BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 626 (Calderon)
Hearing Date: 05/16/2011 Amended: 05/05/2011
Consultant: Mark McKenzie Policy Vote: G&F 6-2
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BILL SUMMARY: SB 626 would require the Board of Equalization
(BOE) to establish a nine-member task force to conduct a study
to determine ways to enhance collections of sales and use taxes
on retail sales of cannabis and ensure proper regulation of the
cultivation, transportation, and distribution of cannabis and
cannabis products. The bill would require BOE to submit a
report to the Legislature within six months.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
BOE task force & study over $250 General
Sales tax collections unknown potential increases in sales
andGeneral
use tax collections to the extent the
study
results in a strategy to tax more
cannabis sales
Cannabis regulation potential cost pressures of up to $10
million General
to implement full program to regulate
cultivation,
distribution, and sales of medical
marijuana
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
Existing state law, as authorized under the Compassionate Use
Act (Proposition 215 of 1996), allows persons or primary
caregivers to cultivate or possess marijuana for medical use
SB 626 (Calderon)
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when recommended by a physician. Despite California's law, the
sale of medical cannabis is strictly illegal under federal law.
SB 420 (Vasconcellos, 2003) established statewide guidelines for
Proposition 215 sales and enforcement. For example, non-profit
distribution is allowed in certain cases for patient cultivation
co-ops and small-scale caregiver gardeners.
Under existing law, the sales tax applies to all retail sales of
even illegal substances in this state and the BOE may audit and
make assessments of any unreported tax on such sales. BOE's
current practice is to issue seller's permits to those medical
marijuana sellers that apply and will also issue seller's
permits to any other sellers even those making unlawful sales.
In order to reduce concerns about confidentiality and
self-incrimination, the BOE allows an applicant of a seller's
permit to omit information normally requested on the
application, such as the products the applicant intends to sell,
the names and addresses of suppliers, and the products the
applicant intends to purchase. As such, the exact number of
dispensaries registered with the BOE is unknown.
The study mandated by this bill would consider all of the
following:
Current BOE strategies to encourage compliance with the
Sales and Use Tax Law by sellers of medical marijuana.
Advantages and disadvantages of implementing a stamp
system similar to that used for cigarette and tobacco
products.
Strategies that would assist BOE in identifying medical
marijuana sellers, including the use of state and local law
enforcement.
Strategies to provide incentives for sellers to register
with BOE and collect and remit taxes without the
possibility of self-incrimination.
Potential BOE administrative costs to implement a system
to enhance collections of applicable sales and use taxes on
sales of medical marijuana.
Strategies to assure quality control of cannabis
products, including laboratory testing for potency,
pathogens, and pesticides.
Advantages and disadvantages of establishing a
state-level program for licensing, regulation, and
enforcement of cultivation, processing, and distribution
practices.
SB 626 (Calderon)
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The bill would also require the report to recommend a strategy
for implementation of a strategy for increasing compliance with
sales and use tax collections on sales of medical marijuana, if
the study includes a feasible strategy.
A full estimate of BOE costs to staff the task force, conduct
the study, and prepare the report is currently unavailable.
Based on the level of detail of the study and compressed
timeframe to issue a report to the Legislature, staff estimates
3-4 BOE staff could be dedicated to this project for 6 months,
at a cost likely in excess of $250,000.
The bill could result in increases in sales and use tax
collections to the extent that the report includes a feasible
strategy for licensing of more medical marijuana sellers,
resulting in more taxable sales of those products.
The title of the bill (The Cannabis Certification and Regulation
Act of 2011), findings and declarations, and intent language
included in the bill imply that the ultimate goal in performing
the study is to collect information and data that would support
a program for the full regulation of cannabis and cannabis
products. If such a program included the full licensure of
distributors and sellers, a system for "stamping" marijuana
products, and associated enforcement mechanisms, similar to
those of the Cigarette and Tobacco Products Licensing Act, costs
to administer and regulate all aspects of the medical marijuana
distribution system could be as high as $10 million annually.