BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: AB 2496
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AUTHOR: Nava
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AMENDED: May 20, 2020
HEARING DATE: June 16, 2010
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REFERRAL: Revenue & Taxation
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CONSULTANT:
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Dunstan
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SUBJECT
Cigarette and tobacco products
SUMMARY
Amends provisions of California's Cigarette and Tobacco
Products Licensing Act, and Tobacco Products Tax Law, and
other statutes as they relate to the obligations of tobacco
manufacturers who were not original signatories to the
agreement or who have not agreed to the terms of the Master
Settlement Agreement (MSA) between the state and the major
tobacco manufacturers.
CHANGES TO EXISTING LAW
Existing law:
Provides, under the California and Tobacco Products
Licensing Act of 2003, for the licensure of manufacturers,
importers, distributors, wholesalers and retailers of
cigarettes or tobacco products; imposes certain fees,
reporting requirements and practices on the part of
licensees; and authorizes the imposition of civil and
criminal penalties on individuals who violate provisions of
the act or other tobacco-related laws, including
prohibitions on the sale of tobacco products without a
license or to minors.
Continued---
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Requires a manufacturer or importer of tobacco products, as
a condition of obtaining and maintaining a license to
operate in this state, to do all of the following:
Submit to the Board of Equalization (BOE) a list
of all brand families, as defined, that they
manufacture or import and to update that list when a
new brand family is added.
Consent to the jurisdiction of the California
courts for the purpose of enforcing the Tobacco
Licensing Act and to appoint a registered agent for
service of process in this state.
Certify that it is either a participating
manufacturer in the Master Settlement Agreement, or
that it is in full compliance with escrow fund
requirements for non-participating manufacturers
(NPM).
Authorizes any peace officer, or BOE employee granted
limited peace officer status, to conduct on-site
inspections to ensure compliance with the Tobacco Licensing
Act and other tobacco-related laws and regulations.
Prohibits a tobacco manufacturer, importer, distributor or
wholesaler from selling tobacco products to another
distributor, wholesaler, retailer or other person who is
not licensed in the state, except as specified. Provides
further that no retailer, distributor or wholesaler shall
purchase tobacco products from a manufacturer or importer
that is not licensed in this state.
Prohibits an importer, distributor, wholesaler or retailer
from purchasing or otherwise acquiring any package of
cigarettes to which a stamp or meter impression may not be
affixed, in accordance with provisions of the Tobacco Tax
Law.
Prohibits the sale, distribution, or import of "bidis" or
"beedies" (defined as a product containing tobacco that is
wrapped in temburni leaf or tendu leaf) unless it is sold
or intended for sale in business establishments that
exclude minors.
Requires every tobacco manufacturer whose cigarettes are
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sold in this state, whether directly or through a
distributor, retailer, or similar intermediary, to execute
and deliver to the Attorney General (AG) a prescribed form
certifying that it is either a participating manufacturer
in the MSA or a NPM that is in full compliance with the
escrow fund deposit requirements. Requires the Attorney
General to maintain a directory of persons or entities that
have complied with the certification requirements
Requires, under the Tobacco Tax Law, a tax on cigarettes
and tobacco products, paid by distributors, through the use
of stamp or meter impressions, and generally prohibits the
sale or distribution of products that lack the required
stamp or meter impressions. Further authorizes the BOE to
conduct on-site inspections to ensure compliance and to
seize any non-complying property, as specified.
Provides, under the MSA entered into by 46 states and
various tobacco companies, that, in return for a release
from certain claims brought against them, the tobacco
companies agree to pay substantial sums to the states based
on volume of sales; fund a national foundation devoted to
the interests of public health; and make substantial
changes in their advertising and marketing practices,
especially with the intention of reducing underage smoking.
Requires any tobacco product manufacturer selling
cigarettes to consumers within this state, whether directly
or through a distributor, retailer, or similar
intermediary, to either become a participating manufacturer
as that term is used in the MSA, or place into a qualified
escrow account specified amounts based on the volume of
products sold within the state.
Provides, under the federal Prevent All Cigarette
Trafficking Act of 2009 (PACT Act), that persons or
businesses that sell cigarettes and smokeless tobacco
products via the Internet or other non-face-to-face means
must pay all applicable federal, state, local, or Tribal
taxes and affix appropriate stamps; comply with various
state and local laws as if the Internet or other
non-face-to-face sellers were tobacco product retailers in
the same state as their customers; and check the age and
identification of customers both at the point of sale and
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at the point of delivery.
