BILL ANALYSIS                                                                                                                                                                                                    



                                                                    SB 1400


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          Date of Hearing:   June 28, 2016


                   ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS


                                  Rudy Salas, Chair


                   SB 1400(Wieckowski) - As Amended June 21, 2016


          SENATE VOTE:  21-16


          NOTE:  This bill is double-referred, and if passed by this  
          Committee, it will be referred to the Assembly Committee on  
          Governmental Organization.


          SUBJECT:  Tobacco


          SUMMARY:  Revises, beginning on January 1, 2019, the definition  
          of a "retail location" under the Cigarette and Tobacco Products  
          Licensing Act to limit the sale of cigarettes and tobacco  
          products to "tobacco stores" as currently defined in law.  


          EXISTING LAW:   


          1)Establishes the Cigarette and Tobacco Products Licensing Act  
            of 2003, and requires the Board of Equalization to administer  
            a statewide program to license manufacturers, importers,  
            distributors, wholesalers, and retailers of cigarettes and  
            tobacco products. (Business and Professions Code (BPC) Section  
            22970, et seq.)









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          2)Defines "tobacco products" as all forms of cigars, smoking  
            tobacco, chewing tobacco, snuff, and any other articles or  
            products made of, or containing at least 50 percent tobacco,  
            but does not include cigarettes, among other items.  (BPC  
            Section 22971(s))
          3)Defines "retail location" as both any building from which  
            cigarettes or tobacco products are sold at retail and a  
            vending machine. (BPC Section 22971(q)) 


          4)Requires a retailer to obtain a separate license for each  
            retail location that sells cigarettes and tobacco products and  
            pay a one-time fee of $100. (BPC Sections 22972, 22973(7)(d))


          5)Defines a "tobacco store", under the Stop Tobacco Access to  
            Kids Enforcement Act, as a retail business that meets the  
            following requirements:  (BPC Section 22962(a)(4))

             a)   Primarily sells tobacco products.



             b)   Generates more than 60 percent of its gross revenues  
               annually from the sale of tobacco products and tobacco  
               paraphernalia.



             c)   Does not permit any person under 18 years of age to be  
               present or enter the premises at any time, unless  
               accompanied by the person's parent or legal guardian, as  
               defined in Family Code Section 6903.



             d)   Does not sell alcoholic beverages or food for  
               consumption on the premises. 








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          6)Requires all persons engaging in the retail sale of tobacco  
            products to check the identification of tobacco purchasers, if  
            the purchaser reasonably appears to be under the age of 21.   
            (BPC Section 22956)


          THIS BILL: 


          7)Revises and recasts the definition of a "retail location"  
            under the California Cigarette and Tobacco Products Licensing  
            Act of 2003, to match the definition of a "tobacco store" as  
            specified under the Stop Tobacco Access to Kids Enforcement  
            Act, beginning January 1, 2019.
          8)Makes other conforming changes.  


          FISCAL EFFECT:  According to the Senate Appropriations Committee  
          analysis, no fiscal impact is anticipated by the Department of  
          Public Health with respect to its enforcement of the Stop  
          Tobacco Access to Kids Enforcement Act.  This bill will likely  
          result in:


                 One time increase in tobacco retailer licensing fees of  
               about $700,000 in the first year, offset in future years by  
               an ongoing reduction of $470,000 per year in licensing fee  
               revenues.  The definitional change in the bill will result  
               in a substantial reduction in the number of retail  
               businesses that can legally sell cigarettes and tobacco  
               products in the state.  According to the Board of  
               Equalization (Board), this change is expected to prohibit  
               about 30,000 retailers (including grocery stores and gas  
               stations) from selling tobacco products.  This would leave  
               about 2,200 existing retailers that are likely to meet the  
               new definition of a "retail location".  In addition, the  








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               Board estimates that an additional 7,000 new retail  
               locations would open to meet existing demand for tobacco  
               products.  The Board anticipates an initial influx of  
               licensing application fee revenue from those new retail  
               locations, offset in future years from reductions in  
               license applications from retail locations no longer  
               authorized to sell tobacco products.  

