BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          SB 24 (Hill) - Electronic cigarettes:  licensing and  
          restrictions
          
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          |Version: April 21, 2015         |Policy Vote: HEALTH 6 - 0       |
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          |Urgency: No                     |Mandate: Yes                    |
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          |Hearing Date: May 28, 2015      |Consultant: Brendan McCarthy    |
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          SUSPENSE FILE. AS AMENDED.



          


          Bill  
          Summary:  SB 24 would raise the minimum legal age to purchase or  
          consume tobacco products and electronic cigarettes from 18 to  
          21. The bill would extend many existing restrictions or  
          prohibitions on the use of tobacco products to electronic  
          cigarettes. The bill would require electronic cigarette  
          manufacturers, wholesalers, and retailers to be licensed.


          Fiscal Impact (as approved on May 28,  
          2015):  
           One-time costs of about $180,000 to revise regulations and  
            educational materials relating to the prohibition on the sale  
            of tobacco products to minors by the Department of Public  
            Health (General Fund or tobacco tax funds).








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           Ongoing costs in the hundreds of thousands per year for  
            additional survey activities at retail stores selling  
            electronic cigarettes (General Fund or tobacco tax funds). 

            Current federal law requires the state to determine the rate  
            at which individuals under 18 years of age can illegally  
            purchase tobacco products. The Department of Public Health  
            conducts random inspections at about 750 retail locations  
            annually to determine a statewide average rate at which  
            retailers are not in compliance with state and federal law.  
            The total annual cost to conduct the current survey is  
            $400,000. 

            Federal law would continue to require the Department to  
            conduct the existing survey. There are about 1,100 retail  
            locations that only sell electronic cigarettes and related  
            products. Because this bill would expand the universe of  
            retail locations subject to the inspection requirement, the  
            Department is likely to incur additional costs to survey a  
            sample of those retail locations to accurately determine the  
            rate at which minors can purchase electronic cigarettes. 

           Ongoing costs in the hundreds of thousands per year for  
            enforcement actions relating to illegal sales of tobacco  
            products and electronic cigarettes to minors (General Fund or  
            tobacco tax funds).

            Under current law, the Department of Public Health enforces  
            the law prohibiting the sale of tobacco products to minors by  
            conducting compliance inspections using youth decoy purchasers  
            and following up on complaints from the public. The total  
            annual cost for the Department's enforcement program is $1.6  
            million per year. 

            By adding electronic cigarette retailers to the current  
            enforcement program, the bill will increase the Department's  
            enforcement efforts, particularly for retailers who do not  
            already sell traditional tobacco products. The amount of that  
            increased enforcement activity will depend both on the number  
            of additional retailers covered by the law and the compliance  
            rate of those retailers (or if retailers of traditional  
            tobacco products are found to be selling electronic cigarettes  
            to minors at higher rates than traditional tobacco products). 









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            Because the state has fully allocated the existing federal  
            funding for this program, any additional costs will be borne  
            by the General Fund, tobacco tax funds, or other fund sources.

           Ongoing licensing costs of about $300,000 for the Board of  
            Equalization to license retailers who sell electronic  
            cigarettes but are not currently licensed because they do not  
            sell tobacco products (Compliance Fund). Under current law,  
            the Board licenses wholesalers and retailers of tobacco  
            products, to facilitate the collection of tobacco taxes. This  
            bill will require the Board to also license electronic  
            cigarette retailers. Currently, the Board expends about $280  
            per licensee to operate the licensing program. Licensees pay a  
            one-time licensing fee of $100. The remaining program costs  
            are offset with tobacco tax revenues. According to the  
            Stanford Prevention Center, there are about 1,000 retailers in  
            the state that specialize in electronic cigarettes and do not  
            sell other tobacco products. The Board would incur additional  
            licensing costs to license those retailers, which would be  
            offset by the initial licensing fee. The author's amendments  
            authorize the Board to assess an additional licensing fee up  
            to $280 to cover the Board's licensing costs