This bill:
Requires a manufacturer or importer to consent to
jurisdiction of the California courts for the purpose of
enforcement of the MSA and a specified provision of the
Cigarette and Tobacco Products Tax Law. Requires the
manufacturer or importer to identify the registered agent
to the Department of Justice.
Authorizes a peace officer or board employee that is
granted limited peace officer status to inspect any site
with respect to specified violations of state tax law.
Prohibits a manufacturer or importer from acquiring a
package of cigarettes unless the brand family or product
manufacturer of the cigarettes is included on a directory
posted by the DOJ, as specified. Deletes the DOJ's fee on
manufacturers for implementing and maintaining the
directory.
Authorizes a tobacco product manufacturer that elects to
place funds into a qualified escrow fund to make an
irrevocable assignment of its interest in the funds to the
benefit of the State of California. Requires any funds
assigned to the state that are withdrawn to be deposited
into the General Fund as a credit against any judgment or
settlement which may be obtained against the tobacco
product manufacturer who has assigned the funds.
Requires a stamp or meter impression to be made on rolls of
tobacco, as specified, and makes conforming changes to
related provisions:
Requires certification of additional information,
as specified;
Establishes circumstances under which a
manufacturer and brand families are to be excluded
from the directory of tobacco product manufacturers
that are participating manufacturers and brand
families under the MSA, and would require those
distributors, after receiving notice from the DOJ, to
provide notice to specified customers.
Deletes provisions referring to cigarettes or
tobacco products from a NPM located outside the United
States that is removed form the directory.
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Requires a newly qualified NPM or a NPM that poses an
elevated risk of noncompliance, as defined, with tobacco
products tax law or the MSA, to post a surety bond, as
specified before inclusion onto the DOJ's directory of
tobacco product manufacturers that are participating
manufacturers under the MSA.
Specifies that a person is prohibited from shipping or
distributing into or within this state for personal
consumption in California, cigarettes of a tobacco
manufacturer or brand family not included in the directory,
and would provide that this specification is declaratory of
existing law.
Requires any NPM not located in the United States, as an
additional condition precedent to having its brand families
listed or retained in the directory, to cause its importers
to appoint an agent, as specified, and would impose
additional specified responsibilities upon such
manufacturer.
Requires, as a condition of selling cigarettes in
California, a tobacco product manufacturer, as specified,
to submit, or authorize to disclose, a copy of its
applicable return. Provides that a failure to comply with
that provision would subject the manufacturer and its brand
companies to removal from the directory and, imposes a
civil penalty on any manufacturer that intentionally
provides an applicable return with materially false
information.
Adds to the forfeiture list cigarette and tobacco products
that do not meet requirements specified by BOE or the
Attorney General (AG). Requires the BOE and the DOJ to
share the data, including e-mail addresses, for
distributors, importers, manufacturers, and wholesalers.
Eliminates the reference to the track and trace provisions
under state law that is applicable to delivery sales.
Amends the definition of bidis or beedies, as defined, to
include any product that is marked as sold as "bidis" or
"beedies", and clarifies that persons who violate the
prohibition prescribed under existing law are subject to
both criminal and civil liability.
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Provides that the provisions of this bill are severable.
FISCAL IMPACT
According to the Assembly Appropriations Committee
analysis, AB 2496 will have the following fiscal impacts:
Minor costs that are absorbable within existing
resources as this bill enhances the AG's authority to
enforce the existing provisions of the Master
Settlement Agreement.
Administrative costs of between $10,000 and
$50,000, according to the Board of Equalization
estimates of an earlier version of the bill.
Potential minor non-reimbursable local costs for
investigation and prosecution of violations,
potentially offset by fine revenue.
No effects on the state's tax revenues.
BACKGROUND AND DISCUSSION
According to the author and sponsor, the California
Department of Justice, this bill is necessary in order to
strengthen enforcement against NPMs and to follow the lead
of other states that have recently enhanced their NPM
enforcement legislation. They contend that this bill seeks
to ensure that NPMs are fully compliant not only with the
escrow funding requirement, but also to ensure that they
are fully compliant with certain provisions of the state's
Tobacco Licensing Act and tobacco tax laws. They argue
that it is particularly important that California update
its statute in light of these recent changes in other
states, as they note that one provision of the MSA requires
states to "diligently enforce" provisions against NPMs or
run the risk of having their MSA payments reduced. The
author and sponsor contend that, bringing California law
into conformity with those other states will prevent the
signatory tobacco companies from reducing MSA payments or
arguing in possible future litigation that California has
failed to diligently enforce provisions against the NPMs.
