BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON GOVERNANCE AND FINANCE
                         Senator Robert M. Hertzberg, Chair
                                2015 - 2016  Regular 

                              
          
           ------------------------------------------------------------------ 
          |Bill No:  |SB 643                           |Hearing    | 4/29/15 |
          |          |                                 |Date:      |         |
          |----------+---------------------------------+-----------+---------|
          |Author:   |McGuire                          |Tax Levy:  |No       |
          |----------+---------------------------------+-----------+---------|
          |Version:  |4/6/15                           |Fiscal:    |Yes      |
           ------------------------------------------------------------------ 
           ----------------------------------------------------------------- 
          |Consultant|Grinnell & Weinberger                                 |
          |:         |                                                      |
           ----------------------------------------------------------------- 

                                   MEDICAL MARIJUANA



          Enacts a new regulatory framework for medical marijuana,  
          authorizes local agencies to tax marijuana products, and  
          prohibits marijuana cultivation in areas zoned residential.


           Background and Existing Law

           I. Local Taxes.  Section Five of Article XI of the California  
          Constitution allows charter cities to levy taxes which haven't  
          been preempted by state or federal governments.  The Government  
          Code also allows general law cities, but not counties, to levy  
          any tax that a charter city can unless state law limits or  
          prohibits such a tax. Article XIIIA of the California  
          Constitution requires 2/3 voter approval when a local agency  
          wants to impose or increase a special tax, or majority vote for  
          general taxes. 

          In 1933, California enacted its sales tax, followed by the use  
          tax two years later.  Charter cities began applying their own  
          sales taxes soon after, commencing with the City of San  
          Bernardino in 1945.  The Legislature also first authorized  
          general law cities to levy their own sales and use taxes in  
          1949.  While BOE administered the state tax, each city imposed,  
          collected, and audited its own sales and use tax, which could be  
          set at any rate the city chose, and could apply to different  
          products than the state or other city sales taxes.







          SB 643 (McGuire) 4/6/15                                 Page 2  
          of ?
          
          

          In 1955, the Legislature enacted the Bradley Burns Local Sales  
          and Use Tax Law to provide uniformity for local sales and use  
          taxes.  The uniform act allowed local agencies to levy its own  
          tax of one percent, and centralized administration, collection,  
          and audit with the Board of Equalization (BOE), replacing the  
          previous system where each city implemented its own tax on  
          whatever products it chose.  The Act required local agencies to  
          be perfectly uniform with each other and the state, charge the  
          same rate, and adopt the state's base for the sales tax, which  
          is "tangible personal property."  This tax rate currently is  
          fixed at 1% of the sales price of tangible personal property  
          sold at retail in the local jurisdiction, or purchased outside  
          the jurisdiction for use within the jurisdiction.  Of this 1%,  
          cities and counties use 0.75% to support general operations, and  
          the remaining 0.25% is designated by statute for county  
          transportation purposes.  In California, all cities and counties  
          impose Bradley-Burns local taxes at the uniform rate of 1%. 

          Subsequently, the Legislature allowed cities, counties, and  
          special districts to impose their own Transactions and Use tax  
          within its jurisdiction subject to voter approval, known as  
          "local add-ons" or "district taxes," so long as they relied on  
          the same base and procedures as the sales and use tax.   
          Beginning April 1, 2015, 202 local jurisdictions (city, county,  
          and special districts) will impose a district tax for general or  
          specific purposes.  Of the 202 jurisdictions, 48 are  
          county-imposed taxes 154 are levied by cities, and of the 48  
          county-imposed taxes, 29 are imposed for transportation  
          purposes. Cities and Counties may increase the sales and use tax  
          rate, but state law caps the total rate for any county at 2%,  
          with some exceptions.  Cities and counties must contract with  
          BOE to collect and remit both taxes, and BOE retains its  
          administration costs before sending tax revenue to the  
          appropriate local agency.

          II.  Licensing and Regulation of Medical Marijuana.  Current law  
          directs the Department of Consumer Affairs to regulate many  
          businesses and professions to ensure public health, safety, and  
          welfare, including the Medical Board, which licenses and  
          regulates physicians and surgeons.  

          In 1996, voters enacted the Compassionate Use Act, which  
          prohibits prosecution for the possession and cultivation of  








          SB 643 (McGuire) 4/6/15                                 Page 3  
          of ?
          
          
          marijuana of a patient or their caregiver upon written or oral  
          recommendation of a physician.  The Act provided that it  
          shouldn't be construed to supersede legislation prohibiting  
          conduct that endangers others, or to condone diversion of  
          marijuana for non-medical purposes.  However, no comprehensive  
          statewide regulatory system currently applies to medical  
          marijuana.  