                 Reduced total excise tax and sales tax revenues on  
               tobacco products of $84 million per year.  The Board  
               projects reduced tobacco excise tax revenues of about $56  
               million per year (about 10% of which would come from the  
               General Fund and the remainder from special funds that  
               support a variety of public health programs).  The Board  
               estimates reduced sales tax revenues of about $29 million  
               per year (about 50% coming from the General Fund and the  
               remainder coming from local government sales tax revenues).  
                The Board estimates that most consumers will shift their  
               purchases of tobacco products from retailers such as gas  
               stations or grocery stores to tobacco stores.  However, the  
               Board also projects an overall reduction in tobacco  
               consumption from this change, due to the reduced  
               convenience having to purchase tobacco products only at  
               tobacco stores. 

                 Unknown, but significant health care cost savings to  
               public payers. According to the Centers for Disease Control  
               and Prevention, estimates of annual direct health care  
               costs related to smoking are between $130 billion and $180  
               billion per year, nationally.  This bill is likely to  
               reduce health care costs, by reducing tobacco use rates.   
               If the long-term reduction in the expenditure of health  
               care costs relating to smoking is proportional to the  
               reduction in the use rate, total direct health care costs  
               in the state would be reduced by as much as $1 billion per  
               year in the long-run.  A significant portion of those  
               savings would likely accrue to public payers such as the  
               Medi-Cal program and CalPERS









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          COMMENTS:  


          Purpose.  This bill revises the definition of a retail tobacco  
          location, which will limit the types of retail locations that  
          will be authorized to sell tobacco products.  This bill is  
          sponsored by the author.  According to the author, "[This bill]  
          will do more to prevent exposure and access to tobacco products  
          to children by reducing its pervasive presence in retail  
          locations in California.  Despite having steep penalties for  
          selling tobacco to minors, 90% of smokers still say they began  
          smoking before the legal age. This is in part because tobacco  
          companies have not stopped in their efforts to market to  
          children."  


          Background.  Cigarette and Tobacco Products Licensing Act.  As a  
          result of AB 71 (Horton), Chapter 890, Statutes of 2003, the  
          Cigarette and Tobacco Products Licensing Act (Act) was enacted.   
          The Act imposed licensing requirements on all retailers,  
          wholesalers, and distributors of cigarettes and tobacco products  
          and all manufacturers and importers of cigarettes.  Licensing  
          requirements are in addition to the permits and licenses that  
          may be required depending on other business operations.  The Act  
          intended to decrease tax evasion on the sales of cigarettes and  
          tobacco products in California, and also included provisions for  
          new recordkeeping requirements, inspection and seizure of any  
          untaxed cigarettes or tobacco products, and imposed civil and  
          criminal penalties for violations.




          The BOE is the regulatory entity charged with the licensure and  
          enforcement of the Act.  As noted, retail sellers of cigarettes  
          and tobacco products in California must have a Cigarette and  
          Tobacco Products Retailer's License. There is a one-time fee of  
          $100 for each location from which cigarettes or tobacco products  








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          are sold at retail; a license is valid for one year and must be  
          renewed annually.  There is no additional charge to renew a  
          license.  However, if a license expires, a fee of $100 is  
          required for reinstatement.  Retailers are strictly prohibited  
          from selling cigarette and other tobacco products without a  
          valid Cigarette and Tobacco Products Retail License. 

          In an analysis of this bill, the BOE notes that it anticipates  
          that the definitional change will reduce the number of retail  
          locations from approximately 33,000 (current licensees) to less  
          than 3,000.  The BOE notes that the largest numbers of licensees  
          were grocery stores, gas stations, convenience stores, liquor  
          stores, and tobacco stores.  Of those total licensees, only  
          2,276 were solely tobacco only stores.  However, the BOE  
          analysis does anticipate an increase of new tobacco retail  
          facilities (estimates approximately 10,000) as a result of this  
          bill, well below the current 33,000 current retail  
          establishments that can sell tobacco specified products.  


