BILL ANALYSIS Ó
SB 1262
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Date of Hearing: August 13, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
SB 1262 (Correa) - As Amended: August 4, 2014
Policy Committee: Public Safety
Vote: 6-1
Business and Professions 10-2
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill creates a licensing and regulatory framework for the
cultivation, transportation, testing, and sale of medical
marijuana, administered by the Bureau of Medical Marijuana
Regulation (bureau) in the Department of Consumer Affairs (DCA).
Specifically, this bill:
1)Requires the Medical Board of California to include in the
cases it prioritizes for investigation and prosecution,
repeated acts of excessively recommending marijuana to a
patient for medical purposes without an examination of the
patient and a medical rationale.
2)Makes it a misdemeanor for a physician who recommends medical
marijuana to a patient to accept, solicit, or offer any form
of remuneration from or to a licensed medical marijuana
facility if the physician or immediate family has a financial
interest in that facility.
3)Prohibits a physician from recommending medical marijuana to a
patient unless that person is the patient's attending
physician as defined by the Compassionate Use Act (CUA).
4)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.
5)Creates in DCA the Bureau of Medical Marijuana Regulation
(bureau), and provides the bureau with authority to license
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the cultivation, manufacture, transportation, distribution and
sale of marijuana and to collect related licensing fees.
Specifies protection of the public is the paramount priority
of the bureau. Provides the bureau the authority to:
a) Set application, licensing and renewal fees necessary to
cover the costs of administration and enforcement.
b) Establish licensing procedures.
c) Establish standards for cultivation, manufacturing,
transportation, storage, distribution, and provision of
medical marijuana.
d) Impose penalties.
6)Requires the bureau, by July 1, 2016, to promulgate
regulations for implementation and enforcement, as specified.
7)Requires, Beginning Jan. 1, 2015, the bureau to provide for
provisional licensure, as follows:
a) Cities or counties that authorize cultivation and
provision of marijuana shall provide the bureau a list of
approved entities. If the entity has been operating in
compliance with local laws and regulations for at least six
months, the bureau shall issue a provisional license until
the entity's licensure application is accepted or denied.
b) Applicants shall pay a fee of up to $8,000 to cover
administration and enforcement and provide specified
information.
c) The bureau shall not issue a provisional license if
there are pending proceedings against an applicant related
to applicable local ordinances.
8) Beginning Jan. 1, 2016, the bureau shall provide for standard
licensure, as follows:
a) Applicants shall pay required fees (amounts not
specified) and provide specified information, including
detailed operating procedures and fingerprints for
Department of Justice background checks.
b) Cities or counties that authorize cultivation and
provision of marijuana shall provide the bureau a list of
approved entities. If the entity has been operating in
compliance with local laws and regulations, the bureau may
issue a license.
c) A licensee may not hold a license in more than one class
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of activities, except as specified, and a licensee may not
be a member, owner, or operator in another licensed entity.
d) Licensure may be denied, suspended or revoked for
specified circumstances, including criminal history,
violation of local ordinances, untrue or misleading
statements related to the application, or failure to
comply.
9)Creates the fee-based and continuously appropriated Medical
Marijuana Fund; specifies all penalties are deposited into the
GF; and authorizes the bureau to administer a grant program to
allocate funds to state and local entities to assist with
administration and enforcement.
10)Specifies medical marijuana transportation requirements,
including secure vehicles and minimum staffing.
11)Provides cities and counties authority to enforce this
statute and rules and regulations adopted by the bureau.
12)Requires licensed facilities to implement specified security
measures, including access and storage and inventory.
13)Requires annual audits of all licensees, the cost of which is
paid by licensees.
14) Makes licensees subject to local jurisdiction restrictions,
including prohibitions on operation.
15)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.
16)Provides this act does not supersede in any way the City of
L.A.'s Measure D.
17)Requires the bureau to limit the number of licensed
cultivation sites, as specified, to prevent diversion of
marijuana for non-medical use.
18)Authorizes boards of supervisors to impose, by ordinance,
applicable to voter approval requirements, a tax on
cultivation, storing, distributing or selling marijuana by a
licensee.