          III.  Zoning.  The police power is the inherent authority of  
          governments to regulate private behavior to protect the public  
          safety, health, and welfare.  The California Constitution allows  
             counties and cities to adopt and enforce local ordinances,  
          provided that they don't conflict with general state laws. When  
          counties and cities adopt local zoning ordinances, they are  
          using their police powers.  The Planning and Zoning Law spells  
          out the procedures that county supervisors and city councils  
          must follow when they adopt zoning ordinances.


           Proposed Law

           Senate Bill 643 enacts the Medical Marijuana Public Safety and  
          Environmental Protection Act, which creates a regulatory  
          structure for medical marijuana in California, allows local  
          agencies to levy taxes on licensees under the Act, and preempts  
          local zoning ordinances.

          I.  Local Taxes.  SB 643 allows a board of supervisors or a city  
          council to enact an ordinance imposing a tax on the privilege of  
          cultivating, dispensing, producing, processing, preparing,  
          storing, providing, donating, selling or distributing marijuana,  
          as defined by the bill.  The board of supervisors or city  
          council:

                 Must specify the activities subject to the tax, the  
               applicable rate or rates, the method of apportionment, and  
               the manner of collection of the tax in the ordinance.

                 May impose a general or special tax, so long as voters  
               approve the measure under the appropriate Constitutional  
               vote threshold.

                 May impose a transactions and use tax administered by  
               BOE only on marijuana or marijuana products, as defined,  








          SB 643 (McGuire) 4/6/15                                 Page 4  
          of ?
          
          
               and any rate imposed isn't subject to the 2% cap on local  
               transactions and use taxes.

                 Provide for the collection of the tax in the same  
               manner, and subject to the same penalties as other local  
               taxes.

          A county board of supervisors must specify whether the tax  
          applies throughout the entire county or within the  
          unincorporated area of the county.

          The tax can be imposed on activities undertaken individually,  
          collectively, or cooperatively, and regardless of whether the  
          activity is for compensation or gratuitously.  The tax need not  
          be apportioned based on the benefit to any person or property,  
          or be applied uniformly to all taxpayers or real property.   
          Additionally, SB 643 provides that its tax doesn't limit or  
          prohibit any other lawfully imposed fee.

          II. Medical Marijuana Regulation.  SB 643 creates the Bureau of  
          Medical Marijuana Regulation within DCA, empowering it to  
          license and regulate many aspects of medical marijuana  
          cultivation, manufacturing, transportation, storage,  
          distribution, and sale, and charge fees to pay for its licensing  
          and enforcement duties.  The measure provides direction to DCA  
          and the Medical Board regarding regulating and sanctioning  
          physicians who violate the bill's terms, including creating  
          misdemeanor crimes for specified acts.  Additionally, the  
          measure:

                 Regulates advertising physician recommendations.

                 Directs local agencies to have primary responsibility  
               for enforcement of the act's requirements. 

                 Authorizes regulations to establish worker safety  
               standards.

                 Ensures commercial marijuana activity licensed by the  
               Act doesn't threaten the environment and watersheds.

                 Requires medical marijuana to meet certified organic  
               standards by January 1, 2022.









          SB 643 (McGuire) 4/6/15                                 Page 5  
          of ?
          
          
                 Provides that it does not supersede provisions of  
               Measure D, as approved by the voters of the City of Los  
               Angeles, or other similar measures.

          Additionally, the measure provides that licensees must abide  
          with any restrictions imposed by the local agency in which the  
          facility operates, and must not operate in any jurisdiction that  
          prohibits the establishment of that kind of business.  For a  
          more thorough analysis of the measure's regulatory program,  
          please refer to the Committee on Business and Professions  
          analysis.

          III. Local Zoning.  SB 643 prohibits a licensed cultivation site  
          from being located in an area zoned residential.

          IV. State Tax/BOE Report. The measure allows the Bureau to  
          assist state taxation authorities in the development of uniform  
          policies for the state taxation of licensees.  Additionally, the  
          measure directs BOE to report to the Legislature to compile the  
          actual tax collected on the sale of medical marijuana using the  
          most current data available for years between 2016 and 2021.

          The measure makes legislative findings supporting its purposes,  
          defines many of its term, and includes a severability clause.   
          The measure also makes specific findings regarding restricting  
          the right of public access to information due to federal medical  
          information laws.  


           State Revenue Impact

          No estimate.


