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Date	Status
Aug 14, 2019	August 14 set for first hearing canceled at the request of author.
Jul 2, 2019	From committee: Do pass and re-refer to Com. on APPR. (Ayes 18. Noes 0.) (July 2). Re-referred to Com. on APPR.
Jun 25, 2019	June 25 set for first hearing canceled at the request of author.
Jun 6, 2019	Referred to Com. on B. & P.
May 21, 2019	In Assembly. Read first time. Held at Desk.
May 20, 2019	In Assembly. Read first time. Held at Desk.
May 20, 2019	Read third time. Passed. (Ayes 31. Noes 5.) Ordered to the Assembly.
May 14, 2019	Read second time. Ordered to third reading.
May 13, 2019	From committee: Be ordered to second reading pursuant to Senate Rule 28.8.
May 8, 2019	From committee with author's amendments. Read second time and amended. Re-referred to Com. on APPR.
May 3, 2019	Set for hearing May 13.
Apr 29, 2019	Read second time and amended. Re-referred to Com. on APPR.
Apr 25, 2019	From committee: Do pass as amended and re-refer to Com. on APPR. (Ayes 5. Noes 1.) (April 24).
Apr 12, 2019	Set for hearing April 24.
Apr 4, 2019	Read second time and amended. Re-referred to Com. on GOV. & F.
Apr 3, 2019	From committee: Do pass as amended and re-refer to Com. on GOV. & F. (Ayes 8. Noes 0.) (April 1).
Mar 26, 2019	From committee with author's amendments. Read second time and amended. Re-referred to Com. on B., P. & E.D.
Mar 19, 2019	Set for hearing April 1.
Mar 7, 2019	Referred to Coms. on B., P. & E.D. and GOV. & F.
Feb 22, 2019	From printer. May be acted upon on or after March 24.
Feb 21, 2019	Introduced. Read first time. To Com. on RLS. for assignment. To print.

Date	Description	Location	Votes
Jul 2, 2019	Do pass and be re-referred to the Committee on [Appropriations]	Assembly Standing Committee on Business and Professions	18 0 1 Passed
May 20, 2019	Senate 3rd Reading SB475 Skinner et al.	Senate Floor	31 5 2 Passed
Apr 24, 2019	Do pass as amended, but first amend, and re-refer to the Committee on [Appropriations]	Senate Standing Committee on Governance and Finance	5 1 1 Passed
Apr 1, 2019	Do pass as amended, but first amend, and re-refer to the Committee on [Governance and Finance]	Senate Standing Committee on Business, Professions and Economic Development	8 0 1 Passed

Key

Pro

Against

Did Not Vote

Date of Hearing: July 2, 2019

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

Evan Low, Chair

SBPCA Bill Id:SB 475

Author:(Skinner) – As Amended Ver:May 8, 2019

SENATE VOTE: 31-5

SUBJECT: Cannabis: trade samples

SUMMARY: Authorizes a cannabis business licensee to designate cannabis or a cannabis product as a trade sample, which may then be given for no consideration to the licensee’s employee, or another licensee for purposes of conducting research and development, education, or targeted advertising to licensees about new or existing cannabis or cannabis products.

EXISTING LAW:

Enacts the Medicinal and Adult-Use Cannabis Regulation and Safety Act to provide for a comprehensive regulatory framework for the cultivation, distribution, transport, storage, manufacturing, processing, and sale of medicinal and adult-use cannabis. (Business and Professions Code (BPC) §§ 26000 et seq.)
Provides for twenty total types of cannabis licenses including subtypes for cultivation, manufacturing, testing, retail, distribution, and microbusiness; requires each licensee except for testing laboratories to clearly designate whether their license is for adult-use or medicinal cannabis. (BPC § 26050)
Establishes the Bureau of Cannabis Control (BCC) within the Department of Consumer Affairs, previously named the Bureau of Marijuana Control, the Bureau of Medical Cannabis Regulation, and the Bureau of Medical Marijuana Regulation, for purposes of regulating microbusinesses, transportation, storage, distribution, testing, and sale of cannabis and cannabis products within the state. (BPC § 26010)
Requires the BCC to convene an advisory committee to advise state licensing authorities on the development of standards and regulations for legal cannabis, including best practices and guidelines that protect public health and safety while ensuring a regulated environment for commercial cannabis activity that does not impose such barriers so as to perpetuate, rather than reduce and eliminate, the illicit market for cannabis. (BPC § 26014)
Provides the Department of Food and Agriculture (CDFA) with responsibility for regulating cannabis cultivators. (BPC § 26060)
Provides the Department of Public Health (CDPH) with responsibility for regulating cannabis manufacturers. (BPC § 26130)
Requires the CDFA to, in consultation with the BCC, establish a track and trace program for reporting the movement of cannabis and cannabis products throughout the distribution chain, with certain required data fields for each product as well as a requirement that information be provided to state or local law enforcement agencies upon request. (BPC § 26067)
Establishes grounds for disciplinary action against cannabis licensees, including failures to comply with state licensing requirements as well as local laws and ordinances. (BPC § 26030)
Expresses that state cannabis laws shall not be interpreted to supersede or limit the authority of a local jurisdiction to adopt and enforce local ordinances to regulate cannabis businesses. (BPC § 26200(a))
Authorizes the Legislature to enact laws to implement the state’s regulatory scheme for cannabis, provided those laws are consistent with the purposes and intent of the Control, Regulate and Tax Adult Use of Marijuana Act (Proposition 64). (BPC § 26000)
Prohibits a licensee from selling any cannabis or cannabis products at less than cost for the purpose of injuring competitors, destroying competition, or misleading or deceiving purchasers or prospective purchasers. (BPC § 26052)
Prohibits a licensee from giving away any amount of cannabis or cannabis products, or any cannabis accessories, as part of a business promotion or other commercial activity. (BPC § 26153)

THIS BILL:

Permits a licensee to designate cannabis or a cannabis product as a trade sample at any time while the cannabis or cannabis product is in the possession of the licensee.
Requires a licensee, upon designation of cannabis or a cannabis product as a trade sample, to record the associated quantity, product type, and unique identifiers of the cannabis or cannabis product into the track and trace program and label the cannabis or cannabis product with: “TRADE SAMPLE. NOT FOR RESALE OR DONATION.”
Allows for cannabis or cannabis products designated as a trade sample to be transported between licensees by an employee of a licensee.
Prohibits the sale or donation of any cannabis or cannabis products designated as a trade sample by any licensee.
Authorizes a licensee to give away cannabis or cannabis products designated as a trade sample for no consideration to an employee of the licensee that designated the trade sample or to another licensee, subject to all the following requirements:
1. The trade sample is only given for the purposes of conducting research and development, education, or targeted advertising to licensees about new or existing cannabis or cannabis products.
2. The cannabis or cannabis products designated as a trade sample given to another licensee are recorded in the track and trace system.
3. The licensee maintains records of cannabis or cannabis products designated as a trade sample that are given to employees.
4. The employee of the licensee does not possess or transport trade samples in amounts exceeding 28 ½ grams of nonconcentrated cannabis, eight grams of concentrated cannabis, or six immature plants.
Allows for cannabis or cannabis products to be consumed by the licensee or an employee of the licensee.
Prohibits cannabis or cannabis products from being given to a retail customer.
Requires the BCC to define “trade sample” through regulations, and allows the BCC to promulgate regulations establishing a limit on the quantity of cannabis and cannabis goods designated by a licensee as trade samples, which shall not be less than 2 percent of a batch.