          This bill includes a two-year delayed implementation.  According  
          to the author, the delayed implementation will help provide  
          businesses with time to change their business model (become a  
          retail tobacco store) to meet the revised requirements  
          prescribed by this bill in order to sell tobacco products. 


          The Stop Tobacco Access to Kids Enforcement Act (STAKE).  The  
          Stake Act was established in the 1990s as an effort to address  
          the issue of tobacco sales to minors in California to conform to  
          a federal mandate, among other reasons.  The STAKE is enforced  
          through the California Department of Public Health (CDPH).   
          According to the CDPH, "the mission of the program is to reduce  
          the illegal sales of tobacco products to individuals under 21  
          years of age through effective enforcement of the STAKE."  The  
          BPC Section 29952(c) requires the CDPH to conduct random  
          inspections at retail sites in order to investigate the sales of  
          tobacco to underage minors.  In addition, the STAKE requires  
          that specified tobacco retailers include an age-of-sale warning  








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          at each point of sale that selling tobacco to persons under the  
          age of 21 years is illegal and subject to penalties.  Until June  
          of 2016, the sale of tobacco products was prohibited for persons  
          under the age of 18, current law now prohibits the sale of  
          tobacco products to individuals under 21 unless they are active  
          duty military personnel in the U.S. Armed Forces.  The STAKE was  
          implemented as a mechanism to ensure that minors were not  
          effectively able to obtain tobacco products from retail stores,  
          and if they were, those stores be subjected for penalties.  The  
          revised definition of a retail tobacco store as proposed in this  
          bill is similar to the definition of a tobacco store identified  
          in the STAKE, which was established to address illegal sales to  
          minors and not for issuance of retail sale licenses.   

          The CDPH conducts an annual "Statewide Youth Tobacco Purchase  
          Survey" to monitor retailer compliance with the Act.  The CDPH's  
          California Tobacco Facts and Figures 2015 report states,  
          "Although California prohibits selling tobacco to youth ages 18  
          and under, statewide data show that more than 5% of retailers  
          still sell tobacco to minors."  The report breaks down the  
          percentage of retailers selling tobacco to youth by store type.   
          It was found that while some retail stores were found to have  
          higher incidents of selling tobacco to minors, including  
          convenience stores with gasoline, restaurants, donut shops,  
          meat, and produce markets, the incident rates were at least  
          eight percent less compared to that of tobacco stores.  The most  
          compliant retailers included supermarkets and drug  
          stores/pharmacies.  

          Tobacco Consumption and Tobacco Sales to Minors.  The CDC states  
          that if smoking continues at the current rate among youth in  
          this country, 5.6 million of today's Americans younger than 18  
          will die early from a smoking-related illness.  Some of the  
          statistics related to tobacco use provided by the CDC indicate  
          that while there has been no significant change in overall  
          tobacco use among high school students since 2011, there was a  
          decrease in cigarette use among high school students from  
          2011-2015.  According to the Executive Summary from the Surgeon  
          General's 2012 report, Preventing Tobacco Use Among Youth and  








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          Adults, "nearly all tobacco use begins in childhood and  
          adolescence.  In all, 88% of adult cigarette smokers who smoke  
          daily, report that they started smoking by the age of 18, (NSDUH  
          2010, Chapter 3).  This is a time in life of great vulnerability  
          to social influences, and the pervasive presence of tobacco  
          product marketing-including everything from sleek ads in  
          magazines to youth-generated posts on social networking sites,  
          to images of smoking in the movies-conveys messages that make  
          tobacco use attractive to youth and young adults."  

          Tobacco Products Banned from Pharmacies. In 2008, San Francisco  
          became the first city in the United States to ban the sale of  
          tobacco products from retail pharmacies, and Boston became the  
          second.  Additionally, CVS announced in 2014 that it planned to  
          ban tobacco products from all of its stores.  

