BILL ANALYSIS Ó
SB 643
Page 1
Date of Hearing: August 26, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
SB 643
(McGuire) - As Amended August 18, 2015
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Urgency: No State Mandated Local Program: YesReimbursable:
No
SUMMARY:
This bill creates a state licensing and regulatory framework for
medical marijuana. The bill includes provisions related to
licensure; health and safety standards, which include testing
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and labeling; record-keeping; security; transportation;
taxation; certification of employees; and physician
recommendation and advertising. Specifically, this bill:
1) Establishes parameters related to medical recommendation
of marijuana, requiring the Medical Board to prioritize for
investigation repeated acts of recommending marijuana for
medical reasons and adopt medical guidelines for its
administration and use, and prohibiting a physician from
recommending marijuana unless the person is a patient's
"attending physician," as defined by the Compassionate Use
Act.
2) Exempts from licensure a patient who cultivates or
possesses marijuana for personal medical use, or a primary
caregiver who cultivates, possesses or provides marijuana to
no more than five patients, as specified.
3) Establishes the Office of Medical Marijuana Regulation
Office within the Business, Consumer Affairs, and Housing
Agency, to enforce its provisions. Requires the Office, by
January 1, 2018, to promulgate regulations for
implementation and enforcement, as specified.
4) Requires the Office to convene an advisory committee, as
specified, to advise on the development of standards and
regulations.
5) Specifies protection of the public and preserving patient
access to medical marijuana are the highest priorities.
6) Requires various licensee records to be kept in a
database, and made available with 24-hour access to
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information upon request.
7) Creates the fee-based Medical Marijuana Regulation Fund
and the Special Account for Environmental Enforcement;
specifies all penalties are deposited into the GF; and
authorizes the Office to administer a grant program to
allocate funds to state and local entities to assist with
administration and enforcement.
8) Authorizes the Office to issue, suspend, and revoke
licenses for marijuana cultivation, manufacture,
transportation, storage, distribution, testing, and sale of
medical marijuana within the state, and to collect related
licensing fees.
9) Establishes a tiered licensing scheme, depending on size,
complexity, and type of license, for cultivation,
manufacturers, dispensing facilities, distributors, and
testing entities.
10) Requires the California Department of Food and Agriculture
(CDFA) to develop an organic designation or its equivalent,
and to establish appellations of origin for marijuana grown
in California.
11) Prohibits unlicensed activity. Makes licensees subject to
local jurisdiction restrictions, including prohibitions on
operation. Requires local permits and state licenses in
order for a business to operate. Specifies existing
businesses can operate until a license is approved or
denied.
12) Specifies medical marijuana transportation requirements,
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including secure vehicles and minimum staffing.
13) References, but does not explicitly allow, unlicensed
activity in the City of Los Angeles.
14) Requires licensed facilities to implement specified
security measures, including access, storage, and inventory
controls.
15) Authorizes boards of supervisors to impose a tax on the
privilege of cultivating, dispensing, producing, processing,
preparing, storing, providing, donating, selling, or
distributing medical marijuana or medical marijuana products
by a licensee, and provides it is declaratory of existing
law.
16) Requires a tracking program be in place prior to
commencement of licensure.
17) Establishes food safety, potency, and labeling standards
for edible marijuana products.
18) Requires the Office to promulgate standards for
certification of testing laboratories to perform random
sample testing of all medical marijuana products, and to
certify testing laboratories.
19) Requires the Division of Labor Standards Enforcement in
the Department of Industrial Relations (DIR) to develop
competency and training certification standards for
cultivation and dispensing employees.
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20) Makes willful violations of this act punishable by a civil
fine of up to $35,000. Technical violations are punishable
by fines of up to $10,000.
21) Requires the California Highway Patrol (CHP) to conduct
research to determine whether a driver is operating a
vehicle under the influence of cannabis, and to assist law
enforcement agencies to establish best practices. Funds
this activity through the fines and penalties account.
22) Specifies funds for the establishment and support of the
Office shall be advanced as a loan from the General Fund,
and shall be repaid by the initial proceeds from fees.
FISCAL EFFECT:
Costs/Fees:
1)Significant one-time costs in the range of $25 million (GF
loan) to establish the Office, basic structure, information
technology infrastructure, and regulations. The bill specifies
startup costs for establishment of the bureau are to be
advanced as a loan from the General Fund.