FISCAL EFFECT: Pursuant to Senate Rule 28.8, negligible state costs.

COMMENTS:

Purpose. This bill is sponsored by Flow Kana, Continuum, and the California Cannabis Industry Association. According to the author:

“Although Prop 64, and related legislation, built a regulatory structure for cannabis, it still failed to implement some of the basic business practices available to other industries in California. This includes permitting trade samples between licensed businesses despite multiple requests from the cannabis industry and the state-appointed Cannabis Advisory Council. SB 475 would link licensees’ needs for a simple process for sampling with the State’s current plan to track and regulate cannabis. By enabling a fair cannabis sampling procedure, it would promote transparency and create a standard business activity that would benefit the entire industry.”

Background.

Early History of Cannabis Regulation in California. Consumption of cannabis was first made lawful in California in 1996 when voters approved Proposition 215, or the Compassionate Use Act. Proposition 215 protected qualified patients and caregivers from prosecution relating to the possession and cultivation of cannabis for medicinal purposes, if recommended by a physician. The initiative prohibited physicians from being punished or denied any right or privilege for making a medicinal cannabis recommendation to a patient. Proposition 215 also included findings and declarations encouraging the federal and state governments to implement a plan to provide for the safe and affordable distribution of cannabis to patients with medical needs.

The regulatory scheme for medicinal cannabis was further refined by SB 420 (Vasconcellos) in 2003, which established the state’s Medical Marijuana Program (MMP.) Under the MMP, qualified patients were eligible to obtain a voluntary medical marijuana patient card, which could be used to verify that the patient or a caregiver had authorization to cultivate, possess, transport, or use medicinal cannabis. The MPP’s identification cards were intended to help law enforcement officers identify and verify that cardholders were allowed to cultivate, possess, or transport limited amounts of cannabis without being subject to arrest. The MMP also created protections for qualified patients and primary caregivers from prosecution for the formation of collectives and cooperatives for medicinal cannabis cultivation.

Without the adoption of a formal framework to provide for state licensure and regulation of medicinal cannabis, a proliferation of informally regulated cannabis collectives and cooperatives were largely left to the enforcement of local governments. As a result, a patchwork of local regulations was created with little statewide involvement. More restrictive laws and ordinances by cities and counties were ultimately upheld by the California Supreme Court in City of Riverside v. Inland Empire Patients (2013) 56 Cal. 4^th 729, which held that state law did not expressly or implicitly limit the inherent authority of a local jurisdiction, by its own ordinances, to regulate the use of its land, including the authority to provide that facilities for the distribution of medicinal cannabis be prohibited from operating within its borders.

Even after several years of allowable cannabis cultivation and consumption under state law, a lack of a uniform regulatory framework led to persistent problems across the state. Cannabis’s continued illegality under the federal Controlled Substances Act, which classifies cannabis as a Schedule I drug ineligible for prescription, generated periodic enforcement activities by the United States Department of Justice. The constant threat of action by the federal government created apprehension among California’s cannabis community.

A document issued by the United States Attorney General in 2013 known as the “Cole memorandum” indicated that the existence of a strong and effective state regulatory system, and a cannabis operation’s compliance with such a system, could allay the threat of federal enforcement interests. Federal prosecutors were urged under the memo to review cannabis cases on a case-by-case basis and consider whether a cannabis operation was in compliance with a strong and effective state regulatory system prior to prosecution. The memo was followed by Congress’s passage of the Rohrabacher-Farr amendment, which prohibits the United States Department of Justice from interceding in state efforts to implement medicinal cannabis.

MCRSA. After several attempts to improve the state’s regulation of cannabis, the Legislature passed the Medical Marijuana Regulation and Safety Act—subsequently retitled the Medical Cannabis Regulation and Safety Act (MCRSA)—in 2015. MCRSA consisted of a package of legislation: AB 243 (Wood); AB 266 (Bonta, Cooley, Jones-Sawyer, Lackey, and Wood); and SB 643 (McGuire). MCRSA established, for the first time, a comprehensive statewide licensing and regulatory framework for the cultivation, manufacture, transportation, testing, distribution, and sale of medicinal cannabis to be administered by the newly established BCC within the Department of Consumer Affairs, the CDPH, and the CDFA, with implementation relying on each agency’s area of expertise.

MCRSA vested authority for:

The BCC to license and regulate dispensaries, distributors, transporters, and (subsequently) testing laboratories, and to provide oversight for the state’s regulatory framework;
The CDPH to license and regulate manufacturers; and
The CDFA to license and regulate cultivators.

While entrusting state agencies to promulgate extensive regulations governing the implementation of the state’s cannabis laws, MCRSA fully preserved local control. Under MCRSA, local governments may establish their own ordinances to regulate medicinal cannabis activity. Local jurisdictions may also choose to ban cannabis establishments altogether.

AUMA. Not long after the Legislature enacted MCRSA, California voters passed Proposition 64, the Adult Use of Marijuana Act (AUMA). The passage of the AUMA legalized cannabis for non-medicinal adult use in a private home or licensed business; allowed adults 21 and over to possess and give away up to approximately one ounce of cannabis and up to eight grams of concentrate; and permitted the personal cultivation of up to six plants. The law retained prohibitions against smoking in or operating a vehicle while under the effects of cannabis, possessing cannabis at a school or other child oriented facility while kids are present, growing in an unlocked or public place, and providing cannabis to minors.

The proponents of the AUMA sought to make use of much of the regulatory framework and authorities set out by MCRSA while making a few notable changes to the structure still being implemented. In addition, the AUMA approved by the voters adopted the January 1, 2018 deadline for state implementation of non-medicinal cannabis in addition to the regulations required in MCRSA that were scheduled to take effect on the same date. The same agencies given authority under MCRSA remained responsible for implementing regulations for adult use.

Under the AUMA, the BCC within the Department of Consumer Affairs continues to serve as the lead regulatory agency for all cannabis, both medicinal and non-medicinal. The AUMA includes 19 different license types compared to the original 17 in MCRSA, and provides the Department of Consumer Affairs (and the BCC) with exclusive authority to license and regulate the transportation of cannabis. The AUMA also authorizes vertical integration models which allows for the holding of multiple license types, as previously prohibited under MCRSA. Additionally, while MCRSA required both a state and local license to operate, the AUMA only stipulated a state license; however, the state is also directed not to issue a license to an applicant if it would “violate the provisions of any local ordinance or regulation.”

The language of the AUMA allows for legislative modifications that “implement” or “give practical effect” to the law by a majority vote. However, what constitutes “implementing” has been interpreted to be limited. Consequently, proposed changes to the voters’ intent in the AUMA require a two-thirds vote and of those, some may be deemed to require voter approval.

MAUCRSA. In the spring of 2017, SB 94 (Committee on Budget and Fiscal Review) was introduced to reconcile the distinct systems for the regulation, licensing, and enforcement of legal cannabis that had been established under the respective authorities of MCRSA and the AUMA. The single consolidated system established by the bill—known as the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA)—created a unified series of cannabis laws and deleted redundant code sections no longer necessary due to the combination of the two systems. MAUCRSA also clarified a number of components, including but not limited to licensing, local control, taxation, testing, and edibles.