          Current Related Legislation.  SB 1470 (Wieckowski) of 2016,  
          revises the definition of "tobacco store" to indicate that a  
          retail business primarily sells tobacco products and tobacco  
          paraphernalia.  STATUS:  This bill is currently pending in the  
          Assembly Committee on Business and Professions. 


          SBX2 - 5 (Leno) Chapter 7, Statutes of 2016, recasts and  
          broadens the definition of "tobacco product" to include  
          electronic cigarettes, as specified; extends current  
          restrictions and prohibitions against the use of tobacco  
          products to electronic cigarettes; extends current licensing  
          requirements for manufacturers, importers, distributors,  
          wholesalers, and retailers of tobacco products to electronic  
          cigarettes; and requires electronic cigarette cartridges to be  
          child-resistant.  

          SB X2 - 7 (Hernandez) Chapter 8, Statutes of 2016 increases the  
          minimum legal age to purchase or consume tobacco from 18 to 21  
          and makes additional conforming changes to restrictions and  
          enforcement mechanisms in current law.  

          Prior Related Legislation.  SB X2 - 10 (Beall) of 2015, would  








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          have revised the Cigarette and Tobacco Products Licensing Act of  
          2003 to change the retailer license fee from a $100 one-time fee  
          to a $265 annual fee, and increased the distributor and  
          wholesaler license fee from $1,000 to $1,200.  NOTE:  This bill  
          was held at the Assembly desk.

          SB 24 (Hill) of 2015, would have classified electronic  
          cigarettes separately from tobacco products, added electronic  
          cigarettes to the Stop Tobacco Access to Kids Enforcement Act  
          and smoking location prohibitions, and mandated childproof  
          packaging for e-liquid used in electronic cigarettes.  NOTE:   
          This bill was amended to pertain to the California Public  
          Employees' Pension Reform Act of 2013.  

          ABX2 - 6 (Cooper) of 2015, defined the term smoking for purposes  
          of the Stop Tobacco Access to Kids Enforcement Act, expanded the  
          definition of a tobacco product to include electronic cigarettes  
          (e-cigarettes), and extended current restrictions and  
          prohibitions against the use of tobacco products to electronic  
          cigarettes.  The bill further extended current licensing  
          requirements for manufacturers, importers, distributors,  
          wholesalers, and retailers of tobacco products to electronic  
          cigarettes.  NOTE:  This bill was held on the Assembly Floor.
              
           AB 1500 (Dickinson) of 2014, would have prohibited a delivery  
          seller, as defined, from selling or delivering an electronic  
          cigarette to a person under 18 years of age.   NOTE:   This bill  
          failed passage in the Assembly Committee on Appropriations.
              
           SB 568 (Steinberg), Chapter 336, Statues of 2013, prohibits an  
          operator of an Internet Web site, online service, online  
          application, or mobile application, as specified, from marketing  
          or advertising electronic cigarettes to a minor.
              
           SB 648 (Corbett) of 2013, would have restricted electronic  
          cigarettes from being sold in vending machines. NOTE:  SB 648  
          failed passage in the Assembly Committee on Appropriations.
              
           SB 882 (Corbett), Chapter 312, Statutes of 2010, made it  








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          unlawful, to the extent not preempted by federal law, for a  
          person to sell or otherwise furnish an electronic cigarette to a  
          person less than 18 years of age.
              
           ARGUMENTS IN SUPPORT: 


          The  California College and University Police Chiefs Association   
          writes in support, "This important bill will modernize the way  
          tobacco products are sold in California.  Tobacco products are  
          everywhere-easily available in a quick trip to a gas station or  
          grocery store or virtually every retail establishment around a  
          college or university campus."


