BILL ANALYSIS                                                                                                                                                                                                    Ó



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

          SB 140 (Leno) - Electronic cigarettes
          
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          |Version: April 13, 2015         |Policy Vote: HEALTH 6 - 1       |
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          |Urgency: No                     |Mandate: Yes                    |
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          |Hearing Date: April 27, 2015    |Consultant: Brendan McCarthy    |
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          This bill meets the criteria for referral to the Suspense File.



          


          Bill  
          Summary:  SB 140 would expand the definition of "tobacco  
          product" in certain sections of current law to include  
          electronic cigarettes. In doing so, 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:  
           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 tens of thousands to low 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 minors 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. 

            There are many retail locations that sell both traditional  
            tobacco products as well as electronic cigarettes. There are  
            also a significant number of 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 will need to conduct  
            additional visits to newly regulated retail locations which  
            only sell electronic cigarettes. There are about 1,000  
            retailers in the state that sell electronic cigarettes but not  
            tobacco products. 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. Because retailers that sell both  
            tobacco products and electronic cigarettes are not likely (in  
            the long-term) to sell those products to minors at different  
            rates, the Department will likely be able to combine survey  
            efforts at retailers that sell both types of products.

           Ongoing costs in the hundreds of thousands per year for  
            enforcement actions relating to illegal sales of 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 additional retailers to the  
            current prohibition on sales to minors, the bill will increase  
            the Department's enforcement efforts, particularly for  
            retailers who do not already sell traditional tobacco  








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            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). The total enforcement cost is  
            unknown at this time, but is likely to be in the hundreds of  
            thousands per year, based on existing enforcement costs.  
            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 and General 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 partially offset by the initial  
            licensing fee. It is not clear whether the Board could use  
            tobacco tax revenue to supplement the licensing fee or whether  
            General Fund monies would be needed to pay for the shortfall.

           No anticipated change in tobacco tax revenue (General Fund and  
            special fund). The bill does not change the definition of  
            "tobacco product" in the Revenue and Taxation Code to include  
            electronic cigarettes. Thus, the bill does not extend the  
            state's existing tax on those products to electronic  
            cigarettes.


          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. Federal law requires states to demonstrate that they are  








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          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 this requirement by  
          conducting an annual 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.
          While current law prohibits the furnishing of electronic  
          cigarettes to minors, this prohibition is not subject to STAKE  
          Act enforcement.


          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.


          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.  
          Those requirements are enforced at the local level.




          Proposed Law:  
            SB 140 would expand the definition "tobacco product" in  
          certain sections of current law to include electronic  
          cigarettes. The bill would specify that "tobacco cessation  
          products" licensed by the Food and Drug Administration are not  
          considered tobacco products. The bill would not expand the  
          definition of tobacco products under the Revenue and Taxation  
          Code. Thus the bill would not extend the existing tobacco tax to  
          electronic cigarettes.
          Specific provisions of the bill would:


           Make the sale electronic cigarettes to minors subject to STAKE  
            Act enforcement;








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           Prohibit the use of electronic cigarettes in specific places,  
            such as schools, places of employment, public buildings,  
            apartments, and other places;
           Make electronic cigarette wholesalers and retailers subject to  
            licensure by the Board of Equalization.


          Related  
          Legislation:  
           SB 24 (Hill) would classify electronic cigarettes separately  
            from tobacco products, and would extend STAKE Act requirements  
            and smoking location prohibitions to electronic cigarettes.  
            That bill will be heard in this committee.
           SB 151 (Hernandez) would raise the legal age to purchase  
            tobacco products from age 18 to age 21. That bill will be  
            heard in this committee.
           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.


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