Regulations. On January 16, 2019, the state’s three cannabis licensing authorities—the BCC, the CDPH, and the CDFA—officially announced that the Office of Administrative Law had approved final cannabis regulations promulgated by the three agencies respectively. These final regulations replaced emergency regulations that had previously been in place, and made various changes to earlier requirements following the public rulemaking process. The adoption of final rules provided a sense of finality to the state’s long history in providing for the regulation of lawful cannabis sale and use.

Tax Revenue Allocations. Under MAUCRSA, a 15% excise tax is imposed on sales of cannabis and a tax on cannabis cultivation is imposed at a rate of $9.25 per dry-weight ounce of cannabis flowers and $2.75 per dry-weight ounce of cannabis leaves that are harvested and brought to market. These taxes are distinct from state sales and use taxes, which apply to recreational cannabis, as well as any taxes imposed by local governments. Excise tax and cultivation tax revenues are deposited into a special fund referred to as the California Cannabis Tax Fund and are then allocated for a variety of purposes in order of priority.

Giving Away Cannabis. While MAUCRSA and its implementing regulations provide for a robust marketplace for the buying and selling of cannabis and cannabis products, it is somewhat inflexible when it comes to giving away cannabis or cannabis products at no cost. The AUMA expressly states that “a licensee shall not give away any amount of cannabis or cannabis products, or any cannabis accessories, as part of a business promotion or other commercial activity.” Plainly read, this provision would appear to most explicitly ban “free samples” from being given out to prospective customers or as a kind of business promotion to incentivize customer purchases.

Section 5411 of the BCC’s implementing regulations state that “a licensed retailer shall not provide free cannabis goods to any person. A licensed retailer shall not allow individuals who are not employed by the licensed retailer to provide free cannabis goods to any person on the licensed premises.” Regulations do allow for limited donations of medicinal cannabis “in order to provide access to medicinal cannabis patients who have difficulty accessing medicinal cannabis goods.”

It should be noted that with the exception of state and local taxes, there is no law setting a minimum price that cannabis or cannabis products must be sold for. MAUCRSA prohibits a licensee from selling cannabis or cannabis products at less than cost “for the purpose of injuring competitors, destroying competition, or misleading or deceiving purchasers or prospective purchasers.” This would still conceivably allow, however, for cannabis to be sold at a purely nominal price for other purposes as an alternative to being given away. It is further understood that nothing in MAUCRSA or regulations currently prohibits licensees from purchasing products and gifting them under personal use limits, which may provide for a way around the regulations’ general ban on the giving away of cannabis directly from a retailer.

Trade Samples. A common industry practice involves the concept of “trade samples,” wherein businesses operating at different points in a supply chain will provide free samples of their product for purposes of securing partnerships with other businesses in providing the products to consumers. For example, a manufacturer will give away samples of its merchandise to prospective retailers in order for the retailer to consider carrying the product. The author contends that existing law’s broad restrictions on giving away cannabis products would make that illegal within the cannabis industry. This bill would allow for limited quantities of trade samples, as defined by the BCC, to be exchanged without a sale between licensees for purposes of research and development, education, or targeted advertising about new or existing products.

The bill further allows for a licensee to provide its own cannabis or cannabis products to its employees at no cost. The author contends that this is to allow employees who are tasked with participating in a cannabis business to sample their wares to improve their understanding of the business they are engaged in. The bill requires that all trade samples given to employees must be noted in records, and places limits on the amount that may be possessed or transported by an employee.

Under the bill, all cannabis or cannabis products designated as trade samples must be recorded in track and trace. Further, the cannabis or cannabis products must be labeled appropriately as trade samples not eligible for resale or donation, and any subsequent sale or donation is expressly prohibited. These limitations are intended to ensure that cannabis or cannabis products designated as trade samples are exclusively used for the purposes intended by the bill.

Current Related Legislation. SB 34 (Wiener) would allow for the donation of cannabis and cannabis products by licensees to medicinal cannabis patients who have difficulty accessing cannabis or cannabis products, and exempts those donations from taxation. This bill is pending in the Assembly Committee on Revenue and Taxation.

Prior Related Legislation. SB 94 (Committee on Budget and Fiscal Review, Chapter 27, Statutes of 2017) combined AUMA and MCRSA into one system for the regulation of cannabis, resulting in MAUCRSA.

SB 829 (Wiener) of 2018 would have allowed specified cannabis licensees to donate medicinal cannabis and medicinal cannabis products to qualified patients, and allow such donations to be exempt from the cultivation, use, and excise taxes. This bill was vetoed by the Governor.

ARGUMENTS IN SUPPORT:

The California Cannabis Industry Association (CCIA) is co-sponsoring this bill. According to the CCIA, “B2B (business-to-business) sampling is a vital part of any industry, allowing businesses to market their product as well as provide market education to retail and business partners. Unfortunately, existing cannabis laws prohibit B2B sampling. As such, licensed cannabis businesses are forced to purchase their own products at full price before they can present them to a potential buyer.” The CCIA states that “authorizing B2B sampling will provide a more cost effective method for retailers to sample products. The more retailers understand the products they are selling, the better they can educate and inform consumers and medicinal patients on their appropriate use and effects.”

ARGUMENTS IN OPPOSITION:

None on file.

REGISTERED SUPPORT:

California Cannabis Industry Association (Co-Sponsor)
Flow Kana (Co-Sponsor)
Continuum Distribution (Co-Sponsor)
Blackbird Logistics
California Teamsters Public Affairs Council
Calyx Peak Companies
Cannabis Distribution Alliance
Cannacraft, Inc.
Osiris Ventures
Southern California Coalition
United Cannabis Business Association

REGISTERED OPPOSITION:

None on file.

Analysis Prepared by: Robert Sumner / B. & P. / (916) 319-3301

Date of Hearing: July 2, 2019

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

Evan Low, Chair

SBPCA Bill Id:SB 475

Author:(Skinner) – As Amended Ver:May 8, 2019

SENATE VOTE: 31-5

SUBJECT: Cannabis: trade samples

EXISTING LAW:

Enacts the Medicinal and Adult-Use Cannabis Regulation and Safety Act to provide for a comprehensive regulatory framework for the cultivation, distribution, transport, storage, manufacturing, processing, and sale of medicinal and adult-use cannabis. (Business and Professions Code (BPC) §§ 26000 et seq.)
Provides for twenty total types of cannabis licenses including subtypes for cultivation, manufacturing, testing, retail, distribution, and microbusiness; requires each licensee except for testing laboratories to clearly designate whether their license is for adult-use or medicinal cannabis. (BPC § 26050)
Establishes the Bureau of Cannabis Control (BCC) within the Department of Consumer Affairs, previously named the Bureau of Marijuana Control, the Bureau of Medical Cannabis Regulation, and the Bureau of Medical Marijuana Regulation, for purposes of regulating microbusinesses, transportation, storage, distribution, testing, and sale of cannabis and cannabis products within the state. (BPC § 26010)
Requires the BCC to convene an advisory committee to advise state licensing authorities on the development of standards and regulations for legal cannabis, including best practices and guidelines that protect public health and safety while ensuring a regulated environment for commercial cannabis activity that does not impose such barriers so as to perpetuate, rather than reduce and eliminate, the illicit market for cannabis. (BPC § 26014)
Provides the Department of Food and Agriculture (CDFA) with responsibility for regulating cannabis cultivators. (BPC § 26060)
Provides the Department of Public Health (CDPH) with responsibility for regulating cannabis manufacturers. (BPC § 26130)
Requires the CDFA to, in consultation with the BCC, establish a track and trace program for reporting the movement of cannabis and cannabis products throughout the distribution chain, with certain required data fields for each product as well as a requirement that information be provided to state or local law enforcement agencies upon request. (BPC § 26067)
Establishes grounds for disciplinary action against cannabis licensees, including failures to comply with state licensing requirements as well as local laws and ordinances. (BPC § 26030)
Expresses that state cannabis laws shall not be interpreted to supersede or limit the authority of a local jurisdiction to adopt and enforce local ordinances to regulate cannabis businesses. (BPC § 26200(a))
Authorizes the Legislature to enact laws to implement the state’s regulatory scheme for cannabis, provided those laws are consistent with the purposes and intent of the Control, Regulate and Tax Adult Use of Marijuana Act (Proposition 64). (BPC § 26000)
Prohibits a licensee from selling any cannabis or cannabis products at less than cost for the purpose of injuring competitors, destroying competition, or misleading or deceiving purchasers or prospective purchasers. (BPC § 26052)
Prohibits a licensee from giving away any amount of cannabis or cannabis products, or any cannabis accessories, as part of a business promotion or other commercial activity. (BPC § 26153)