2)Annual costs, conservatively around $20 million and
potentially exceeding $50 million (Medical Marijuana
Regulation Fund), to maintain the Office within the Agency to
regulate the medical marijuana industry.
As a comparison, the budget of the Department of Alcoholic
Beverage Control (ABC) is approximately $60 million and 450
positions. The ABC is charged with licensing and regulating
persons and businesses engaged in the manufacture, importation
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and distribution of alcoholic beverages, and administering the
provisions of the ABC Act to protect the health, safety,
welfare and economic well-being of the state. In addition, the
ABC Appeals Board has a $1 million budget.
Based on funding and staffing levels of the ABC, and
considering the complexities of the undertaking and the
significant start-up costs of any new entity (adoption of
regulations and fee schedules, office equipment and expenses,
etc.), it appears reasonable to assume the costs of providing
statewide regulation for cultivation, manufacture, testing,
transportation, distribution, and sale of medical marijuana,
along with associated hearings, appeals, litigation and
enforcement, would conservatively be in the range of 35% of
the ABC budget.
3)This bill establishes unspecified registration fees. The costs
of creating and maintaining the Office, as specified, would
require significant application fees. For purpose of
illustration, the average fee to cover the cost of a $20
million entity, if there were 5,000 annual applications, would
be $4,000 per application.
4)Unspecified revenues related to marijuana cultivation based on
an additional fee assessment, distributed to the Account to
State Water Resources Control Board, the Department of Fish
and Wildlife, the Department of Forestry and Fire Protection,
the Department of Pesticide Regulation, and the Department of
Food and Agriculture to support enforcement of environmental
regulation.
5)One-time costs potentially exceeding $100,000 (Contingent Fund
of the Medical Board of California) to issue medical
guidelines related to marijuana. Ongoing costs to the
California Medical Board for investigating physicians who
overprescribe marijuana should be minor and absorbable.
6)Minor ongoing costs to DOJ for background checks, covered by
applicant fees.
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7)Litigation costs to DOJ to defend the office, estimated in the
range of $10 million. Costs would be reimbursed by DCA,
presumably with applicant fee revenue, if sufficient.
8)One-time costs to DIR to certify cultivation and dispensing
employees in the range of $1 million (GF), and $900,000
annually ongoing (Medical Marijuana Regulation Fund).
9)One-time costs to the Office, likely in the range of millions,
as well as costs in a similar range ongoing, to certify
laboratories for testing of marijuana (Medical Marijuana
Regulation Fund).
10) Unknown, potentially significant non-reimbursable
local law costs for enforcement of medical marijuana
regulation.
Tax and penalty revenue:
1)Unknown moderate local revenue increase, potentially in the
millions of dollars, from a permissive and unspecified local
tax.
2)Unknown GF revenue from fines of up to $35,000 for willful
violations and up to $10,000 for technical violations of the
act.
COMMENTS:
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1)Purpose. According to the author, this bill seeks to resolve
many of the issues created by the enactment of Proposition
215, or the Compassionate Use Act, and subsequent legislation.
The author states California voters clarified their desire to
legalize medical marijuana; however, there are growing issues
and concerns for many stakeholders. For instance, he notes
trespass grows have become an environmental disaster,
illegally diverting millions of gallons of water from rivers
and streams, creating a clearance ground for pesticides,
insecticides, rodenticides, and fertilizers, and depositing
large amounts of sediment into waterways from crop runoff. The
author concludes this bill contains provisions necessary to
recognize the voters' mandate of Proposition 215 and
streamlines the ability of the medical marijuana industry to
grow and sell a legal product.
2)Current Medical Marijuana Law. Possession and sale of
marijuana is a crime under federal law, and federal law
preempts state law. California patients who obtain a
physician's recommendation are protected from prosecution for
possessing or cultivating an amount of cannabis reasonably
related to their current medical needs, as are patients'
caregivers. Patients and caregivers who obtain a state Medical
Marijuana Program (MMP) identification card from their county
health department are protected from arrest and prosecution
for possessing, delivering, or cultivating cannabis. Patients
and caregivers who engage in these activities, however, remain
liable to federal arrest and prosecution, and those who
operate dispensaries face frequent federal enforcement
actions. A brief history of relevant law is below:
a) In 1996, California voters passed Prop 215, the
Compassionate Use Act (CUA), which prohibits prosecution
for growing or using marijuana if a person has an oral or
written recommendation of a physician.