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19)Requires the bureau to establish quality assurance protocols
to ensure uniform testing standards of medical marijuana,
including a list of certified labs. Licensees bear testing
costs.
FISCAL EFFECT
Costs/Fees:
1)Significant annual costs, likely in excess of $20 million, to
create the Bureau of Medical Marijuana Regulation (bureau) in
the Department of Consumer Affairs (DCA) to regulate the
medical marijuana industry. It is not clear these costs would
be fully covered by the unspecified fees authorized by this
bill, as the division will be created regardless of the number
of applications. (The bill specifies a maximum $8,000 fee for
a provisional registration, but is silent regarding a ceiling
for ongoing mandatory applications.)
The bill specifies startup costs for establishment of the
bureau are to be advanced as a loan from the DCA.
For order of magnitude comparisons, the entire budget of the
ABC is $58 million and 430 positions. The ABC is charged with
licensing and regulating persons and businesses engaged in the
manufacture, importation 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.
2)This bill establishes unspecified registration fees. The costs
of creating and maintaining the bureau, as specified, within
the DCA would require significant application fees. For
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purpose of illustration, the average fee to cover the cost of
a $20 million entity, if there were 1,000 annual applications,
would be about $20,000 per application. (Colorado charges up
to $18,000.)
Given the current legal environment surrounding medical
marijuana, with the California Supreme Court ruling last year
that local governments can ban medical marijuana production
and distribution, and given the federal government's interest
in shutting down dispensaries, it is not clear there would be
a sufficient number of applications to fully fund the bureau.
3)This bill creates a continuous appropriation from the Medical
Cannabis Regulation Fund, supported by registration fees, to
support the division. Continuous appropriations are contrary
to the general practice of this committee, which prefers
annual budget review of expenditures.
4)Unknown special fund costs to the California Medical Board,
likely in excess of $1 million, for investigating physicians
who overprescribe marijuana without an exam.
5)Unknown, potentially significant, likely in the low millions
of dollars, non-reimbursable local law costs for enforcement
of medical marijuana regulation.
6)Minor ongoing costs to DOJ for background checks; covered by
applicant fees.
7)Unknown, potentially significant litigation costs to DOJ to
defend DCA. Costs would be reimbursed by DCA, presumably with
applicant fee revenue, if sufficient.
Tax and penalty revenue:
1)Unknown moderate local revenue increase, potentially in the
millions of dollars, from a permissive and unspecified local
tax. For order of magnitude purposes, based on a 2009 BOE
estimate that potential sales and use tax revenue on marijuana
would be about $400 million, based on a 9% combined rate, if
20% of the taxable sales amount was medicinal marijuana, and
if half of the state's cities and/or counties, representing
50% of the state's population, levied an average 3% TUT, the
annual local revenue increase would be about $13 million.
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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
1)Rationale . The author's intent is to create statewide
regulation and a model to resolve the considerable confusion
and controversy in cities and counties where elected officials
have expressed contradictory opinions about the legality of
activities related to medical marijuana.
According to the author, "Since the approval of the
Compassionate Use Act (Proposition 215) and passage of SB 420
(2003) no broader, feasible regulatory structure has been
established, and the implementation of these laws has been
marked by conflicting authorities, regulatory uncertainty,
intermittent federal enforcement action, and a series of
lawsuits.
"Nearly all recent attempts to regulate medical marijuana do
not have appropriate health and safety standards and neglect
the importance of local control.
"SB 1262 will require licensing, set quality assurance and
testing standards, and establish for the sale of medical
marijuana while protecting public safety and local control."
2)Current Medical Marijuana Law . 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.
In 2003, SB 420 (Vasconcellos, Statutes of 2003), the Medical
Marijuana Program Act (MMP), 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.
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.
In 2010, the CA Supreme Court ruled in People v. Kelly that
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the MMP section limiting quantities of cannabis is
unconstitutional because it amends a voter initiative.
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).
3)Current support and opposition is somewhat murky as the
current version of this bill was in print less than a week at
the time of this analysis. Proponents - police chiefs and the
League of Cities - continue to propose substantive amendments
to address numerous concerns from marijuana industry entities,
most of whom oppose the bill, as well as CSAC and the City of
L.A., who also oppose the measure.