THIS BILL:

Permits a licensee to designate cannabis or a cannabis product as a trade sample at any time while the cannabis or cannabis product is in the possession of the licensee.
Requires a licensee, upon designation of cannabis or a cannabis product as a trade sample, to record the associated quantity, product type, and unique identifiers of the cannabis or cannabis product into the track and trace program and label the cannabis or cannabis product with: “TRADE SAMPLE. NOT FOR RESALE OR DONATION.”
Allows for cannabis or cannabis products designated as a trade sample to be transported between licensees by an employee of a licensee.
Prohibits the sale or donation of any cannabis or cannabis products designated as a trade sample by any licensee.
Authorizes a licensee to give away cannabis or cannabis products designated as a trade sample for no consideration to an employee of the licensee that designated the trade sample or to another licensee, subject to all the following requirements:
1. The trade sample is only given for the purposes of conducting research and development, education, or targeted advertising to licensees about new or existing cannabis or cannabis products.
2. The cannabis or cannabis products designated as a trade sample given to another licensee are recorded in the track and trace system.
3. The licensee maintains records of cannabis or cannabis products designated as a trade sample that are given to employees.
4. The employee of the licensee does not possess or transport trade samples in amounts exceeding 28 ½ grams of nonconcentrated cannabis, eight grams of concentrated cannabis, or six immature plants.
Allows for cannabis or cannabis products to be consumed by the licensee or an employee of the licensee.
Prohibits cannabis or cannabis products from being given to a retail customer.
Requires the BCC to define “trade sample” through regulations, and allows the BCC to promulgate regulations establishing a limit on the quantity of cannabis and cannabis goods designated by a licensee as trade samples, which shall not be less than 2 percent of a batch.

FISCAL EFFECT: Pursuant to Senate Rule 28.8, negligible state costs.

COMMENTS:

Purpose. This bill is sponsored by Flo Kana, Continuum, and the California Cannabis Industry Association. According to the author:

Background.

MCRSA vested authority for:

The BCC to license and regulate dispensaries, distributors, transporters, and (subsequently) testing laboratories, and to provide oversight for the state’s regulatory framework;
The CDPH to license and regulate manufacturers; and
The CDFA to license and regulate cultivators.

ARGUMENTS IN SUPPORT:

ARGUMENTS IN OPPOSITION:

None on file.

REGISTERED SUPPORT:

California Cannabis Industry Association (Co-Sponsor)
Flo Kana (Co-Sponsor)
Continuum Distribution (Co-Sponsor)
Blackbird Logistics
California Teamsters Public Affairs Council
Calyx Peak Companies
Cannabis Distribution Alliance
Cannacraft, Inc.
Osiris Ventures
Southern California Coalition
United Cannabis Business Association

REGISTERED OPPOSITION:

None on file.

Analysis Prepared by: Robert Sumner / B. & P. / (916) 319-3301

SENATE RULES COMMITTEE

Office of Senate Floor Analyses

(916) 651-1520 Fax: (916) 327-4478

SB 475

THIRD READING

Bill No: SB 475

Author: Skinner (D), et al.

Amended: 5/8/19

Vote: 27

SENATE BUS., PROF. & ECON. DEV. COMMITTEE: 8-0, 4/1/19

AYES: Glazer, Chang, Archuleta, Dodd, Galgiani, Hill, Leyva, Wilk

NO VOTE RECORDED: Pan

SENATE GOVERNANCE & FIN. COMMITTEE: 5-1, 4/24/19

AYES: McGuire, Moorlach, Beall, Hertzberg, Wiener

NOES: Nielsen

NO VOTE RECORDED: Hurtado

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SUBJECT: Cannabis: trade samples

SOURCE: California Cannabis Industry Association

Continuum

Flow Kana

DIGEST:

This bill establishes the conditions under which a cannabis licensee may designate cannabis or a cannabis product as a trade sample.

ANALYSIS:

Existing law:

Establishes the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) to regulate the cultivation, distribution, transport, storage, manufacturing, processing, and sale of both medicinal cannabis and adult-use cannabis. (Business and Professions Code (BPC) § 26000)
Establishes the Bureau of Cannabis Control (Bureau) under the Department of Consumer Affairs to regulate cannabis with the sole authority to create, issue, deny, renew, discipline, suspend, or revoke licenses for microbusinesses, transportation, storage unrelated to manufacturing activities, distribution, testing, and sale of cannabis and cannabis products within the state. (BPC §§ 26010, 26012 (a)(1))
Prohibits a licensee from giving away any amount of cannabis or cannabis products, or any cannabis accessories, as part of a business promotion or other commercial activity. (BPC § 26153)
Prohibits a licensee from selling any cannabis or cannabis products at less than cost, or giving away any article or product for the purpose of injuring competitors or destroying competition. (BPC § 26052)
Establishes limits on the amount of cannabis a retailer may sell to an adult-use and medicinal use cannabis user. (Title 16, California Code of Regulations § 5409)
Authorizes a local jurisdiction to allow for the smoking, vaporizing, and ingesting of cannabis or cannabis products on the premises of a retailer or microbusiness under certain conditions. (BPC § 26200(g)

This bill:

Authorizes a licensee to designate cannabis or a cannabis product as a trade sample at any time while the cannabis or cannabis product is in the possession of the licensee.
Requires, upon the designation of the cannabis or cannabis product as a trade sample, the licensee to both of the following:
1. Record the associated quantity, product type, and unique identifiers of the cannabis or cannabis product into the track and trace program.
2. Label the cannabis or cannabis product with the following: “TRADE SAMPLE. NOT FOR RESALE OR DONATION.”
Allows cannabis or cannabis products designated as a trade sample may be transported between licensees by an employee of a licensee.
Prohibits cannabis or cannabis products designated as a trade sample shall not be sold or donated by any licensee.
Authorizes cannabis or cannabis products designated as a trade sample to be given for no consideration to an employee of the licensee that designated the trade sample or to another licensee, subject to all the following requirements:
1. A trade sample shall only be given for the purposes of conducting research and development, education, or targeted advertising to licensees about new or existing cannabis or cannabis products.
2. Cannabis or cannabis products designated as a trade sample given to another licensee shall be recorded in the track and trace system.
3. A licensee shall maintain records of cannabis or cannabis products designated as a trade sample that are given to employees.
4. An employee of the licensee shall not possess or transport trade samples in amounts exceeding the following:
  1. Twenty-eight and one-half grams of nonconcentrated cannabis.
  2. Eight grams of concentrated cannabis, including concentrated cannabis contained in cannabis products.
  3. Six immature cannabis plants.
Authorizes cannabis or cannabis products to be consumed by the licensee or an employee of the licensee.
Prohibits giving cannabis or cannabis products to a retail customer.
Requires the Bureau establish by regulation a definition of trade sample.
Authorizes the Bureau to establish a limit, no less than 2 percent of each batch, on the quantity of cannabis and cannabis goods designated by a licensee as trade samples.
Requires cannabis or cannabis products designated as a trade sample to be subject to quality assurance and testing.

