businesses have pathways to compliance. Currently in California there are thousands of small growers that operate on much less than 5,000 [square feet]. [This bill] will round out the licensing structure that was put in place last year so that it will accurately reflect the business activities currently taking place across the state." Background. The Compassionate Use Act of 1996 (CUA). Proposition 215 was approved by California voters to exempt certain patients and their primary caregivers from criminal liability under state law for the possession and cultivation of marijuana. Proposition 215 was enacted to "ensure that seriously ill Californians have the right to obtain and use marijuana for medical purposes where that medical use is deemed appropriate and has been recommended by a physician who has determined that the person's health would benefit from the use of marijuana," and to "ensure that patients and their primary caregivers who obtain and use marijuana for medical purposes AB 2516 Page 8 upon the recommendation of a physician are not subject to criminal prosecution or sanction." The Medical Marijuana Program Act. SB 420 (Vasconcellos), Chapter 875, Statutes of 2003, established the Medical Marijuana Program Act (MMP). The MMP, among other things, required the California Department of Public Health (CDPH) to establish and maintain a program for a statewide identification card system. Medical marijuana identification cards are intended to help law enforcement officers identify and verify that cardholders are able to cultivate, possess, and transport certain amounts of marijuana without being subject to arrest under specific conditions. All counties participate in the identification card program; however, participation by patients and primary caregivers in the identification card program is voluntary. In 2008, the Attorney General issued guidelines to: 1) ensure that marijuana grown for medical purposes remains secure and does not find its way to non-patients or illicit markets; 2) help law enforcement agencies perform their duties effectively and in accordance with California law; and, 3) help patients and primary caregivers understand how they may cultivate, transport, possess, and use medical marijuana under California law. Since the passage of Proposition 215, a flood of medical marijuana collectives and cooperatives have created a patchwork of local regulations for these industries and with little statewide involvement. The Federal Controlled Substances Act. Despite the CUA and SB 420, marijuana is still illegal under federal law. Adopted in 1970, the Controlled Substances Act (CSA) established a federal regulatory system designed to combat recreational drug abuse by making it unlawful to manufacture, distribute, dispense, or possess any controlled substance. (Title 21 United States Code AB 2516 Page 9 Section (USC) 801, et seq.) Under California law, marijuana is listed as a hallucinogenic substance in Schedule I of the California Uniform Controlled Substances Act. Yet, the CUA prohibits prosecution for obtaining, distributing, or using marijuana for medical purposes. However, under the federal CSA, it is unlawful for any person to manufacture, distribute, dispense or possess a controlled substance, including marijuana, whether or not it is for a medical purpose. As a result, patients, caregivers, and dispensary operators, who engage in activities relating to medical marijuana, may still vulnerable to federal arrest and prosecution. Congress has provided that states are free to regulate in the area of controlled substances, including marijuana, provided that state law does not positively conflict with the CSA. (Title 21 USC Section 903.) Proposition 215, nor the MMP, conflicts with the CSA because medical marijuana use has not been "legalized" medical marijuana in the state; instead, California has tried to avoid this conflict by not pursuing the state's powers to punish certain offenses when a physician has recommended marijuana as a treatment for a serious medical condition. Center for Medicinal Cannabis Research. According to the CMCR, "The [CMCR] was created in 2000 to conduct clinical and pre-clinical studies of cannabinoids, including smoked marijuana, to provide evidence one way or the other to answer the question "Does marijuana have therapeutic value?" To accomplish this objective, the CMCR issued calls for applications from researchers at leading California institutions, developed a close working relationship with state and federal agencies to gain regulatory approvals, established panels of nationally-recognized experts to rigorously review the merit of applications, and funded carefully designed studies that have now been published in high impact scientific journals, making significant contributions to the available literature on cannabis and the cannabinoids." AB 2516 Page 10 The CMCR continues, "As a result of this program of systematic research, we now have reasonable evidence that cannabis is a promising treatment in selected pain syndromes caused by injury or diseases of the nervous system, and possibly for painful muscle spasticity due to multiple sclerosis. Obviously more research will be necessary to elucidate