           Comments

           1.  Purpose of the bill  .  According to the author, "SB 643 seeks  
          to resolve many of the issues created by the enactment of the  
          Compassionate Use Act and subsequent legislation.  SB 643  
          creates a statewide comprehensive program overseeing the medical  
          marijuana industry, from planting to consumption, and all the  
          steps in between.  California voters made it clear that they  
          wanted medical marijuana to be legalized, but issues and  
          concerns for growers, doctors, dispensaries, law enforcement,  








          SB 643 (McGuire) 4/6/15                                 Page 6  
          of ?
          
          
          district attorneys, cities, counties and others have only become  
          more complicated.  The Author, who represents the primary  
          growing region for medical marijuana in the western United  
          States, specifically remote expanses of Mendocino, Humboldt and  
          Trinity counties, which are responsible for up to 70% of the  
          marijuana grown in the west, notes that much of this area of the  
          state has come to rely on the economic benefits of marijuana  
          cultivation, but also suffers from the negative environmental,  
          public safety and public health effects that can arise from  
          rogue cultivators and lack of regulation.  The bill focuses on a  
          number of key aspects of medical marijuana cultivation and  
          proposes regulatory changes for those items, including banning  
          commercial cultivation sites in areas zoned residential.   
          According to the Author, this has been a big issue for  
          neighborhoods and residences around the state.  Commercial and  
          industrial uses do not belong in residential areas, and medical  
          marijuana grows create special problems that neighbors shouldn't  
          have to deal with.  The measure also allows local governments to  
          impose a tax or fee on cultivation, above the ultimate sales  
          tax, to help defray the expense of regulating the cultivation  
          and processing of the commodity in their jurisdiction.  The  
          Author states that this is designed to make sure local  
          authorities can afford to pay for the implementation of the  
          regulations allowed under this legislation or any other."

          2.   Pay to play  .  SB 643 allows local agencies to impose  
          transactions and use taxes specifically on marijuana products  
          using higher rates than the current uniform rate on sales of all  
          other tangible personal property.  However, a local agency doing  
          so may not receive any revenue because state law requires local  
          agencies to contract with BOE to collect and remit the tax, and  
          deduct its costs to do so from any revenue it remits to the  
          local agency.  BOE's costs to administer the Bradley-Burns and  
          Transactions and Use taxes can be spread over the hundreds of  
          local agencies administering them, but a new tax only on one  
          product requires BOE to create a new infrastructure to educate  
          retailers, create returns, and procure information technology  
          necessary to collect and remit revenue.  The Committee may wish  
          to consider deleting the measure's transactions and use tax  
          authority and make conforming changes, thereby ensuring that  
          local agencies can tailor local taxes to their needs without  
          incurring prohibitive costs.

          3.   Inputs and outputs  .  The bill requires BOE to report to the  








          SB 643 (McGuire) 4/6/15                                 Page 7  
          of ?
          
          
          Legislature to compile the actual tax collected on the sale of  
          medical marijuana using the most current data available for  
          years between 2016 and 2021.  However, retailers report one lump  
          sum to BOE totaling all its sales of property, which isn't  
          divided into individual products.  Instead of directing BOE to  
          report information that it doesn't receive, the measure should  
          instead request BOE to estimate tax revenues.

          4.  Local control and state preemption  .  The California  
          Constitution and state statutes delegate police power control  
          over land use to locally elected officials.  The Legislature has  
          taken back these controls only in unusual instances involving  
          important statewide objectives.  SB 643 imposes a statewide ban  
          on locating licensed cultivations sites within areas that are  
          zoned for residential use. It is not clear why this state  
          intrusion into local control over land use is warranted.  While  
          nothing prevents local officials from adopting zoning ordinances  
          to prohibit cultivation sites in residential areas, why  
          shouldn't they have the discretion to decide, based on local  
          conditions and priorities, that some cultivation sites are  
          compatible with residential uses?  































          SB 643 (McGuire) 4/6/15                                 Page 8  
          of ?
          
          

          Additionally, charter cities have the constitutional authority  
          to regulate their own municipal affairs, free of legislative  
          interference.  Their local regulations must give way only when  
          statutes address issues of statewide concern.  Because SB 643  
          does not assert that a cultivation site's location is an issue  
          of statewide concern, the bill may not apply to California's 121  
          charter cities.  To avoid imposing on local officials' land use  
          discretion in some, but not all, local jurisdictions, the  
          Committee may wish to consider amending SB 643 to delete the  
          prohibition on locating cultivation sites in residential areas.

          5.   Incoming  !  The Senate Committee on Business and Professions  
          approved SB 643 by a 7-0 vote on April 20th.  This Committee is  
          hearing the measure because of its local tax and zoning changes.


           Support and  
          Opposition   (4/23/15)


           Support  :  Unknown.


           Opposition  :  Unknown.



                                      -- END --