Background

Cannabis Advisory Committee. The California Cannabis Advisory Committee (Committee) is comprised of 22 appointed members representing California’s cannabis industry, and is charged with advising the licensing authorities in the development of “standards and regulations… that protect public health and safety while ensuring a regulated environment for commercial cannabis activity that does not impose such barriers so as to perpetuate…the illicit market.”

The Committee’s 2018 Report contained the following recommendation:

“Selling Samples (Recommendation #1) — The Bureau should address how, if at all, licensees may provide samples for a nominal fee, both for B to B (Business to Business) and B to C (Business to Consumer) situations.”

This recommendation was not implemented because the Bureau stated it “does not require cannabis goods to be sold at a specific price … [so] no language change occurred.” While the Bureau does not set specific price points, it may be able to authorize sampling at a discount. It appears the Committee’s recommendation was an attempt to respect the language of Proposition 64 prohibiting free products, while realizing the importance of experiencing a product before committing to sale. Interestingly, the Committee’s recommendation included business-to-consumer samples, which the current legislation does not.

Current Trade Practices. Nothing currently prohibits licensees from purchasing products and gifting them under personal use limits, which is what happens today.

One of this bill’s sponsors, Continuum, describes its trade sampling process as follows: “[Continuum] designates 2 percent of a batch from a supplier and reserves it for trade samples. .... The product is bought by the distributor for full price and samples are given to retailers at a nominal value with the costs recouped through distribution fees. Each sample product is labeled ‘Not for resale’. After product is delivered to the retail establishment, an account manager will meet a buyer from the account to discuss the quality of the product in an effort to secure future purchases of the product. …

“SB 475 would allow account managers to carry sample amounts in vehicles to various accounts instead of waiting for delivery by drivers.”

Proposition 64 Conflicts. This bill directly conflicts with the language of Proposition 64, which explicitly prohibits giving away “any amount of cannabis or cannabis products, or any cannabis accessories, as part of a business or promotion or other commercial activity.” Indeed, according to this bill’s sponsors, these samples are intended to encourage sales, which is commercial activity.

Outside of cannabis, however, trade sampling is a noncontroversial marketing tool used to introduce merchandise. Sampling is particularly important with consumable goods, and stakeholders report that in the rapidly evolving cannabis market, new products are frequently being introduced. This bill limits sampling to licensees and employees of licensees.

It is unclear whether Proposition 64 intended to prohibit trade samples. However, a reconciliation may be made if one reads the ban on free products in tandem with other provisions of MAUCRSA that prohibit unfair business practices; a minimal amount of product could be designated for tasting without otherwise disrupting a fair marketplace.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

SUPPORT: (Verified 5/14/19)

California Cannabis Industry Association (co-source)

Continuum (co-source)

Flow Kana (co-source)

California Teamsters

Calyx Peak Companies

Cannabis Distribution Association

CannaCraft

Nor Cal Cannabis

Southern California Coalition

OPPOSITION: (Verified 5/14/19)

None received

ARGUMENTS IN SUPPORT: The sponsors of this measure, Flow Kana, California Cannabis Industry Association, and Continuum, write, “In many other industries, businesses routinely provide other businesses and their own employees with ‘trade samples’ of their own products in order to promote product knowledge and encourage a sale. While the final MAUCRSA regulations span hundreds of pages, they maintained a prohibition on free cannabis goods and failed to provide a pathway for trade samples between licensed businesses despite multiple requests from different license holders, industry associations, and the state-appointed Cannabis Advisory Committee.

“In cannabis, there is no substitute for sensory analysis to determine quality. This is a major driver of the need for trade samples as is the need to educate retail employees, distinguish between products, and ultimately help consumers make better informed decisions.

“Cannabis companies lack a clear and professionalized process for providing trade samples, forcing licensees to finance expensive multi-license structures or place an over-reliance on personal use loopholes that were never intended for core business practices.

“If enacted, SB 475 would create a clear procedure for the designation of cannabis goods as trade samples, would incorporate those samples into the state’s track and trace program, and would exempt those samples from cannabis taxes as they will not be sold to consumers. These trade samples could be transported between licensed businesses or given by a licensed business to their employees. These trade samples would have to be labeled ‘TRADE SAMPLE. NOT FOR RESALE OR DONATION’ and licensed businesses would be limited in the quantity of cannabis that could be designated as trade samples or carried by an employee at one time. SB 475 would facilitate trade samples for all license types, except for testing laboratories, to ensure that the entire supply chain has access to these business development tools.”

Prepared by: Sarah Huchel / B., P. & E.D. /

5/15/19 15:10:38

**** END ****

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2019 - 2020 Regular

Bill No:	SB 475	Hearing Date:	4/24/19
Author:	Skinner	Tax Levy:	No
Version:	4/4/19	Fiscal:	Yes
Consultant:	Brown

Cannabis: trade samples: cultivation tax: exemption

Allows cannabis licensee to designate a product as a trade sample, and exempts the trade sample from the sales and use tax, and the cultivation tax.

Background

Federal law relating to cannabis. Federal law prohibits the manufacture, possession, sale, or distribution of cannabis. In 1970, Congress enacted the Controlled Substances Act (CSA), which sets forth five schedules of specified drugs. For a drug to be designated a Schedule I controlled substance, CSA states the substance must have “a high potential for abuse," and have "no currently accepted medical use” in the United States. Federal law lists cannabis as a Schedule I controlled substance.

State law relating to cannabis. In 1996, California voters approved Proposition 215, known as the Compassionate Use Act of 1996 (CUA). Under CUA, qualified patients with specified illnesses—and their primary caregivers—cannot be prosecuted for possessing or cultivating cannabis upon the written or oral recommendation or approval of an attending physician. In other words, CUA allowed qualified patients and primary caregivers to obtain cannabis for medicinal use.

The Legislature clarified CUA by enacting SB 420 (Vasconcellos, 2003), which established and maintained a voluntary program—The Medical Marijuana Program—where qualified patients could be issued Medical Marijuana Identification Cards (identification cards) when deemed appropriate by their attending physician. Qualified patients with identification cards were exempt from criminal liability for possession, transportation, delivery, or cultivation of cannabis. SB 420 directed the Department of Public Health to administer the program and required county health departments to issue identification cards to patients and primary caregivers who voluntarily registered. An identification card is valid for only one year, and must contain the following:

The cardholder’s unique user identification number.
The identification card’s expiration date.
The cardholder’s photo identification.
The name and telephone number of the county health department or its designee that approved the application.