the mechanisms of action and the full therapeutic potential of cannabinoid compounds. Meanwhile, the knowledge and new findings from the CMCR provide a strong science-based context in which policy makers and the public can discuss the place of these compounds in medical care." The Medical Marijuana Regulation and Safety Act. The Act consisted of three separate bills which were enacted together on Sept 11, 2015, to bring licensure and regulation to the medical marijuana industry nearly 20 years after the passage of Proposition 215 in 1996, which legalized the use of medical marijuana. The bills 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. The Act went into effect on January 1, 2016, although licensure requirements will not go into effect until the regulatory entities responsible for implementing the act pass necessary regulations. Among other things, the Act establishes the new Bureau under the DCA, which is responsible for licensing and regulating 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 AB 2516 Page 11 Board, are responsible for developing environmental standards. Under the Act, applicants seeking licensure to cultivate, distribute, or manufacture medical cannabis are required to include a detailed description of the applicant's operating procedures for cultivation, extraction and infusion methods, transportation process, inventory procedures, and quality control procedures. Commercial and Personal Use Cultivation. According to the author, "Many medical cannabis farmers across California grow only a handful of plants on relatively small plots of land. These cottage farmers often rely on medical cannabis cultivation to supplement their income, or simply as one product in a larger agricultural portfolio." The author goes on to say, "The creation of a cottage license that provides a viable pathway to compliance for the small farmers that operate throughout the state will maximize the number of businesses that come into compliance." Current Related Legislation. AB 26 (Jones-Sawyer) of the current legislative session requires a licensee under the Act to institute and maintain a training program to educate, inform, and train the licensee's agents and employees regarding compliance with the Act, and requires the Bureau to approve and regulate the training programs. STATUS: This bill is pending in the Senate Committee on Business, Professions and Economic Development. AB 567 (Gipson) of the current legislative session, would prohibit mobile, vehicular, or technology platforms that enable qualified patients or primary caregivers to arrange for any delivery with a third party; would provide that a dispensary that employs or uses the services of any person under 21 years AB 2516 Page 12 of age for the sale or delivery of medical cannabis or medical cannabis products is subject to suspension or revocation of certain state or local licenses; and would require tax penalty amnesty programs, for medical cannabis-related businesses, as provided. STATUS: This bill is pending in the Senate Committee on Health. AB 1548 (Wood) of the current legislative session, would impose a tax in specified amounts on the distribution in this state by a cultivator of marijuana to a licensed distributor, as specified; require the licensed distributor to collect the tax from the cultivator and remit it to the BOE; and require all moneys, less refunds and costs of administration, to be deposited into the Marijuana Production and Environment Mitigation Fund, as specified. This measure died in the Assembly Committee on Revenue and Taxation. AB 1575 (Bonta) of the current legislative session makes a number of changes to the Act including, among others: specifies that it is not a violation of state law for certain licensees to sell medical cannabis under 8 ounces; specifies that no individual or group may cultivate or distribute cannabis other than what is specified in the Act or the Compassionate Use Act; and, exempts any commercial cannabis activity by a holder of a state license who complies with the Act. STATUS: This bill is pending in the Assembly Committee on Banking and Finance. AB 2385 (Jones-Sawyer) of the current legislative session prohibits licensing authorities from requiring a local license, permit, or other authorization, and would require the issuance of a state license, if the authorities determine that the applicant meets all of the requirements of the act, as specified, in the City of Los Angeles. STATUS: This bill will also be heard before the Assembly Committee on Business and Professions during today's hearing. AB 2516 Page 13 AB 2545 (Bonta) of the current legislative session authorizes the Governor to enter into agreements with federally recognized sovereign Indian tribes, as defined; authorizes these agreements to include provisions regulating activities between licensees operating on and off the land of federally recognized sovereign Indian tribes; authorizes the Governor to delegate to the chief of the Bureau authority to negotiate these agreements. STATUS: This bill will also be heard before the Assembly Committee on Business and Professions during today's hearing. AB 2672 (Bonilla) of the current legislative session renames the Medical