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b) In 2003, SB 420 (Vasconcellos, Statutes of 2003), the
Medical Marijuana Program Act, created a voluntary
identification card that patients and caregivers could
obtain to protect them from arrest, and limited the amount
of marijuana that could be legally grown and possessed.
c) In 2005, the U.S. Supreme Court ruled in Gonzales v.
Raich (2005) that the federal government can enforce
marijuana prohibitions despite state medical marijuana law.
d) In 2010, the CA Supreme Court ruled in People v. Kelly
that the MMP section limiting quantities of cannabis is
unconstitutional because it amends a voter initiative.
e) In 2013, the CA Supreme Court held medical marijuana
statutes do not preempt a local ban on facilities that
distribute medical marijuana, and that municipalities may
prohibit such conduct as a public nuisance (City of
Riverside v. Inland Empire Patient's Health & Wellness
Center).
f) Also in 2013, the U.S. Department of Justice (USDOJ)
issued guidance that stated, "In jurisdictions that have
enacted laws legalizing marijuana in some form and that
have also implemented strong and effective regulatory and
enforcement systems to control the cultivation,
distribution, sale, and possession of marijuana, conduct in
compliance with those laws and regulations" is less likely
to threaten federal priorities which include the most
significant public threats, including disrupting gang and
cartel activities, preventing revenue diversion, etc. DOJ
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states where strong state and local regulatory systems
exist, "enforcement of state law by state and local law
enforcement and regulatory bodies should remain the primary
means of addressing marijuana-related activity."
California is the only state that permits medical marijuana
in the absence of a robust statewide regulatory system;
half of all states have some such system.
1)Comments.
a. Organizational Structure. This bill places
significant authority in a newly created Office within an
existing state agency. The duties of the office will
include promulgating regulations, contracting for a
significant information technology project that will meet
the bill's requirements, developing licensure programs
and processes, conducting licensure and enforcement
activities. The licensed entities are disparate, from
farms to laboratories to retail outlets. While there is
value in centralizing control and accountability, such a
structure may fail to leverage existing state expertise
and lead to a misalignment of duties by placing only
those specific to marijuana in a stand-alone entity. For
example, California Department of Public Health (CDPH)
would be in the business of licensing all laboratories in
the state, except for those dealing with marijuana
testing, even though presumably they may have existing
regulatory relationships with same laboratories for other
non-marijuana activities. CDPH has existing
infrastructure for doing this activity, including
regulatory expertise, technical field staff, fee
collection infrastructure, and other assets that could be
leveraged.
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An alternative approach would be to combine a central
entity with the ability to leverage existing expertise.
For example, a bill could assign duties to appropriate
existing agencies but play a coordinating role. Or, a
bill could require a central coordinating Office to issue
all regulations, but allow the Office to contract via
interagency agreement with CDPH and CDFA or other
appropriate entities for actual licensure and enforcement
activities. Staff could work within CDPH but under an
interagency agreement with the Office, in order to
maintain a higher level of accountability for the overall
regulatory structure and prevention of diversion to the
black market. There are a number of organizational
options, but more flexibility may offer some benefits.
In addition or alternatively, a centralized Office could
be set up initially, in order to ensure consistency in
the promulgation of regulations and operations, with the
intent that program activities could be spun off from the
centralized office once start-up activities are complete
and regulatory programs are robust.
Inserting a sunset date on the operation of the office
would provide a natural opportunity for the Legislature
and administration to reconsider whether the chosen
approach is still the right one after start-up activities
are completed.
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b. Fiscal comments. The bill should specify that
licensure fees can be scaled based on size and regulatory
complexity. In addition, the fee revenue for different
license types is not differentiated. This may result in
cross-subsidization between licensure categories.
Regulatory fees that are out of proportion to the cost of
regulation may confer legal risks that fees are
impermissible, and as a matter of principle they should
be scaled according to regulatory costs. Staff suggests
greater differentiation between categories to ensure
licensees are fairly charged.
Analysis Prepared by:Lisa Murawski / APPR. / (916)
319-2081