4)Support . The California Police Chiefs Association , a
co-sponsor of this bill, states, "Among the most troublesome
issues with Proposition 215 includes the ability of virtually
anyone to obtain a medical marijuana recommendation from a
compliant doctor; unreliable quality control for consumers
with respect to potency and the presence of carcinogenic
pesticides or other contaminants, as well as retail outlets
that often become magnets for criminal activity.
"Senate Bill 1262 establishes an improved regulatory structure
to ensure that Prop. 215 works as originally envisioned to
assist patients with legitimate medical needs, in a manner
that works for law enforcement, city and county governments,
local community organizations, and medical professionals."
According to the League of Cities , the other co-sponsor of
this bill, "This legislation, in contrast to nearly all
previous attempts, acknowledges local regulatory authority by
establishing a state licensing scheme that defers to local
land use powers; under SB 1262, it will not be possible for a
prospective operator to obtain a state license to operate a
dispensary or other facility until and unless that operator
can produce evidence of local permitting approval. This
protects both the jurisdictions that have enacted bans on such
facilities, as well as those that have elected to allow and
actively regulate them.
"SB 1262 addresses the many public safety concerns that arise
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with a marijuana regulatory scheme by requiring minimum
security requirements that must be observed at dispensaries,
as well as transport and inventorying procedures, to minimize
the possibility of diversion of marijuana for
non-medical/recreational uses which could stimulate cartel
activity."
5)Opposition . Most industry groups, who supported Assemblymember
Ammiano's regulation bill (AB 1894, which failed on the
Assembly floor earlier this year), appear to oppose SB 1262,
stating it is too restrictive and costly - by limiting the
number of licensees, and encouraging the punishment of
physicians who overprescribe without an good faith exam, when
the Compassionate Use Act, adopted by statewide initiative,
clearly states, "Notwithstanding any other provision of law,
no physician in this state shall be punished, or denied any
right or privilege, for having recommended marijuana to a
patient for medical purposes (HSC 11362.5(b)(2).
The California National Organization for the Reform of
Marijuana Laws states the bill "fails to provide a realistic,
economically viable framework for state regulation. Unless it
is substantially revised SB 1262 will not attract sufficient
applicants or licensing fees to establish a statewide industry
or pay for the substantial costs of regulation and will only
exacerbate chaos in California's medical cannabis industry."
The Drug Policy Alliance cites divers criticisms of the bill,
from concerns the bill would disproportionately impact poor
people of color as they are most likely to be convicted of a
felony for marijuana sales (and therefore under the bill could
be prohibited from licensure), to the contention that the bill
"creates a system of unworkable regulations."
The Marijuana Policy Project cites 24 points of opposition,
stating, "The upending of the current system of access, couple
with a failure to replace it with a workable system that would
be operational before mid to late 2016. With a few notable
exceptions, the vast majority of medical marijuana is
currently produced by individual patients who provide excess
amounts to other patients through collectives and
cooperatives. SB 1262 would make this system impractical or
illegal, while failing to replace it with something else that
works during the transition period."
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In addition, in a joint letter, the CA State Association of
Counties (CSAC) , the Urban and Rural County Caucuses , and the
County Health Executives Association , oppose the bill, citing
numerous local control issues.
6)This bill will not end confusion between federal, state and
local governments . 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 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.
7)Prior Legislation.
a) AB 1894 (Ammiano), 2014, which established the Medical
Cannabis Regulation and Control Act to regulate the
cultivation, testing, transportation, distribution, and
sale of medical cannabis, and created the Division of
Medical Cannabis Regulation (division) in the ABC, failed
passage on the Assembly floor, 26-33.
b) AB 473 (Ammiano), 2013, which created the Division of
Medical Marijuana Regulation and Enforcement within the ABC
to regulate cultivation, testing, transportation,
distribution, and sale of medical marijuana failed passage
on the Assembly floor (35-37).
c) AB 2312 (Ammiano), 2012 , which established the Medical
Marijuana Regulation and Control Act, authorizing local
taxes on medical cannabis and creating a board to regulate
the medical cannabis industry, was never heard in the
Senate.
Analysis Prepared by : Geoff Long / APPR. / (916)
319-2081
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