Marijuana Regulation and Safety Act (Act) to the Medical Cannabis Regulation and Safety Act; renames the Bureau of Medical Marijuana Regulation (Bureau) to the Bureau of Medical Cannabis Regulation; renames the Medical Marijuana Regulation and Safety Act Fund (Fund) to the Medical Cannabis Regulation and Safety Act Fund; renames the Medical Marijuana Fines and Penalties Account (Account) to the Medical Cannabis Fines and Penalties Account; and, makes other conforming changes throughout the Business and Professions (BPC), Fish and Game (FGC), Government (GOV), Health and Safety (HSC), Revenue and Taxation (RTC), and Water Codes (WAT). STATUS: This bill will also be heard before the Assembly Committee on Business and Professions during today's hearing. AB 2679 (Cooley) of the current legislative session increases the reporting requirements of the Bureau to include the number of appeals of denial of state licenses or other disciplinary actions taken by the licensing authorities, the number of complaints submitted to the Bureau regarding licenses; and, expands scope of the CMCS to include in its studies the effect of marijuana on a person's motor skills. STATUS: This bill is pending in the Assembly Committee on Appropriations. Prior Related Legislation. AB 266 (Bonta, Cooley, Jones-Sawyer, AB 2516 Page 14 Lackey, and Wood), Chapter 689, Statutes of 2015, enacted the Act for the licensure and regulation of medical marijuana and established the Bureau within the DCA, under the supervision and control of the Director of the DCA, and required the Director to administer and enforce the provisions of the Act. AB 266 also required the CDFA to administer the provisions of the act related to cultivation, and required the CDPH to administer the provisions of the Act related to manufacturing and testing of medical cannabis. The bill also required the BOE, in consultation with the CDFA, to adopt a system for reporting the movement of commercial cannabis and cannabis products. AB 243 (Wood), Chapter 688, Statutes of 2015, required the CDFA, the DPR, the CDPH, the DFW, and the SWRCB to promulgate regulations or standards relating to medical marijuana and its cultivation, as specified, required various state agencies to take specified actions to mitigate the impact that marijuana cultivation has on the environment, and established the Act Fund. SB 643 (McGuire), Chapter 719, Statutes of 2015, set forth standards for a physician and surgeon prescribing medical cannabis, required the Medical Board of California to prioritize its investigative and prosecutorial resources to identify and discipline physicians and surgeons that have repeatedly recommended excessive cannabis to patients for medical purposes or repeatedly recommended cannabis to patients for medical purposes without a good faith examination, as specified, authorized counties to impose a tax upon specified cannabis-related activity, and set forth standards for the licensed cultivation of medical cannabis. ARGUMENTS IN SUPPORT: The California Growers Association (CGA) writes in support, "CGA has conducted numerous community workshops throughout the state AB 2516 Page 15 and found that the smallest growers didn't fit into the [Act]'s license framework due to the simple fact they grew significantly less product than the smallest license category "type 1" at 5,000 square feet. By creating a smaller license type that accurately reflects the smallest cultivation operation the state will realize greater regulatory compliance because cottage growers will identify with a license category that accurately fits the scope of their regulated business." The Consortium Manage Group writes in support, "Creating a new license for small cultivators, with a maximum of 2500 square feet for outdoor cultivation and 500 square feet for indoor cultivation, ensures that small business have a licensing category and a regulatory structure that is consistent with the size of the cultivation." Safe Access for Americans (ASA) writes in strong support for "licensing and sensible regulations for commercial medical cannabis cultivation and other activity." ASA goes onto say, "The addition of a license for smaller-scale cultivators is an important improvement to the [Act]. The "cottage" cultivators anticipated by [this bill] will play an important role in increasing the quantity and variety of medical cannabis that an estimated 1.4 million legal patients need to treat the symptoms of chronic pain, cancer, arthritis, migraines, and other serious conditions." ARGUMENTS IN OPPOSITION: None on file. POLICY ISSUES FOR CONSIDERATION: AB 2516 Page 16 This bill may be premature given that the Act and Bureau are relatively new and the structure of each is still being developed. It is unclear if this additional license type is necessary, although the license type will allow small cultivation to comply more easily with the provisions of the Act and may encourage hesitant cities and counties to allow cultivation if in smaller quantities. REGISTERED SUPPORT: California Growers Association (sponsor) Consortium Manage Group Safe Access for Americans REGISTERED OPPOSITION: None on file. Analysis Prepared by:Gabby Nepomuceno / B. & P. / (916) 319-3301