BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session SB 140 (Leno) - Electronic cigarettes ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: April 13, 2015 |Policy Vote: HEALTH 6 - 1 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: Yes | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: April 27, 2015 |Consultant: Brendan McCarthy | | | | ----------------------------------------------------------------- This bill meets the criteria for referral to the Suspense File. Bill Summary: SB 140 would expand the definition of "tobacco product" in certain sections of current law to include electronic cigarettes. In doing so, the bill would extend many existing restrictions or prohibitions on the use of tobacco products to electronic cigarettes. The bill would require electronic cigarette manufacturers, wholesalers, and retailers to be licensed. Fiscal Impact: One-time costs of about $180,000 to revise regulations and educational materials relating to the prohibition on the sale of tobacco products to minors by the Department of Public Health (General Fund or tobacco tax funds). SB 140 (Leno) Page 1 of ? Ongoing costs in the tens of thousands to low hundreds of thousands per year for additional survey activities at retail stores selling electronic cigarettes (General Fund or tobacco tax funds). Current federal law requires the state to determine the rate at which minors can illegally purchase tobacco products. The Department of Public Health conducts random inspections at about 750 retail locations annually to determine a statewide average rate at which retailers are not in compliance with state and federal law. The total annual cost to conduct the current survey is $400,000. There are many retail locations that sell both traditional tobacco products as well as electronic cigarettes. There are also a significant number of retail locations that only sell electronic cigarettes and related products. Because this bill would expand the universe of retail locations subject to the inspection requirement, the Department will need to conduct additional visits to newly regulated retail locations which only sell electronic cigarettes. There are about 1,000 retailers in the state that sell electronic cigarettes but not tobacco products. The Department is likely to incur additional costs to survey a sample of those retail locations to accurately determine the rate at which minors can purchase electronic cigarettes. Because retailers that sell both tobacco products and electronic cigarettes are not likely (in the long-term) to sell those products to minors at different rates, the Department will likely be able to combine survey efforts at retailers that sell both types of products. Ongoing costs in the hundreds of thousands per year for enforcement actions relating to illegal sales of electronic cigarettes to minors (General Fund or tobacco tax funds). Under current law, the Department of Public Health enforces the law prohibiting the sale of tobacco products to minors by conducting compliance inspections using youth decoy purchasers and following up on complaints from the public. The total annual cost for the Department's enforcement program is $1.6 million per year. By adding additional retailers to the current prohibition on sales to minors, the bill will increase the Department's enforcement efforts, particularly for retailers who do not already sell traditional tobacco SB 140 (Leno) Page 2 of ? products. The amount of that increased enforcement activity will depend both on the number of additional retailers covered by the law and the compliance rate of those retailers (or if retailers of traditional tobacco products are found to be selling electronic cigarettes to minors at higher rates than traditional tobacco products). The total enforcement cost is unknown at this time, but is likely to be in the hundreds of thousands per year, based on existing enforcement costs. Because the state has fully allocated the existing federal funding for this program, any additional costs will be borne by the General Fund, tobacco tax funds, or other fund sources. Ongoing licensing costs of about $300,000 for the Board of Equalization to license retailers who sell electronic cigarettes but are not currently licensed because they do not sell tobacco products (Compliance Fund and General Fund). Under current law, the Board licenses wholesalers and retailers of tobacco products, to facilitate the collection of tobacco taxes. This bill will require the Board to also license electronic cigarette retailers. Currently, the Board expends about $280 per licensee to operate the licensing program. Licensees pay a one-time licensing fee of $100. The remaining program costs are offset with tobacco tax revenues. According to the Stanford Prevention Center, there are about 1,000 retailers in the state that specialize in electronic cigarettes and do not sell other tobacco products. The Board would incur additional licensing costs to license those retailers, which would be partially offset by the initial licensing fee. It is not clear whether the Board could use tobacco tax revenue to supplement the licensing fee or whether General Fund monies would be needed to pay for the shortfall. No anticipated change in tobacco tax revenue (General Fund and special fund). The bill does not change the definition of "tobacco product" in the Revenue and Taxation Code to include electronic cigarettes. Thus, the bill does not extend the state's existing tax on those products to electronic cigarettes. Background: Under current law (the Stop Tobacco Access to Kids Enforcement or STAKE Act) the Department of Public Health is responsible for enforcing the prohibition on furnishing tobacco products to minors. Federal law requires states to demonstrate that they are SB 140 (Leno) Page 3 of ? complying with federal law in this area, by demonstrating that the rate at which minors can purchase tobacco products does not exceed 20%. The Department fulfills this requirement by conducting an annual survey of about 750 retail stores, using minors to attempt a purchase. Using information from the survey, as well as public complaints and other sources, the Department conducts enforcement actions against retailers in violation of the law. In addition to assessing fines for non-compliance, the Department is authorized to notify the Board of Equalization of repeated violations by a retailer; the Board is then authorized to suspend the retailer's license. While current law prohibits the furnishing of electronic cigarettes to minors, this prohibition is not subject to STAKE Act enforcement. Current law requires the Board of Equalization to license tobacco wholesalers and retailers. The purpose of this licensing requirement is to facilitate the collection of state tobacco taxes and prevent tax evasion. Current state law prohibits smoking of tobacco products in various places, such as school campuses, public buildings, places of employment, retail food facilities, and other places. Those requirements are enforced at the local level. Proposed Law: SB 140 would expand the definition "tobacco product" in certain sections of current law to include electronic cigarettes. The bill would specify that "tobacco cessation products" licensed by the Food and Drug Administration are not considered tobacco products. The bill would not expand the definition of tobacco products under the Revenue and Taxation Code. Thus the bill would not extend the existing tobacco tax to electronic cigarettes. Specific provisions of the bill would: Make the sale electronic cigarettes to minors subject to STAKE Act enforcement; SB 140 (Leno) Page 4 of ? Prohibit the use of electronic cigarettes in specific places, such as schools, places of employment, public buildings, apartments, and other places; Make electronic cigarette wholesalers and retailers subject to licensure by the Board of Equalization. Related Legislation: SB 24 (Hill) would classify electronic cigarettes separately from tobacco products, and would extend STAKE Act requirements and smoking location prohibitions to electronic cigarettes. That bill will be heard in this committee. SB 151 (Hernandez) would raise the legal age to purchase tobacco products from age 18 to age 21. That bill will be heard in this committee. AB 216 (Garcia) would raise the fine for selling an electronic cigarette to a minor. That bill is pending in the Assembly. AB 768 (Thurmond) would prohibit the use of electronic cigarettes in any baseball stadium. That bill is pending in the Assembly. Staff Comments: The only costs that may be incurred by a local agency relate to crimes and infractions. Under the California Constitution, such costs are not reimbursable by the state. -- END --