The cannabis industry remained largely unregulated at the state level until 2015, when the Legislature enacted the Medical Marijuana Regulation and Safety Act (MMRSA). MMRSA comprised a package of legislation that comprehensively regulated many aspects of medicinal use cannabis including cultivation, manufacturing, transportation, distribution, sale, and product safety. In 2016, several bills made slight changes to MMRSA, including renaming MMRSA to the Medical Cannabis Regulation and Safety Act.

On November 8, 2016, California voters approved Proposition 64—the Control, Regulate and Tax Adult Use of Marijuana Act (the Act)—which legalized commercial adult-use cannabis for adults age 21 and older. Prop. 64 provides for the licensure and regulation of both commercial adult-use and medicinal use cannabis activities by various state agencies.

Less than a year later in June 2017, the Legislature enacted SB 94 (Committee on Budget and Fiscal Review, 2017), which integrated MMRSA with the Act to create the Medicinal and Adult Use Cannabis Regulation and Safety Act (MAUCRSA). Among other things, MAUCRSA consolidated the licensure and regulation of both commercial adult-use and medicinal use cannabis activities. It established a system of 20 plus license categories, which includes distributor, retailer, and microbusiness, among others. Generally, licenses bear a clear designation indicating whether the license is for commercial adult-use or medicinal cannabis with an “A” or “M” respectively.

Cannabis taxes. Prop. 64, and subsequently MAUCRSA, imposes two specific taxes on cannabis: the excise tax and the cultivation tax. A customer who purchases cannabis or cannabis products in the state is subject to the cannabis excise tax, which is equal to 15 percent of the average market price of any cannabis or cannabis products retail sale. A cannabis retailer is responsible for collecting the cannabis excise tax from the customer and remitting it to the distributor. The distributor then remits the cannabis excise tax to the California Department of Tax and Fee Administration (CDTFA).

The cultivator, who grows the cannabis, is subject to the cultivation tax, which applies to all harvested cannabis at the following rates:

$9.25 per dry-weight ounce of cannabis flower.
$2.75 per dry-weight ounce of cannabis leaves.
$1.29 per ounce of fresh cannabis plant.

The cultivation tax is collected by the distributor (or manufacturer), and then remitted to CDTFA. The cultivation tax does not apply to cannabis cultivated for personal use.

Sales and use taxes. State law imposes a sales tax on every retailer engaged in business in this state that sells tangible personal property. State law requires retailers to collect the appropriate tax from the customer or purchaser, and remit it to CDTFA. Sales tax applies whenever a retail sale is completed. In other words, tax applies when a sale—other than a product for resale—has occurred in the regular course of business.

If the customer does not pay the sales tax to the retailer, the customer is then liable for the use tax for consuming tangible personal property in the state. The use tax rate is the same as the sales tax rate, which is currently 7.25 percent of the sale’s gross receipts. State law also allows cities, counties, and special districts to impose their own transactions and use tax within its jurisdiction subject to voter approval. These taxes are known as “local add-ons” or “district taxes,” and state law caps the total rate for any county at two percent, with some exceptions. Cannabis sales are subject to both the sales and use tax. Prop. 64 specifically exempts retail sales of cannabis and cannabis products for medicinal use from the sales and use tax when a patient or primary caregiver provides his or her identification card and a valid government issued identification card.

Samples. Prop. 64, and subsequently MAUCRSA, prohibits a licensee from giving away any cannabis, cannabis products, or any cannabis accessories, as part of a business promotion or other commercial activity. The Bureau of Cannabis Control’s (BCC) regulations prohibits a retailer from selling more than the following amounts in a single day:

To a single adult-use cannabis consumer:
- 28.5 grams of non-concentrated cannabis.
- Eight grams of cannabis concentrate.
- Six immature cannabis plants.
To a single medicinal cannabis patient, or to a patient’s primary caregiver purchasing medicinal cannabis on behalf of the patient:
- Eight ounces of medicinal cannabis in the form of dried mature flowers.
- 12 immature cannabis plants.

In many industries, business-to-business (B2B) and business to employee (B2E) samples are an essential marketing strategy. With effective product sampling, businesses can create brand loyalty and assist in the launch of a product through word of mouth. However, due to the state’s prohibition on free cannabis products, cannabis businesses cannot partake in the standard business practice. Currently, cannabis businesses use a variety of workarounds that rely heavily on the personal use limits in order to provide samples to other businesses to promote a sale, or to employees to promote product knowledge.

The author would like to create a formalized process for cannabis businesses to engage in B2B and B2E samples.

Proposed Law

Senate Bill 475 authorizes a cannabis licensee to designate cannabis or cannabis product as a trade sample. The licensee may give the sample away to another licensee, subject to the following requirements:

Trade samples can only be used for conducting research and development, education, or targeted advertising to a licensee about new or existing cannabis products.
Product designated as sample must be recorded within track and trace.
Licensees may give away sample product to an employee.
Licensees must maintain records of all sample product given away to employees.
Licensees cannot possess or transport samples that exceed: 28.5 grams of nonconcentrated cannabis, eight grams of concentrated cannabis, or six immature cannabis plants.
Trade samples cannot be given to a retail customer.

The bill requires the licensee who designates product as sample to label the cannabis product with the following: “TRADE SAMPLE. NOT FOR RESALE OR DONATION.” A licensee’s employee may transport up to a specified amount of designated sample product between licensees, and all products designated sample are subject to quality assurance and testing under existing law. The Bureau of Cannabis Control (BCC) may issue regulations to implement the provision.

SB 475 exempts product designated as trade sample from the sales and use tax, and the cultivation tax.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “Although Prop 64, and related legislation, built a regulatory structure for cannabis, it still failed to implement some of the basic business practices available to other industries in California. This includes permitting trade samples between licensed businesses despite multiple requests from the cannabis industry and the state-appointed Cannabis Advisory Council. SB 475 would link licensees’ needs for a simple process for sampling with the State’s current plan to track and regulate cannabis. By enabling a fair cannabis sampling procedure, it would promote transparency and create a standard business activity that would benefit the entire industry.”

2. Here be dragons. The Legislature may amend Prop. 64 so long as the amendments further the intent and purpose of the initiative, but it is unclear whether SB 475 is consistent with the intent. Specifically, the bill contains language that directly conflicts with Prop. 64. The initiative explicitly prohibits giving away “any amount of cannabis or cannabis products, or any cannabis accessories, as part of a business or promotion or other commercial activity.” In regards to the cultivation tax, the initiative applies this tax on all harvested marijuana that enters the commercial market, including all marijuana removed from a cultivator’s premises, except for plant waste. The initiative exempts two specific scenarios from the cultivation tax: personal use cultivation and qualified patient cultivation or primary care cultivation. Since the initiative specifically exempts certain situations of cultivation and not others—such as the cultivation of cannabis that is subsequently designated a sample product—it is unclear whether the cultivation tax exemption is consistent with the initiative’s intent. Furthermore, Prop. 64 reiterates that one purpose of the initiative is to tax the growth and sale of marijuana. If SB 475 is legally challenged, and the courts determine that SB 475 does not further the intent and purpose of Prop. 64, another initiative would be necessary to implement SB 475’s provisions.

3. Who is special? By exempting cannabis trade samples from both the sales and use tax, the Legislature would be treating cannabis sample products differently than any other tangible sample products in the state. For example, if a lotion company wants a department store to carry its product line, the lotion company would give a free sample to the department store’s product manager to try. Under the state’s sales and use tax law, tangible personal property given away as a gift, consumed by the taxpayer, or used for marketing purposes constitutes a “use” and tax applies to the property’s purchase price. In other words, the lotion company is obligated to pay use tax on the lotion bottle it gave away as a sample. To keep parity in the treatment of samples for the purposes of sales and use tax, the Committee may wish to eliminate the sales and use tax exemption for cannabis trade products.