           Common Sense Kids Action  writes in support, "[This bill] will  
          help reduce the chance that children will be impacted by the  
          negative lifetime health risks associated with these products.   
          By restricting the sales of tobacco products to tobacco stores,  
          this bill will both drastically reduce exposure of minors to  
          tobacco and streamline tax collection and enforcement for the  
          Board of Equalization."


          The  Santa Clara County Board of Supervisors  writes in support,  
          "[This bill] narrows the definition of retailers permitted to  
          sell tobacco products to only tobacco stores.  This would  
          significantly restrict where tobacco products can be purchased  
          and help reduce tobacco exposure to minors."


          The  County Health Executives Association of California  writes in  
          support, "Limiting the sale of tobacco products to only at  
          tobacco stores would decrease youth exposure to tobacco products  
          as they do not allow minors to enter the premises without a  
          parent or legal guardian."


          The  American Cancer Society Cancer Action Network  writes in  








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          support, "By limiting the sale of tobacco products to tobacco  
          only stores, this bill limits the number of tobacco retailers  
          and thus the ability of the tobacco industry to market tobacco  
          to our kids.  Studies have shown that frequent exposure to  
          tobacco retail displays has been associated with increased  
          smoking initiation among youth and can create a negative impact  
          on tobacco quit attempts."



          ARGUMENTS IN OPPOSITION:


          The  California Association Representing Independent Fuel, Lubes  
          and Convenience Store Interests  writes in opposition, "Sale of  
          tobacco products provides essential revenues for the operation  
          and profitability of convenience stores, allowing continued  
          operation of those vital community service locations.   
          Prohibiting sales of tobacco products will create serious, if  
          not fatal, consequences for such businesses."


          The  California Chamber of Commerce  writes in opposition,  
          "Passage of this bill will result in a loss of jobs and tax  
          revenues." 


          The  National Federation of Independent Business Owners  writes in  
          opposition, "the sale of legal tobacco products generates 40% of  
          the gross grocery sale revenue for the typical small convenience  
          stores and gas stations.?[This bill] will only serve to further  
          decimate small business in a state where they are struggling to  
          survive and create job."


          The  California Retailers Association  , "While tobacco is a legal  
          product in California, our members would like to continue to  
          responsibly sell offer it for sale to age appropriate  
          consumers."








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           Trepco West  writes in opposition, "[This bill would create an  
          unfair swing in the tobacco and cigarette business that will  
          hurt thousands of businesses across the state, including Trepco  
          West, and forcing more people out of jobs."


           C-Store Realty  and  G&M Oil Company, Inc.  , writes in opposition,  
          "There is no good reason to support the sales prohibition in  
          [this bill], convenience stores have a well-deserved and  
          positive compliance record; serving only those eligible to buy  
          legal tobacco products."


          The  California Distributors Association  writes in opposition,  
          "[This bill] will have a heavy impact on the viability of  
          convenience stores and small grocery stores."

          A  coalition of organizations  writes in opposition, "this bill  
          places undue burden on our licensed retailers that have for many  
          years sold tobacco products in a successful and responsible  
          manner to legal age consumers."

          REGISTERED SUPPORT:


          American Cancer Society Cancer Action Network
          California College and University Police Chiefs Association
          Common Sense Kids Action
          County Health Executives Association of California
          Santa Clara County Board of Supervisors

          REGISTERED OPPOSITION:


          American Petroleum and Convenience Store Association*
          California Asian Chamber of Commerce*
          California Association Representing Independent Fuel, Lubes and  








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          Convenience Store Interests
          California Black Chamber of Commerce*
                                                                                 California Chamber of Commerce*
          California Distributors Association*
          California Independent Oil Marketers Association*
          California Licensed Beverage Association*
          California Retailers Association*
          C-Store Realty
          National Federation of Independent Business Owners*
          Regional Black Chamber of Commerce*
          Retailers and Store Owners United to Rebuild California's  
          Economy*
          Trepco West
          Valley Industry Commerce Association*
          Numerous individuals





          Analysis Prepared by:Elissa Silva / B. & P. / (916)  
          319-3301