          Background:  Under current law (the Stop Tobacco Access to Kids Enforcement  
          or STAKE Act) the Department of Public Health is responsible for  
          enforcing the prohibition on furnishing tobacco products to  
          minors (those under 18 years of age). Federal law requires  
          states to demonstrate that they are complying with federal law  
          in this area, by demonstrating that the rate at which minors can  
          purchase tobacco products does not exceed 20%. The Department  
          fulfills these requirements by conducting a survey of about 750  
          retail stores, using minors to attempt a purchase. Using  
          information from the survey, as well as public complaints and  
          other sources, the Department conducts enforcement actions  
          against retailers in violation of the law. In addition to  
          assessing fines for non-compliance, the Department is authorized  
          to notify the Board of Equalization of repeated violations by a  
          retailer; the Board is then authorized to suspend the retailer's  
          license.
          Current law requires the Board of Equalization to license  
          tobacco wholesalers and retailers. The purpose of this licensing  
          requirement is to facilitate the collection of state tobacco  
          taxes and prevent tax evasion. Tobacco products are subject to  








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          both a specific excise tax on tobacco products as well as the  
          general Sales and Use Tax.


          Current state law prohibits smoking of tobacco products in  
          various places, such as school campuses, public buildings,  
          places of employment, retail food facilities, and other places.  
          Current law requires employers generally, and operators of  
          certain facilities such as hospitals, clinics, and food  
          facilities specifically, to post signs declaring that no smoking  
          is permitted, with certain exceptions. Those requirements are  
          enforced at the local level. 




          Proposed Law:  
            SB 24 would raise the minimum legal age to purchase or consume  
          tobacco products and electronic cigarettes from 18 to 21. The  
          bill would extend many existing restrictions or prohibitions on  
          the use of tobacco products to electronic cigarettes. The bill  
          would require electronic cigarette manufacturers, wholesalers,  
          and retailers to be licensed. The bill does not redefine tobacco  
          products to include electronic cigarettes, but rather adds  
          electronic cigarettes specifically to many provisions of law  
          regulating the use of tobacco products.
          Specific provisions of the bill would:


           Raise the minimum legal age to purchase or consume tobacco  
            products and electronic cigarettes from 18 to 21;
           Extend the existing provisions of the STAKE Act to electronic  
            cigarettes;
           Prohibit the use of electronic cigarettes in specific places,  
            such as schools, places of employment, public buildings,  
            apartments, and other places;
           Require places where smoking is currently prohibited to have  
            signage that states both "no smoking" and "no using electronic  
            cigarettes";
           Make electronic cigarette wholesalers and retailers subject to  
            licensure by the Board of Equalization;
           Require all cartridges for electronic cigarettes and solutions  
            for refilling electronic cigarettes to be in childproof  
            packaging.








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          Related  
          Legislation:  
           SB 140 (Leno) would expand the definition current law of  
            "tobacco product" in certain sections of law to include  
            electronic cigarettes. That bill is on this committee's  
            Suspense File.
           SB 151 (Hernandez) would raise the minimum legal age to  
            purchase or consume tobacco products from 18 to 21. That bill  
            is on this committee's Suspense File.
           AB 216 (Garcia) would raise the fine for selling an electronic  
            cigarette to a minor. That bill is pending in the Assembly.
           AB 768 (Thurmond) would prohibit the use of electronic  
            cigarettes in any baseball stadium. That bill is pending in  
            the Assembly


          Staff  
          Comments:  The only costs that may be incurred by a local agency  
          relate to crimes and infractions. Under the California  
          Constitution, such costs are not reimbursable by the state. As  
          noted above, the bill requires operators of certain buildings to  
          change existing no smoking signage to specifically prohibit the  
          use of electronic cigarettes. This provision is likely to impose  
          costs on local governments. However, because the provisions of  
          the bill apply generally (to employers or operators of  
          hospitals, for example) this requirement does not create a  
          reimbursable state mandate.
          Author's amendments (as adopted May 28, 2015): make raising the  
          smoking age from 18 to 21 contingent on the enactment of SB 151  
          (Hernandez) and authorize the Board of Equalization to impose an  
          additional one-time licensing fee, up to $280, to cover the  
          costs of licensing electronic cigarette retailers.




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