4. Logistics. SB 475 provides a cultivation tax exemption for cannabis that will be, or has been, designated a trade sample. This includes cannabis designated a trade sample after the cultivation tax is paid or collected. Cannabis tax law imposes the cultivation tax on the cultivator, and the cultivator pays the cultivation tax to a distributor or manufacturer. Cannabis tax law requires the cultivation tax to pass through the distribution chain until the distributor—who arranges for quality assurance and testing prior to sale to a retailer—remits that tax to CDTFA. If a licensee, other than a cultivator, designates cannabis product as trade sample, then the licensee must refund any tax collected on the designated sample product back to the cultivator who supplied the cannabis product.

To administer the cultivation tax exemption for cannabis product designated sample by a licensee other than a cultivator, CDTFA would have to set up a refund process that would be complex and burdensome. If the tax was remitted to CDTFA, the designating licensee would have to identify, notify, and provide supporting documentation to the cultivator, who would request a refund for taxes paid. If the tax was collected, but not remitted, the designating licensee would have to identify the cultivator who paid the tax, determine the amount of tax paid, and refund the tax to that cultivator. However, if the licensee did not buy the cannabis directly from the cultivator, how would he or she know which cultivator supplied the cannabis? The Committee may wish to consider limiting the cultivation tax exemption for trade samples to trade samples designated by either a cultivator, or a licensee that directly buys cannabis from the cultivator.

5. Advisory Committee’s Report. The California Cannabis Advisory Committee is comprised of 22 appointed members from different sectors to represent the diverse backgrounds of California and the cannabis industry. The Advisory Committee is charged with advising the licensing authorities in the development of standards and regulations, including best practices and guidelines that protect public health and safety while ensuring a regulated environment for commercial cannabis activity. The Advisory Committee began its work in November 2017, holding 10 meetings statewide. The Advisory Committee must submit an annual report on its activities, including recommendations the Committee made to the licensing authorities. The 2018 Report contained the following recommendation:

However, the BCC did not implement the recommendation, citing “the lead agency does not require cannabis goods to be sold at a specific price therefore, no language change occurred.”

6. Let’s get technical. SB 475 does not include a definition for trade sample. Committee staff recommends amending SB 475 to allow the Bureau of Cannabis Control to define trade sample through regulation.

Support and Opposition (4/19/19)

Support: Flow Kana (co-sponsor); California Cannabis Industry Association (co-sponsor); Continuum Distribution (co-sponsor); Calyx Peak Companies; Osiris Ventures, dba Nor Cal Cannabis; Southern California Coalition; Cannabis Distribution Association; CannaCraft, Inc.

Opposition: Unknown.

-- END --

SENATE COMMITTEE ON

BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT

Senator Steven Glazer, Chair

2019 - 2020 Regular

Bill No: SB 475 Hearing Date: April 1, 2019

Author:	Skinner
Version:	March 26, 2019
Urgency:	No	Fiscal:	Yes
Consultant:	Sarah Huchel

Subject: Cannabis: trade samples: cultivation tax: exemption

SUMMARY:

Authorizes cannabis licensees to designate cannabis and cannabis products as trade samples, and exempts these samples from taxes, as specified.

Existing law:

Establishes the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) to regulate the cultivation, distribution, transport, storage, manufacturing, processing, and sale of both medicinal cannabis and adult-use cannabis. (Business and Professions Code (BPC) § 26000)
Establishes the Bureau of Cannabis Control (Bureau) under the Department of Consumer Affairs to regulate cannabis with the sole authority to create, issue, deny, renew, discipline, suspend, or revoke licenses for microbusinesses, transportation, storage unrelated to manufacturing activities, distribution, testing, and sale of cannabis and cannabis products within the state. (BPC §§ 26010, 26012 (a)(1))
Prohibits a licensee from giving away any amount of cannabis or cannabis products, or any cannabis accessories, as part of a business promotion or other commercial activity. (BPC § 26153)
Prohibits a licensee from selling any cannabis or cannabis products at less than cost, or giving away any article or product for the purpose of injuring competitors or destroying competition. (BPC § 26052)
Prohibits a retailer from selling more than the following amounts in a single day:
1. To a single adult-use cannabis consumer:
  1. 28.5 grams of non-concentrated cannabis.
  2. 8 grams of cannabis concentrate.
  3. 6 immature cannabis plants.
2. To a single medicinal cannabis patient, or to a patient’s primary caregiver purchasing medicinal cannabis on behalf of the patient:
  1. 8 ounces of medicinal cannabis in the form of dried mature flowers.
  2. 12 immature cannabis plants. (Title 16, California Code of Regulations § 5409)
Authorizes a local jurisdiction to allow for the smoking, vaporizing, and ingesting of cannabis or cannabis products on the premises of a retailer or microbusiness if all of the following are met:
1. Access to the area where cannabis consumption is allowed is restricted to persons 21 years of age or older.
2. Cannabis consumption is not visible from any public place or nonage-restricted area.
3. Sale or consumption of alcohol or tobacco is not allowed on the premises. (BPC § 26200(g)

This bill:

Authorizes a cannabis licensee to designate cannabis or a cannabis product as a trade sample at any time while the cannabis or cannabis product is in the possession of the licensee.
Upon the designation of the cannabis or cannabis product as a trade sample, the licensee shall do both of the following:
1. Record the associated quantity, product type, and unique identifiers of the cannabis or cannabis product into the track and trace program.
2. Label the cannabis or cannabis product with the following: “TRADE SAMPLE. NOT FOR RESALE OR DONATION.”
Allows cannabis or cannabis products designated as a trade sample to be transported between licensees by an employee of a licensee.
Prohibits cannabis or cannabis products designated as a trade sample from being sold or donated by any licensee or any other person.
Permits cannabis or cannabis products designated as a trade sample to be given for no compensation to an employee of the licensee that designated the trade sample or to another licensee, subject to all the following requirements:
1. Cannabis or cannabis products designated as a trade sample given to another licensee shall be recorded in the track and trace system.
2. The licensee maintains records of trade samples that are given to employees.
3. An employee of the licensee does not possess or transport trade samples in amounts exceeding the following:
  1. 28.5 grams of non-concentrated cannabis.
  2. Eight grams of cannabis concentrate, including as contained in cannabis products.
  3. Six living cannabis plants.
Authorizes the Bureau to establish a limit on the quantity of cannabis and cannabis goods designated by a licensee as trade samples, not to be less than two percent of a batch.
Requires cannabis or cannabis products designated as a trade sample to be subject to quality assurance and testing.
Exempts cannabis trade samples from taxes on gross receipts from the sale, storage, use, or other consumption of cannabis or a cannabis product if:
1. The cannabis licensee has received a resale certificate from the designating cannabis licensee and the designating cannabis licensee that provided the resale certificate later withdraws that cannabis or cannabis product described in the resale certificate from its inventory to designate the cannabis or cannabis product as a trade sample.
2. The designating cannabis licensee certifies in writing to the cannabis licensee that sells cannabis or a cannabis product to the designating cannabis licensee that the cannabis or cannabis product will be designated a trade sample. The certification in writing shall relieve the cannabis licensee that sells the cannabis or cannabis product of liability for sales tax only if it is taken in good faith.
3. The designating cannabis licensee withdraws cannabis or cannabis product from its inventory to designate the cannabis or cannabis product as a trade sample.
4. The cannabis sample is not sold.
Requires the designating cannabis licensee to be liable for payment of the use tax if the licensee uses the cannabis trade sample in a manner inconsistent with law.
Exempts cannabis trade samples from the cultivation tax.
Requires the California Department of Tax and Fee Administration to adopt regulations prescribing the procedures to implement the cultivation tax exemption, including, but not limited to, the following:
1. Procedures for providing certifications that relieve a cultivator, distributor, or manufacturer from liability for the cultivation tax.
2. Procedures for the refund or credit of any cultivation tax paid or collected before the cannabis is designated as a trade sample or is used to manufacture a cannabis product that is designated as a trade sample.
States that a licensee that improperly sells trade samples shall be liable for the cultivation tax as if the person were a cultivator of the cannabis at the time of sale.
Requires a licensee to keep records of any cannabis or cannabis product designated as a trade sample that was exempt from the cultivation tax.