Master Settlement Agreements (MSA)
The 1998 MSA settled dozens of lawsuits that had been
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brought by states, each one seeking to recover the public
costs stemming from smoking-related illnesses. The MSA
relieved the tobacco companies from past, present and
certain future legal actions brought by the states for
recovery of smoking-related public health expenses. In
exchange for this immunity from state actions, the tobacco
companies agreed to make payments to the states in
perpetuity and to make changes in their advertising and
marketing practices. For California, the amount is likely
to equal about $25 billion through the year 2025. Under an
implementing Memorandum of Understanding signed in
California, those funds are divided between the state and
local governments. In addition to the payments, the
participating tobacco companies agreed to fund a national
public health foundation and to change certain advertising
and marketing practices, especially with the intent of
reducing underage smoking.
Because smaller tobacco manufacturers were not signatories
or did not subsequently agree to the terms of the
settlement, the MSA also called upon each state to enact a
"Model Reserve Fund Statute." The model statutes would
impose similar obligations on NPMs so that they would not
enjoy a competitive advantage.
All 50 states have enacted such statutes. In California,
the model statute requires any tobacco manufacturer selling
products in this state to either: (1) agree to become a
"participating manufacturer" and be bound by the terms of
the MSA; or, (2) place funds into a qualified escrow
account, with the amount to be determined by the volume of
sales within the state. The amount that a NPM must place
in the escrow account is supposed to approximate the amount
that it would be required to pay if it were a participating
manufacturer in the MSA agreement. Existing law provides
that any funds not withdrawn will be returned to the NPM
after 25 years
Ban on sale of "bidis"
Bidis are tobacco products that are hand-rolled, unfiltered
and wrapped in specific plant leaves, namely temburni or
tendu leaf. The sale of bidis is banned under state law
because bidis are much higher in tar and nicotine than
regularly manufactured cigarettes and a very serious health
threat. In addition they are marketed to youth. Bidis
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appeal to minors because they are cheaper than ordinary
cigarettes and come in flavors that appeal to youth, such
as strawberry, chocolate and grape. This bill amends the
law to include any products that are marketed and sold as
bidis. Under current law, retailers are still able to sell
some bidis that are outside of the definition in current
law because they are wrapped in other types of plant
leaves.
Related bills
AB 2733 (Ruskin) amends the Tobacco Licensing Act to
prohibit displaying or gifting of cigarettes and tobacco
products during any period of license suspension and
revocation. This bill is in Senate Revenue and Taxation
Committee.
Prior legislation
AB 71 (Horton), Chapter 890, Statutes of 2003, created the
Cigarette and Tobacco Products Licensing Act of 2003, which
generally provides for the licensing of tobacco
manufacturers, importers, distributors, wholesalers, and
retailers, and prohibits any such entity from operating in
California without a license.
SB 322 (Ortiz), Chapter 375, Statutes of 2001, prohibits
the sale, offer for sale, distribution or importation of a
tobacco product commonly referred to as bidis or beedies.
SB 822, (Escutia), Chapter 780, Statutes of 1999, created
California's version of the MSA model statute, requiring
tobacco manufacturers selling products within the state to
either become a participating manufacturer under the terms
of the MSA, or, if a non-participating member, to deposit
specified funds in a qualified escrow fund each year.
Arguments in support
The California Department of Justice, the sponsor, argues
that this bill will enhance the department's efforts to
enforce existing provisions of state law related to the
Master Settlement Agreement between California and the
major tobacco manufacturers. The department also argues
that this measure would protect against the sale of
cigarettes below market prices, and would help protect the
state's share of tobacco settlement payments that are due
to it under the Master Settlement Agreement.
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The American Lung Association supports this bill because it
will strengthen existing law regarding payments from
non-participating manufacturers under the Master Tobacco
Settlement Agreement. The American Lung Association
believes that this bill will provide the state with
additional tools to ensure payment by NPMs, especially for
new, foreign, and elevated risk NPMs. The American Lung
Association also supports the provision in this bill that
allows NPMs to assign their interest in the funds to the
state, so that such funds may ultimately be directed toward
tobacco prevention efforts. The County of Santa Barbara
supports the bill because it will help protect the flow of
tobacco settlement funds that the county uses to provide
various public health services to county residents.
PRIOR ACTIONS
Assembly Governmental Organization: 17-1
Assembly Judiciary: 8-1
Assembly Appropriations: 14-2
Assembly Floor: 58-16
COMMENTS
This bill has been double-referred to the Senate Revenue &
Taxation Committee.
POSITIONS
Support: California Department of Justice (sponsor)
American Lung Association
County of Santa Barbara
Oppose: None received
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