FISCAL EFFECT:

Unknown. This bill is keyed fiscal by Legislative Counsel.

COMMENTS:

Purpose. This bill is sponsored by Flow Kana, California Cannabis Industry Association and Continuum. According to the Author’s office, this bill “…creates a mechanism for business to business and business to employee sampling. Sampling is currently not permitted and in order to sample often business and employees will just purchase product.”
Cannabis Regulatory Background. California first legalized cannabis for medical consumption via Proposition 215, also known as the Compassionate Use Act, in 1996. Proposition 215 protected qualified patients and primary caregivers from prosecution related to the possession and cultivation of cannabis for medicinal purposes.

The Legislature passed the Medical Cannabis Regulation and Safety Act (MCRSA) in 2015. MCRSA established a comprehensive statewide licensing and regulatory framework for the cultivation, manufacture, transportation, testing, distribution, and sale of medicinal cannabis to be administered by the Bureau within Department of Consumer Affairs, the Department of Public Health, and the Department of Food and Agriculture.

Shortly following the passage of MCRSA in November 2016, California voters passed Proposition 64, the Control, Regulate and Tax Adult Use of Marijuana Act (Proposition 64), which legalized adult-use cannabis.

Less than a year later in June 2017, the California State Legislature passed a budget trailer bill, SB 94 (Committee on Budget and Fiscal Review, Chapter 27, Statutes of 2017), that integrated MCRSA with Prop 64 to create MAUCRSA, the current regulatory structure for both medicinal and adult-use cannabis.

Proposition 64 Conflicts. This bill directly conflicts with the language of Proposition 64, which explicitly prohibits giving away “any amount of cannabis or cannabis products, or any cannabis accessories, as part of a business or promotion or other commercial activity.” Indeed, according to this bill’s sponsors, these samples are intended to encourage sales, which is commercial activity.

Cannabis Advisory Committee. The California Cannabis Advisory Committee (Committee) is comprised of 22 appointed members representing California’s cannabis industry, and is charged with advising the licensing authorities in the development of “standards and regulations… that protect public health and safety while ensuring a regulated environment for commercial cannabis activity that does not impose such barriers so as to perpetuate…the illicit market.”

The Committee’s 2018 Report contained the following recommendation:

Current Trade Practices. Nothing currently prohibits licensees from purchasing products and gifting them under personal use limits, which is what happens today.

“SB 475 would allow account managers to carry sample amounts in vehicles to various accounts instead of waiting for delivery by drivers. In addition, we could give product away to a licensee for no cost and with no cultivation tax.”

Tax implications. This bill is double-referred to the Senate Committee on Governance and Finance, which will analyze the tax implications of this bill.
Related Legislation This Year. SB 67 (McGuire) extends temporary cannabis licenses until December 31, 2019 for applicants who submitted an annual application to the cannabis licensing authorities before the expiration date of their temporary license, and authorizes licensing authorities to issue provisional licenses to individuals without a temporary license, as specified. (Status: This bill is pending in the Senate Appropriations Committee.)

SB 34 (Wiener) allows cannabis licensees to donate cannabis and cannabis products to medicinal cannabis patients, as specified, and exempts such products from taxation. (Status: This bill is pending in the Senate Business, Professions and Economic Development Committee.)

Arguments in Support. The sponsors of this measure, Flow Kana, California Cannabis Industry Association, and Continuum, write, “In many other industries, businesses routinely provide other businesses and their own employees with ‘trade samples’ of their own products in order to promote product knowledge and encourage a sale. While the final MAUCRSA regulations span hundreds of pages, they maintained a prohibition on free cannabis goods and failed to provide a pathway for trade samples between licensed businesses despite multiple requests from different license holders, industry associations, and the state-appointed Cannabis Advisory Committee.

“If enacted, SB 475 would create a clear procedure for the designation of cannabis goods as trade samples, would incorporate those samples into the state’s track and trace program, and would exempt those samples from cannabis taxes as they will not be sold to consumers. These trade samples could be transported between licensed businesses or given by a licensed business to their employees. These trade samples would have to be labeled “TRADE SAMPLE. NOT FOR RESALE OR DONATION” and licensed businesses would be limited in the quantity of cannabis that could be designated as trade samples or carried by an employee at one time. SB 475 would facilitate trade samples for all license types, except for testing laboratories, to ensure that the entire supply chain has access to these business development tools.”

Suggested Committee Amendments.
1. The Committee may wish to clarify the conditions under which trade samples may be distributed. The current bill establishes a quantitative limit for the designation of trade sample products and to whom they may be distributed, but further parameters could be set to respect the boundaries of MAUCRSA that prohibit a licensee from activities that may injure competitors or otherwise unduly affect competition.

On page 4, line 14, insert (A) “A trade sample shall only be given for the purposes of conducting research and development, education, and targeted advertising to licensees about new and existing cannabis and cannabis products."

1. The Committee may wish clarify that a trade sample may not be transferred to a retail customer, specifically:

On page 4, line 26, insert: “(E) A trade sample may only be consumed by the licensee or licensee’s employee, and may not be given to a retail customer.”

1. The Committee may wish to expand the quality assurance and testing requirements to trade samples given to all licensees, specifically, :

On page 4, delete “that are intended to be given to retailer licensees”

1. The following technical amendments should be made:
  1. On page 3, line 3, delete “On and after January 1, 2020,”
  2. On page 4, line 7, delete “or any other” and delete line 8.
  3. On page 4, strike lines 21-25 inclusive and replace with:
    1. 28.5 grams of on-concentrated cannabis.
    2. Eight grams of cannabis, including cannabis concentrate contained in cannabis products.
    3. Six immature cannabis plants.

NOTE:

Double-referral to Senate Committee on Governance and Finance, second.

SUPPORT AND OPPOSITION:

Support:

Flow Kana (Co-sponsor)

California Cannabis Industry Association (Co-sponsor)

Continuum (Co-sponsor)

Cannabis Distribution Association

CannaCraft

Southern California Coalition

Opposition:

None on file as of March 26, 2019.

-- END --

SB 475: Cannabis: trade samples.

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

THIRD READING

Bill No: SB 475

DIGEST:

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Background

Proposed Law

State Revenue Impact

Comments

Support and Opposition (4/19/19)

SENATE COMMITTEE ON

BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT

SUMMARY:

FISCAL EFFECT:

COMMENTS:

NOTE:

SUPPORT AND OPPOSITION: