UNFINISHED BUSINESS  

Bill No: SB 595

Author: Bradford (D), et al.

Amended: 9/6/19

Vote: 27

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

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

NO VOTE RECORDED: Chang

SENATE APPROPRIATIONS COMMITTEE: 4-2, 5/16/19

AYES: Portantino, Bradford, Hill, Wieckowski

NOES: Bates, Jones

SENATE FLOOR: 28-8, 5/23/19

AYES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Skinner, Stern, Umberg, Wieckowski, Wiener, Wilk

NOES: Bates, Borgeas, Chang, Grove, Jones, Morrell, Nielsen, Stone

NO VOTE RECORDED: Moorlach, Rubio

ASSEMBLY FLOOR: 54-10

(ROLL CALL NOT AVAILABLE)

SUBJECT: Cannabis: local equity programs: state fee waivers

SOURCE: Drug Policy Alliance

DIGEST:

This bill requires a cannabis licensing authority to develop and implement a program by July 1, 2020, that provides a fee deferral or fee waiver to obtain or renew a license for a needs-based applicant or licensee, as specified, contingent upon an appropriation in the annual Budget Act or another statute.

Assembly Amendments update “local equity” to “needs-based” in the description of

the program a licensing authority must establish and implement; require at least 60 percent of the amount of waivers or fee deferrals to be allocated to equity applicants and licensees; and delay the required development and implementation of the program until January 1, 2021.

ANALYSIS:

Existing law:

1. 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)
2. Establishes the Bureau of Cannabis Control (Bureau) under the Department of Consumer Affairs, the California Department of Food and Agriculture (CDFA), and the State Department of Public Health (DPH) to each administer portions of MAUCRSA and gives each licensing authority the ability to create, issue, deny, renew, discipline, suspend, or revoke certain licenses. (BPC §§ 26010, 26012 (a)(1), 26012 (a)(2)), 26012 (a)(3))
3. Authorizes the licensing authorities to collect fees in connection with activities they regulate concerning cannabis, and each licensing authority shall establish a scale of application, licensing, and renewal fees, based upon the cost of enforcing MAUCRSA, as specified. (BPC §§ 26012 (b), 26180)
4. Establishes the California Cannabis Equity Act of 2018 (Act), which authorizes an eligible local jurisdiction to submit an application to the Bureau for a grant to assist local equity applicants and licensees through that local jurisdiction’s equity program. Requires the local jurisdiction to use the grant funds to assist local equity applicants and licensees to gain entry to and to successfully operate in the regulated cannabis marketplace. (BPC § 26244)
5. Requires the Bureau to serve as a point of contact for local equity programs, and by July 1, 2019, publish approved local equity ordinances and model local equity ordinances to the Bureau’s Internet Web site to facilitate greater equity in business ownership and employment in the cannabis market. Requires the Bureau to coordinate with the relevant local jurisdictions. (BPC § 26246)
6. Defines the following terms:
   1. “Local equity applicant” means an applicant who has submitted, or will submit, an application to a local jurisdiction to engage in commercial cannabis activity within the jurisdictional boundaries and who meets the requirements of that jurisdiction’s local equity program.
   2. “Local equity licensee” means a person who has obtained a license from a local jurisdiction to engage in commercial cannabis activity within the jurisdictional boundaries and who meets the requirements of that jurisdiction’s local equity program. (BPC § 26240)
7. Establishes cannabis application and license fees between $500 and $300,000. (Chapter 16, California Code of Regulations (CCR) § 5014; 3 CCR §§ 8101, 8200; 17 CCR § 40150)
8. Authorizes a state agency that makes a finding that the adoption of a regulation or order of repeal is necessary to address an emergency to adopt the regulation or order of repeal as an emergency regulation or order of repeal. Any finding of an emergency shall include a written statement, as specified, and shall be filed immediately with the office. (Government Code § 11346.1 (b))

This bill:

1. Requires a licensing authority to develop and implement a program to provide a deferral or waiver for an application fee or a licensing fee for a local equity applicant or local equity licensee by January 1, 2021.
2. Requires that at least 60% of the dollar amount of waivers or deferrals of fees must be allocated to equity applicants and licensees.
3. Authorizes a licensing authority to adopt emergency regulations to implement this bill, and states that the adoption, amendment, repeal, or readoption of a regulation authorized by this section is deemed to address an emergency, as specified. Exempts the licensing authority from filing a written statement of emergency, as specified.
4. States that the operation of this bill is contingent upon an appropriation in the annual Budget Act or another statute.

Background

Cannabis Equity Program. SB 1294 (Bradford, Chapter 794, Statutes of 2018) established the Act, which allows a local jurisdiction to submit an application to the Bureau for a grant to assist local applicants and licensees through that local jurisdiction’s equity program. The intention of equity programs are to focus on inclusion and support of persons in the cannabis industry who are linked to populations or neighborhoods that were negatively or disproportionately impacted by cannabis criminalization.

The Bureau was appropriated $10 million in the 2018 California Budget to effectuate the Act, and stated in a March 1, 2019 press release they were accepting applications from eligible cities and counties until April 1, 2019, with plans to distribute all funds no later than June 30, 2019. However, on March 30, 2019, the Bureau sent out another press release stating they were cancelling the application window to review and revise the grant program guidelines. No reopening date has been set.

Conflict with MAUCRSA. As passed by the voters, current law explicitly states that the licensing authorities are required to charge a license and renewal fee calculated to “fairly and proportionately generate sufficient total revenue to fully cover the [MAUCRSA’s administration] costs.” It is unclear whether a waiver would be considered in compliance with the text of Proposition 64, but a deferral certainly could be. It could also be argued that a waiver is considered “fair” in the context of Proposition 64, as one of its purposes is to “[r]educe barriers to entry into the legal, regulated market.”

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

According to the Assembly Appropriations Committee, this bill will result in potential one-time costs to licensing agencies to adopt regulations, contingent on a budget appropriation, of around $100,000 and General Fund cost pressure to appropriate funds to offset fee waivers for equity applicants of an unknown amount.

SUPPORT: (Verified 9/10/19)

Drug Policy Alliance (source)

California Cannabis Coalition

California Cannabis Industry Association

California State Conference of the NAACP

Minority Cannabis Business Association

National Cannabis Business Association

NorCal Cannabis

SEIU State Council

Southern California Coalition

United Food and Commercial Workers Western States Council

One individual

OPPOSITION: (Verified 9/10/19)

None received

ARGUMENTS IN SUPPORT: Drug Policy Alliance writes, “Social equity programs were created to remedy the failures of the drug war by ensuring that applicants with prior convictions, communities that have been over-policed, and communities where poverty is significant are able to enter the burgeoning industry. The underlying goal is for the new legalized cannabis industry to be more equitable and to reflect the diverse demographics of the state.

“The state plays a pivotal role to ensure that the conditions exist to create an equitable cannabis industry reflecting the broad diversity of California. Redressing the harms imposed disproportionately upon communities of color requires addressing barriers to entry—specifically uneven access to capital— and ensuring that all Californians have a fair chance at becoming successful in the industry. For local social equity programs to be brought up to scale, the dual incentives of waiving the licensing fees and deferrals will provide a model for local jurisdictions to adopt and further facilitate the implementation of social equity programs in an impactful and meaningful manner.”

Prepared by: Samtantha Tucci / B., P. & E.D. /

9/13/19 21:37:30

**** END ****

SENATE THIRD READING

STR Bill Id:SB 595

Author:(Bradford)

As Amended Ver:September 6, 2019

2/3 vote

SUMMARY:

Requires a cannabis licensing authority to develop and implement a program to provide a deferral or waiver for an application or licensing fee for a local equity applicant or licensee, subject to an appropriation for that purpose.

Major Provisions

1. Requires the state's cannabis licensing authorities to develop and implement a program to provide a deferral or waiver for an application fee or a licensing fee for a local equity applicant or local equity licensee.
2. Provides the licensing authorities with authority to adopt emergency regulations to implement the bill.
3. Makes the operation of this bill contingent upon an appropriation in the annual Budget Act or another statute for its purposes.

COMMENTS:

Although cannabis remains illegal federally, cannabis use was legalized under the state's Compassionate Use Act of 1996 (Proposition 215) for medicinal purposes with a physician recommendation. In 2015, the state passed a set of laws establishing a licensure and regulatory scheme for medicinal cannabis. The following year, Proposition 64 of 2016 legalized adult use (recreational use) as well, to which the state responded by subsequently harmonizing the legal and regulatory scheme for both medicinal and adult-use under a body of law called Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA).

Proponents of Proposition 64 argued the state's legalization of recreational cannabis should address the impact of prohibition on low-income and minority populations by affording communities who were aggressively penalized by the product's previous illegality the opportunity to participate in the marketplace.

However, many have pointed out high start-up costs and regulatory fees are barriers to entry. In response, local equity programs have been created to assist historically disadvantaged communities to enter the market. SB 1294 (Bradford), Chapter 784, Statutes of 2018, codifies the state's recognition of local equity programs and authorizes the BCC to award grant funding to local jurisdictions to administer their local equity programs. These programs provide low-interest or no-interest loans to fund startup and ongoing costs such as rent, legal assistance, furniture, capital improvements, training, regulatory compliance and the testing of cannabis. It can also fund technical assistance, administration and efforts to develop capital.

This bill would take additional steps to provide relief to equity applicants and licensees seeking to enter the marketplace by allowing the state's cannabis licensing authorities to waive or defer fees, subject to an appropriation for the purpose.

According to the Author:

"The cost for applicants to secure a state cannabis license, including applicants identified as equity-qualifying by a local equity program, can reach tens or even hundreds of thousands of dollars. These high costs prevent people without large amounts of capital from entering the industry. Currently, there is no statute or regulation reducing the costs associated with securing these licenses for participants in local equity programs. This creates a tremendous barrier for people with prior convictions, people from communities most harmed by cannabis prohibition, and particularly people of color, from contributing to this newly regulated industry. In addition, lack of access to traditional sources of capital are either limited or prohibited due to cannabis still being a Schedule I drug at the federal level. Waiving or deferring fees for local equity applicants and licensees will allow new revenue-generating, job-producing businesses to enter the cannabis industry. [This bill] will also help chip away at the illicit market by providing additional assistance to business owners operating illegally or potentially embarking on an illicit enterprise. Ultimately, this bill furthers the intent of Prop. 64 by reducing barriers to entry."

Arguments in Support:

The Drug Policy Alliance (DPA) is sponsoring this bill. According to the DPA, "the high costs associated with state cannabis licensing fees prevent people without large amounts of capital from entering the industry. Cannabis licensing and renewal fees in California are tiered, but they are based on a business's projected revenue. As a result, licensing and renewal fees cost tens of thousands of dollars. This creates a tremendous barrier for people of color, people with prior convictions, and people from communities most harmed by cannabis prohibition who hope to enter the industry. Coupled with a lack of access to traditional sources of capital, these fees are yet another impediment to realizing a truly diverse cannabis industry. Waiving or deferring fees for local equity applicants and licensees will allow new revenue-generating, job-producing businesses to enter the industry."

Arguments in Opposition:

None on file.

FISCAL COMMENTS:

According to the Senate Appropriations Committee:

1. Potential one-time costs to licensing agencies (Bureau of Cannabis Control, California Department of Public Health, and California Department of Food and Agriculture) to adopt regulations, contingent on a budget appropriation. If new regulations are required, costs could be around $100,000 for CDPH (Cannabis Control Fund).
2. GF cost pressure to appropriate funds to offset fee waivers for equity applicants of an unknown amount. A meaningful dollar amount to provide a significant number of fee waivers would be in excess of $1 million. Many license fees are in the thousands of dollars and, depending on volume, fees can exceed $100,000 per license.

VOTES:

SENATE FLOOR: 28-8-2

YES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Skinner, Stern, Umberg, Wieckowski, Wiener, Wilk

NO: Bates, Borgeas, Chang, Grove, Jones, Morrell, Nielsen, Stone

ABS, ABST OR NV: Moorlach, Rubio

ASM BUSINESS AND PROFESSIONS: 15-1-3

YES: Low, Brough, Arambula, Bloom, Chen, Chiu, Eggman, Gipson, Gloria, Grayson, Holden, McCarty, Medina, Mullin, Ting

NO: Obernolte

ABS, ABST OR NV: Cunningham, Fong, Irwin

ASM APPROPRIATIONS: 15-2-1

YES: Gonzalez, Bloom, Bonta, Brough, Calderon, Carrillo, Chau, Diep, Eggman, Gabriel, Eduardo Garcia, Maienschein, Petrie-Norris, Quirk, Robert Rivas

NO: Bigelow, Obernolte

ABS, ABST OR NV: Fong

UPDATED:

VERSION: September 6, 2019

CONSULTANT: Robert Sumner / B. & P. / (916) 319-3301 FN: 0002033

SENATE THIRD READING

STR Bill Id:SB 595

Author:(Bradford)

As Amended Ver:May 17, 2019

2/3 vote

SUMMARY:

This bill requires a cannabis licensing authority to develop and implement a program to provide a deferral or waiver for an application or licensing fee for a local equity applicant or licensee, subject to an appropriation for that purpose.

Major Provisions

1. Requires the state's cannabis licensing authorities to develop and implement a program to provide a deferral or waiver for an application fee or a licensing fee for a local equity applicant or local equity licensee.
2. Provides the licensing authorities with authority to adopt emergency regulations to implement the bill.
3. Makes the operation of the bill contingent upon an appropriation in the annual Budget Act or another statute for its purposes.

COMMENTS:

Although cannabis remains illegal federally, cannabis use was legalized under the state's Compassionate Use Act of 1996 (Proposition 215) for medicinal purposes with a physician recommendation. In 2015, the state passed a set of laws establishing a licensure and regulatory scheme for medicinal cannabis. The following year, Proposition 64 of 2016 legalized adult use (recreational use) as well, to which the state responded by subsequently harmonizing the legal and regulatory scheme for both medicinal and adult-use under a body of law called Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA).

Proponents of Proposition 64 argued the state's legalization of recreational cannabis should address the impact of prohibition on low-income and minority populations by affording communities who were aggressively penalized by the product's previous illegality the opportunity to participate in the marketplace.

However, many have pointed out high start-up costs and regulatory fees are barriers to entry. In response, local equity programs have been created to assist historically disadvantaged communities to enter the market. SB 1294 (Bradford), Chapter 784, Statutes of 2018, codifies the state's recognition of local equity programs and authorizes the BCC to award grant funding to local jurisdictions to administer their local equity programs. These programs provide low-interest or no-interest loans to fund startup and ongoing costs such as rent, legal assistance, furniture, capital improvements, training, regulatory compliance and the testing of cannabis. It can also fund technical assistance, administration and efforts to develop capital.

This bill would take additional steps to provide relief to equity applicants and licensees seeking to enter the marketplace by allowing the state's cannabis licensing authorities to waive or defer fees, subject to an appropriation for the purpose.

According to the Author:

According to the author, "The cost for applicants to secure a state cannabis license, including applicants identified as equity-qualifying by a local equity program, can reach tens or even hundreds of thousands of dollars. These high costs prevent people without large amounts of capital from entering the industry. Currently, there is no statute or regulation reducing the costs associated with securing these licenses for participants in local equity programs. This creates a tremendous barrier for people with prior convictions, people from communities most harmed by cannabis prohibition, and particularly people of color, from contributing to this newly regulated industry. In addition, lack of access to traditional sources of capital are either limited or prohibited due to cannabis still being a Schedule I drug at the federal level. Waiving or deferring fees for local equity applicants and licensees will allow new revenue-generating, job-producing businesses to enter the cannabis industry. [This bill] will also help chip away at the illicit market by providing additional assistance to business owners operating illegally or potentially embarking on an illicit enterprise. Ultimately, this bill furthers the intent of Prop. 64 by reducing barriers to entry."

Arguments in Support:

The Drug Policy Alliance (DPA) is sponsoring this bill. According to the DPA, "the high costs associated with state cannabis licensing fees prevent people without large amounts of capital from entering the industry. Cannabis licensing and renewal fees in California are tiered, but they are based on a business's projected revenue. As a result, licensing and renewal fees cost tens of thousands of dollars. This creates a tremendous barrier for people of color, people with prior convictions, and people from communities most harmed by cannabis prohibition who hope to enter the industry. Coupled with a lack of access to traditional sources of capital, these fees are yet another impediment to realizing a truly diverse cannabis industry. Waiving or deferring fees for local equity applicants and licensees will allow new revenue-generating, job-producing businesses to enter the industry."

Arguments in Opposition:

None on file.

FISCAL COMMENTS:

According the Assembly Appropriations Committee:

1. Potential one-time costs to licensing agencies (Bureau of Cannabis Control, California Department of Public Health, and California Department of Food and Agriculture) to adopt regulations, contingent on a budget appropriation. If new regulations are required, costs could be around $100,000 for CDPH (Cannabis Control Fund).
2. General Fund cost pressure to appropriate funds to offset fee waivers for equity applicants of an unknown amount. A meaningful dollar amount to provide a significant number of fee waivers would be in excess of $1 million. Many license fees are in the thousands of dollars and, depending on volume, fees can exceed $100,000 per license.

VOTES:

SENATE FLOOR: 28-8-2

YES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Skinner, Stern, Umberg, Wieckowski, Wiener, Wilk

NO: Bates, Borgeas, Chang, Grove, Jones, Morrell, Nielsen, Stone

ABS, ABST OR NV: Moorlach, Rubio

ASM BUSINESS AND PROFESSIONS: 15-1-3

YES: Low, Brough, Arambula, Bloom, Chen, Chiu, Eggman, Gipson, Gloria, Grayson, Holden, McCarty, Medina, Mullin, Ting

NO: Obernolte

ABS, ABST OR NV: Cunningham, Fong, Irwin

ASM APPROPRIATIONS: 15-2-1

YES: Gonzalez, Bloom, Bonta, Brough, Calderon, Carrillo, Chau, Diep, Eggman, Gabriel, Eduardo Garcia, Maienschein, Petrie-Norris, Quirk, Robert Rivas

NO: Bigelow, Obernolte

ABS, ABST OR NV: Fong

UPDATED:

VERSION: September 3, 2019

CONSULTANT: Robert Sumner / B. & P. / (916) 319-3301 FN: 0001796

Date of Hearing: August 14, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

SBPCA Bill Id:SB 595

Author:(Bradford) – As Amended Ver:May 17, 2019

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill requires a cannabis licensing authority to develop and implement a program to provide a deferral or waiver for an application or licensing fee for a local equity applicant or licensee, subject to an appropriation for that purpose.

FISCAL EFFECT:

1. Potential one-time costs to licensing agencies (Bureau of Cannabis Control, California Department of Public Health, and California Department of Food and Agriculture) to adopt regulations, contingent on a budget appropriation. If new regulations are required, costs could be around $100,000 for CDPH (Cannabis Control Fund).
2. GF cost pressure to appropriate funds to offset fee waivers for equity applicants of an unknown amount. A meaningful dollar amount to provide a significant number of fee waivers would be in excess of $1 million. Many license fees are in the thousands of dollars and, depending on volume, fees can exceed $100,000 per license.

COMMENTS:

1. Purpose. This bill aims to reduce barriers to entry into the cannabis market for participants in local equity programs designed to support disadvantaged communities to enter the cannabis industry. It is sponsored by the Drug Policy Alliance and supported by cannabis industry and labor groups.
2. Background. Although cannabis remains illegal federally, cannabis use was legalized under the state’s Compassionate Use Act of 1996 (Proposition 215) for medicinal purposes with a physician recommendation. In 2015, the state passed a set of laws establishing a licensure and regulatory scheme for medicinal cannabis. The following year, Proposition 64 of 2016 legalized adult use (recreational use) as well, to which the state responded by subsequently harmonizing the legal and regulatory scheme for both medicinal and adult-use under a body of law called Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA).
3. Equity Programs. Proponents of Proposition 64 argued the state’s legalization of recreational cannabis should address the impact of prohibition on low-income and minority populations by affording communities who were aggressively penalized by the product’s previous illegality the opportunity to participate in the marketplace.

However, many have pointed out high start-up costs and regulatory fees are barriers to entry. In response, local equity programs have been created to assist historically disadvantaged communities to enter the market. SB 1294 (Bradford), Chapter 784, Statutes of 2018, codifies the state’s recognition of local equity programs and authorizes the BCC to award grant funding to local jurisdictions to administer their local equity programs. These programs provide low-interest or no-interest loans to fund startup and ongoing costs such as rent, legal assistance, furniture, capital improvements, training, regulatory compliance and the testing of cannabis. It can also fund technical assistance, administration and efforts to develop capital.

This bill would take additional steps to provide relief to equity applicants and licensees seeking to enter the marketplace by allowing the state’s cannabis licensing authorities to waive or defer fees, subject to an appropriation for the purpose.

Analysis Prepared by: Lisa Murawski / APPR. / (916) 319-2081

Date of Hearing: July 2, 2019

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

Evan Low, Chair

SBPCA Bill Id:SB 595

Author:(Bradford) – As Amended Ver:May 17, 2019

SENATE VOTE: 28-8

SUBJECT: Cannabis: local equity programs: state fee waivers

SUMMARY: Requires a cannabis licensing authority to develop and implement a program to provide a deferral or waiver for an application or licensing fee for a local equity applicant or licensee, subject to an appropriation for that purpose.

EXISTING LAW:

1. 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.)
2. 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)
3. 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)
4. 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)
5. Provides the Department of Food and Agriculture (CDFA) with responsibility for regulating cannabis cultivators. (BPC § 26060)
6. Provides the Department of Public Health (CDPH) with responsibility for regulating cannabis manufacturers. (BPC § 26130)
7. 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))
8. Establishes the California Cannabis Equity Act of 2018 to ensure that the cannabis industry be representative of the state’s population, and that barriers to entering the industry are reduced through support to localities that have created local equity programs in their jurisdictions. (BPC §§ 26240 et al.)
9. Defines “local equity applicant” as an applicant who has submitted, or will submit, an application to a local jurisdiction to engage in commercial cannabis activity in that jurisdiction who meets the requirements of that jurisdiction’s local equity program, and a “local equity licensee” as a person who has obtained a license from a local jurisdiction to engage in commercial cannabis activity in that jurisdiction who meets the requirements of that jurisdiction’s local equity program. (BPC § 26240)
10. Authorizes a local jurisdiction to submit an application to the BCC for a grant to assist local equity applicants in gaining entry to, and successfully operating in, the state’s regulated cannabis marketplace through any of the following methods:
    1. To provide a loan or a grant to a local equity applicant or local equity licensee to assist the applicant or licensee with startup and ongoing costs.
    2. To support local equity program efforts to provide sources of capital to local equity applicants and local equity licensees.
    3. To provide direct technical assistance to local equity applicants and local equity licensees.
    4. To assist in the administration of local equity programs.

(BPC § 26244)

1. Requires the BCC to serve as a point of contact for local equity programs and publish approved local equity ordinances and model local equity ordinances created by advocacy groups and experts to its website. (BPC § 26246)
2. On or before July 1, 2020, requires the BCC to submit a report to the Legislature regarding the progress of local equity programs that have received funding. (BPC § 26248)

THIS BILL:

1. Requires the state’s cannabis licensing authorities to develop and implement a program to provide a deferral or waiver for an application fee or a licensing fee for a local equity applicant or local equity licensee.
2. Provides the licensing authorities with authority to adopt emergency regulations to implement the bill.
3. Makes the operation of the bill contingent upon an appropriation in the annual Budget Act or another statute for its purposes.

FISCAL EFFECT: The Senate Committee on Appropriations provided fiscal estimates based on cost-pressures if funding in the Budget Act, or another statute, is not provided; amendments taken to the bill in that committee made the bill’s provisions subject to an appropriation in the annual Budget Act or another statute for its purpose.

COMMENTS:

Purpose. This bill is sponsored by the Drug Policy Alliance. According to the author:

“The cost for applicants to secure a state cannabis license, including applicants identified as equity-qualifying by a local equity program, can reach tens or even hundreds of thousands of dollars. These high costs prevent people without large amounts of capital from entering the industry. Currently, there is no statute or regulation reducing the costs associated with securing these licenses for participants in local equity programs. This creates a tremendous barrier for people with prior convictions, people from communities most harmed by cannabis prohibition, and particularly people of color, from contributing to this newly regulated industry. In addition, lack of access to traditional sources of capital are either limited or prohibited due to cannabis still being a Schedule I drug at the federal level. Waiving or deferring fees for local equity applicants and licensees will allow new revenue-generating, job-producing businesses to enter the cannabis industry. SB 595 will also help chip away at the illicit market by providing additional assistance to business owners operating illegally or potentially embarking on an illicit enterprise. Ultimately, this bill furthers the intent of Prop. 64 by reducing barriers to entry.”

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.

Equity Programs. Proponents of the AUMA argued that the state’s legalization of recreational cannabis should be recognize and address the devastating impact of prohibition on the low-income and minority populations as a lawful industry begins to profit from the newly regulated marketplace. Throughout the decades in which the sale and use of cannabis was largely illegal, innumerable individuals—the majority of whom are people of color—were incarcerated for engaging in activities made lawful by Proposition 64. Many purport that with the passage of the AUMA representing the state’s comfort with allowing for legal sales of cannabis to occur, those communities who were aggressively penalized by the product’s previous illegality should be afforded an opportunity to participate in the marketplace.

However, many have pointed out that compliance with the requirements of MAUCRSA, in addition to standard business start-up costs, creates significant barriers to entering into the cannabis industry for populations without capital or financing. In response, many have advocated for programs specifically aimed at assisting economically disadvantaged communities enter into the cannabis industry through financial assistance. SB 1294 (Bradford)—cited as the California Cannabis Equity Act of 2018—was chaptered to codify the state’s recognition of local equity programs designed to enable populations or neighborhoods that were negatively or disproportionately impacted by cannabis criminalization to become approved participants in the cannabis marketplace.

Under the California Cannabis Equity Act, the BCC may award grant funding to local jurisdictions for purposes of providing assistance to local equity applicants or licensees seeking to gain entry to the state’s regulated cannabis marketplace. Pending trailer bill language relating to cannabis would modify the Act to provide that a local jurisdiction must make an “equity assessment” to inform the creation of a local program. These equity assessments would include the following:

• 1. Reference to local historical rates of arrests or convictions for cannabis law violations.
  2. Identification of the impacts that cannabis-related policies have had historically on communities and populations within that local jurisdiction.
  3. Other information that demonstrates how individuals and communities within the local jurisdiction have been disproportionately or negatively impacted by the War on Drugs.

Once a local equity program has been established, the BCC may grant funding to the jurisdiction for it to administer its local equity program. Under such a program, the local jurisdiction may provide assistance to applicants comprised of low-interest or no-interest loans to fund startup and ongoing costs such as rent, legal assistance, furniture, capital improvements, training, regulatory compliance, and the testing of cannabis. Equity funding may also be used by local jurisdictions to fund the provision of technical assistance and expenses associated with supporting efforts to provide sources of capital and assist in the development or administration of programs.

This bill would take additional steps to provide relief to equity applicants and licensees seeking to enter the marketplace by allowing the state’s cannabis licensing authorities to waive or defer fees. This would provide another form of financial support for individuals seeking to become successful cannabis licensees who are already seeking or receiving support through a local equity program. The bill would go into effect only if an appropriation is made for its purpose; essentially, the Budget Act or another statute would have to provide for funding of the lost revenue associated with the fee waiver or deferral prior to it being offered by any authority.

Current Related Legislation. AB 97 (Committee on Budget) would make modifications to the California Cannabis Equity Act of 2018 for purposes of clarifying the grantmaking process. (This bill has been enrolled and is awaiting the Governor’s signature.)

Prior Related Legislation. SB 1294 (Bradford, Chapter 794, Statutes of 2018) enacted the California Cannabis Equity Act of 2018 to provide the infrastructure for local equity programs.

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.

ARGUMENTS IN SUPPORT:

The Drug Policy Alliance (DPA) is sponsoring this bill. According to the DPA, “the high costs associated with state cannabis licensing fees prevent people without large amounts of capital from entering the industry. Cannabis licensing and renewal fees in California are tiered, but they are based on a business’s projected revenue. As a result, licensing and renewal fees cost tens of thousands of dollars. This creates a tremendous barrier for people of color, people with prior convictions, and people from communities most harmed by cannabis prohibition who hope to enter the industry. Coupled with a lack of access to traditional sources of capital, these fees are yet another impediment to realizing a truly diverse cannabis industry. Waiving or deferring fees for local equity applicants and licensees will allow new revenue-generating, job-producing businesses to enter the industry.”

ARGUMENTS IN OPPOSITION:

None on file.

REGISTERED SUPPORT:

Drug Policy Alliance (Sponsor)
California Cannabis Coalition
California Cannabis Industry Association
California-Hawaii State Conference of the NAACP
Eric Garcetti, Mayor of Los Angeles
Minority Cannabis Business Association
National Cannabis Industry Association
NorCal Cannabis Company
SEIU State Council
Southern California Coalition
United Food and Commercial Workes, Western States Council

REGISTERED OPPOSITION:

None on file.

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

 THIRD READING  

Bill No: SB 595

Author: Bradford (D)

Amended: 5/17/19

Vote: 27

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

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

NO VOTE RECORDED: Chang

SENATE APPROPRIATIONS COMMITTEE: 4-2, 5/16/19

AYES: Portantino, Bradford, Hill, Wieckowski

NOES: Bates, Jones

SUBJECT: Cannabis: local equity programs: state fee waivers

SOURCE: Drug Policy Alliance

DIGEST:

This bill requires a cannabis licensing authority to develop and implement a program by July 1, 2020, that provides a fee deferral or fee waiver to obtain or renew a license for a local equity applicant or local equity licensee, contingent upon an appropriation in the annual Budget Act or another statute.

ANALYSIS:

Existing law:

1. 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)
2. 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))
3. Requires the California Department of Food and Agriculture (CDFA) to administer the portions of MAUCRSA related to and associated with the cultivation of cannabis. Delegates to CDFA the authority to create, issue, deny, and suspend or revoke cultivation licenses for violations of MAUCRSA. (BPC § 26012 (a)(2))
4. Requires the State Department of Public Health (DPH) to administer the provisions of MAUCRSA related to and associated with the manufacturing of cannabis products. Delegates to DPH the authority to create, issue, deny, and suspend or revoke manufacturing licenses for violations of MAUCRSA. (BPC § 26012 (a)(3))
5. Authorizes the licensing authorities to collect fees in connection with activities they regulate concerning cannabis, and each licensing authority shall establish a scale of application, licensing, and renewal fees, based upon the cost of enforcing MAUCRSA, as specified. (BPC §§ 26012 (b), 26180)
6. Establishes the California Cannabis Equity Act of 2018 (Act), which authorizes an eligible local jurisdiction to submit an application to the Bureau for a grant to assist local equity applicants and local equity licensees through that local jurisdiction’s equity program. The local jurisdiction shall use the grant funds to assist local equity applicants and local equity licensees in that local jurisdiction to gain entry to, and to successfully operate in, the state’s regulated cannabis marketplace. (BPC § 26244)
7. Requires the Bureau to serve as a point of contact for local equity programs, and by July 1, 2019, publish approved local equity ordinances and model local equity ordinances to the Bureau’s Internet Web site to facilitate greater equity in business ownership and employment in the cannabis market. Requires the Bureau, to the extent feasible, to coordinate with the relevant local jurisdictions to carry out these responsibilities. (BPC § 26246)
8. Defines the following terms:
   1. “Local equity applicant” means an applicant who has submitted, or will submit, an application to a local jurisdiction to engage in commercial cannabis activity within the jurisdictional boundaries of that jurisdiction and who meets the requirements of that jurisdiction’s local equity program.
   2. “Local equity licensee” means a person who has obtained a license from a local jurisdiction to engage in commercial cannabis activity within the jurisdictional boundaries of that jurisdiction and who meets the requirements of that jurisdiction’s local equity program. (BPC § 26240)
9. Establishes cannabis application and license fees between $500 and $300,000. (Chapter 16, California Code of Regulations (CCR) § 5014; 3 CCR §§ 8101, 8200; 17 CCR § 40150)
10. Authorizes a state agency that makes a finding that the adoption of a regulation or order of repeal is necessary to address an emergency to adopt the regulation or order of repeal as an emergency regulation or order of repeal. Any finding of an emergency shall include a written statement, as specified, and shall be filed immediately with the office. (Government Code § 11346.1 (b))

This bill:

1. Requires a licensing authority to develop and implement a program to provide a deferral or waiver for an application fee or a licensing fee for a local equity applicant or local equity licensee.
2. Authorizes a licensing authority to adopt emergency regulations to implement this bill, and states that the adoption, amendment, repeal, or readoption of a regulation authorized by this section is deemed to address an emergency, as specified. Exempts the licensing authority from filing a written statement of emergency, as specified.
3. States that the operation of this bill is contingent upon an appropriation in the annual Budget Act or another statute.

Background

Cannabis Equity Program. SB 1294 (Bradford, Chapter 794, Statutes of 2018) established the Act, which allows a local jurisdiction to submit an application to the Bureau for a grant to assist local applicants and licensees through that local jurisdiction’s equity program. The intention of equity programs are to focus on inclusion and support of persons in the cannabis industry who are linked to populations or neighborhoods that were negatively or disproportionately impacted by cannabis criminalization.

The Bureau was appropriated $10 million in the 2018 California Budget to effectuate the Act, and stated in a March 1, 2019 press release they were accepting applications from eligible cities and counties until April 1, 2019, with plans to distribute all funds no later than June 30, 2019. However, on March 30, 2019, the Bureau sent out another press release stating they were cancelling the application window to review and revise the grant program guidelines. No reopening date has been set.

Conflict with MAUCRSA. As passed by the voters, current law explicitly states that the licensing authorities are required to charge a license and renewal fee calculated to “fairly and proportionately generate sufficient total revenue to fully cover the [MAUCRSA’s administration] costs.” It is unclear whether a waiver would be considered in compliance with the text of Proposition 64, but a deferral certainly could be. It could also be argued that a waiver is considered “fair” in the context of Proposition 64, as one of its purposes is to “[r]educe barriers to entry into the legal, regulated market.”

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

According to the Senate Appropriations Committee:

Staff notes the following fiscal estimate is based on cost-pressures, if funding in the Budget Act, or another statute, is not provided, and is highly variable. It unknown at this time how many local jurisdictions will implement equity programs, and broadly, actual cannabis program revenue and expenditures, including the timing of when the bill’s proposed deferred fee would be remitted to the licensing entity. Given the Cannabis Control Fund’s current condition, the bill may affect the Fund’s stability in out-years, depending on how the bill is implemented the number of applicants and licensees who receive a fee waiver or defer payment of application or licensing fees. Specifically, cost pressures would include:

For the CDFA:

• $185,000 (Cannabis Control Fund) for the CalCannabis Division to contract with an economist to conduct a licensing fee impact analysis report and reassess application and license fees. This estimated cost is based on the previous economist contract amount.
• Absorbable impacts related to information technology changes and promulgation of regulations.

For the Bureau:

• Unknown, significant, ongoing revenue loss (Cannabis Control Fund) depending on the number of the licensing population that receives an equity fee waiver, which could impact the ability for the Bureau to financially support itself. Staff notes, if a quarter of the licensing population received an equity fee waiver, it could result in a revenue loss of over $13 million annually. However, it is unclear the total number of licensees – current or future – may be eligible for a fee deferral or waiver under this proposal.
• Unknown, potentially significant one-time workload for processing the additional step in the licensing process, which depends on the actual volume of applicants and licensees that participate. Staff notes that the development of the IT system would likely require significant staff resources in the first year, with out-year costs decreasing as the process becomes more readily incorporated into staff workflow.
• $34,000 (Cannabis Control Fund), which will be absorbed through redirection of existing maintenance resources, to reconfigure the Bureau’s IT system to include a checkbox on an online application for applicants and licensees to self-identify as local equity applications. The system would also need to be reconfigured for Bureau staff to waive fees for an equity applicant.

For the DPH:

• Unknown, potentially significant ongoing revenue loss (Cannabis Control Fund).
• $133,000 (Cannabis Control Fund) for 1.0 Associate Governmental Program Analyst to promulgate regulations to determine the fee waiver amounts, including convening public comment hearings, reviewing public comments and revising drafts accordingly, and submitting the package for approval.
• On March 12, 2019, the DPH identified that it anticipated collecting $11.7 in annual licensing fees for the 2018-19 fiscal year; however, as of that date, it had collected only $1.6 million. It is unknown how many of the manufacturing licensees are currently eligible for the specified equity program.

SUPPORT: (Verified 5/20/19)

Drug Policy Alliance (source)

California Cannabis Industry Association

Minority Cannabis Business Association

National Cannabis Business Association

NorCal Cannabis

Southern California Coalition

One individual

OPPOSITION: (Verified 5/20/19)

None received

ARGUMENTS IN SUPPORT: Drug Policy Alliance writes, “Social equity programs were created to remedy the failures of the drug war by ensuring that applicants with prior convictions, communities that have been over-policed, and communities where poverty is significant are able to enter the burgeoning industry. The underlying goal is for the new legalized cannabis industry to be more equitable and to reflect the diverse demographics of the state.

“The state plays a pivotal role to ensure that the conditions exist to create an equitable cannabis industry reflecting the broad diversity of California. Redressing the harms imposed disproportionately upon communities of color requires addressing barriers to entry—specifically uneven access to capital— and ensuring that all Californians have a fair chance at becoming successful in the industry. For local social equity programs to be brought up to scale, the dual incentives of waiving the licensing fees and deferrals will provide a model for local jurisdictions to adopt and further facilitate the implementation of social equity programs in an impactful and meaningful manner.”

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

5/20/19 14:54:14

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

SB 595 (Bradford) - Cannabis: local equity programs: state fee waivers

Bill Summary:

Senate Bill 595 would require state cannabis licensing authorities to develop by July 1, 2020 a fee deferral or waiver program for state application or state licensing fees incurred by local equity applicants and local equity licensees.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on May 16, 2019

Fiscal Impact:

Staff notes the following fiscal estimate is based on cost-pressures, if funding in the Budget Act, or another statute, is not provided, and is highly variable. It unknown at this time how many local jurisdictions will implement equity programs, and broadly, actual cannabis program revenue and expenditures, including the timing of when the bill’s proposed deferred fee would be remitted to the licensing entity. Given the Cannabis Control Fund’s current condition, the bill may affect the Fund’s stability in out-years, depending on how the bill is implemented the number of applicants and licensees who receive a fee waiver or defer payment of application or licensing fees. Specifically, cost pressures would include:

For the Department of Food and Agriculture (CDFA):

• $185,000 (Cannabis Control Fund) for the CalCannabis Division to contract with an economist to conduct a licensing fee impact analysis report and reassess application and license fees. This estimated cost is based on the previous economist contract amount.
• Absorbable impacts related to information technology changes and promulgation of regulations.

For the Bureau of Cannabis Control (Bureau):

• Unknown, significant, ongoing revenue loss (Cannabis Control Fund) depending on the number of the licensing population that receives an equity fee waiver, which could impact the ability for the Bureau to financially support itself. Staff notes, if a quarter of the licensing population received an equity fee waiver, it could result in a revenue loss of over $13 million annually. However, it is unclear the total number of licensees – current or future – may be eligible for a fee deferral or waiver under this proposal.
• Unknown, potentially significant one-time workload for processing the additional step in the licensing process, which depends on the actual volume of applicants and licensees that participate. Staff notes that the development of the IT system would likely require significant staff resources in the first year, with out-year costs decreasing as the process becomes more readily incorporated into staff workflow.
• $34,000 (Cannabis Control Fund), which will be absorbed through redirection of existing maintenance resources, to reconfigure the Bureau’s IT system to include a checkbox on an online application for applicants and licensees to self-identify as local equity applications. The system would also need to be reconfigured for Bureau staff to waive fees for an equity applicant.

For the Department of Public Health (CDPH):

• Unknown, potentially significant ongoing revenue loss (Cannabis Control Fund).
• $133,000 (Cannabis Control Fund) for 1.0 Associate Governmental Program Analyst to promulgate regulations to determine the fee waiver amounts, including convening public comment hearings, reviewing public comments and revising drafts accordingly, and submitting the package for approval.
• On March 12, 2019, the CDPH identified that it anticipated collecting $11.7 in annual licensing fees for the 2018-19 fiscal year; however, as of that date, it had collected only $1.6 million. It is unknown how many of the manufacturing licensees are currently eligible for the specified equity program.

Committee Amendments:

The committee amendment would make the bill’s provisions subject to an appropriation in the annual Budget Act or another statute for that purpose.

-- END --

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

SB 595 (Bradford) - Cannabis: local equity programs: state fee waivers

Bill Summary:

Senate Bill 595 would require state cannabis licensing authorities to develop by July 1, 2020 a fee deferral or waiver program for state application or state licensing fees incurred by local equity applicants and local equity licensees.

Fiscal Impact:

Staff notes the following fiscal estimate is subject to variables. It unknown at this time how many local jurisdictions will implement equity programs, and broadly, actual cannabis program revenue and expenditures, including the timing of when the bill’s proposed deferred fee would be remitted to the licensing entity. Given the Cannabis Control Fund’s current condition, the bill may affect the Fund’s stability in out-years, depending on how the bill is implemented the number of applicants and licensees who receive a fee waiver or defer payment of application or licensing fees. The bill could affect the Cannabis Control Fund’s stability in out-years. Specifically:

According to the Department of Food and Agriculture (CDFA):

• $185,000 (Cannabis Control Fund) for the CalCannabis Division to contract with an economist to conduct a licensing fee impact analysis report and reassess application and license fees. This estimated cost is based on the previous economist contract amount.
• Absorbable impacts related to information technology changes and promulgation of regulations.

According to the Bureau of Cannabis Control (Bureau):

• Unknown, significant, ongoing revenue loss (Cannabis Control Fund) depending on the number of the licensing population that receives an equity fee waiver, which could impact the ability for the Bureau to financially support itself. Staff notes, if a quarter of the licensing population received an equity fee waiver, it could result in a revenue loss of over $13 million annually. However, it is unclear the total number of licensees – current or future – may be eligible for a fee deferral or waiver under this proposal.
• Absorbable costs to develop regulations and create an applicant form.
• Unknown, potentially significant one-time workload for processing the additional step in the licensing process, which depends on the actual volume of applicants and licensees that participate. Staff notes that the development of the IT system would likely require significant staff resources in the first year, with out-year costs decreasing as the process becomes more readily incorporated into staff workflow.
• $34,000 (Cannabis Control Fund), which will be absorbed through redirection of existing maintenance resources, to reconfigure the Bureau’s IT system to include a checkbox on an online application for applicants and licensees to self-identify as local equity applications. The system would also need to be reconfigured for Bureau staff to waive fees for an equity applicant.

According to the Department of Public Health (CDPH):

• Unknown, potentially significant ongoing revenue loss (Cannabis Control Fund).
• $133,000 (Cannabis Control Fund) for 1.0 Associate Governmental Program Analyst to promulgate regulations to determine the fee waiver amounts, including convening public comment hearings, reviewing public comments and revising drafts accordingly, and submitting the package for approval.
• On March 12, 2019, the CDPH identified that it anticipated collecting $11.7 in annual licensing fees for the 2018-19 fiscal year; however, as of that date, it had collected only $1.6 million. It is unknown how many of the manufacturing licensees are currently eligible for the specified equity program.

Background:

In June 2015, Governor Brown signed the Medical Marijuana Regulation and Safety Act, comprised of Assembly Bill 243 (Wood), Chapter 688, Statutes of 2015; Assembly Bill 266 (Bonta), Chapter 689, Statutes of 2015; and Senate Bill 643 (McGuire), Chapter 719, Statutes of 2015. Together, these bills established the oversight and regulatory framework for the cultivation, manufacture, transportation, storage, and distribution of medical marijuana in California. The CDFA CalCannabis Cultivation Licensing (CalCannabis) regulates cultivation, the CDPH Manufactured Cannabis Safety Branch regulates manufacturing, and the DCA Bureau of Cannabis Control regulates distribution, testing, retail, and microbusiness.

In 2017, the Legislature passed the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) that harmonized these bills and created a single-comprehensive system to control and regulation the cultivation, distribution, transport, storage, manufacturing, processing and sale of both medicinal cannabis. In 2018, California voters approved Proposition 64, the Control, Regulation and Tax Adult Use of Marijuana Act, which authorized adults aged 21 years or older to legally grow, possess, and use marijuana for non-medical purposes, under specified restrictions. Proposition 64 also provides that revenue from cannabis taxes would support youth programs, environmental protection, and law enforcement.

Senate Bill 1294 (Bradford), Chapter 794, Statutes of 2018 established the California Cannabis Equity Act of 2018, which authorizes an eligible local jurisdiction to submit an application to the Bureau for a grant to assist local equity applicants and local equity licensees through that local jurisdiction’s equity program. The local jurisdiction must use the grant funds to assist local equity applicants and local equity licensees in that local jurisdiction to gain entry to, and to successfully operate in, the state’s regulated cannabis marketplace (BPC § 26244). The intent of equity programs is to focus on inclusion and support of persons in the cannabis industry who are linked to populations or neighborhoods that were negatively or disproportionately impacted by cannabis criminalization.

Existing law requires each licensing authority to establish a scale of application, licensing, and renewals fees at an amount that will fairly and proportionately generate sufficient revenue to fully cover the total costs of administering

MAUCRSA (BPC § 26180). Application fees from the three licensing authorities range from $135 – $1,000 depending on the type and size of the business, with commensurate license fees ranging from $200 to $300,000 (Chapter 16, California Code of Regulations (CCR) § 5014; 3 CCR §§ 8101, 8200; 17 CCR § 40150). For example, of CDFA’s 18 different license types, annual license application fees range from $135 for Specialty Cottage Outdoor to Medium Indoor at $8,655, and annual license fees range from $1,205 for Specialty Cottage Outdoor to $77,905 for Medium Indoor.

Proposed Law:

This bill would require, on or before July 1, 2020, a licensing authority to develop and implement a program, to provide a deferral or waiver for an application fee or a licensing fee otherwise required by this division for a local equity applicant or local equity licensee.

The bill would authorize a licensing authority to adopt emergency regulations to implement this section.

Staff Comments:

The Bureau was appropriated $10 million in the Budget Act of 2018 to effectuate the Act.

The Governor’s January 2019 Budget estimates the Cannabis Control Fund balance of $5.8 million in FY 2019-20, a decline from $30.6 million in FY 2018-19. Staff notes the figures pertaining to cannabis licensing fee revenues and program expenditures are variable, and will likely change in the upcoming May Revision. The bill is silent as to the how licensing entities must operate in the face of possible revenue declines. Staff notes that given the fund condition fluctuations and the unknown amount of licensees who would be eligible for an application fee or licensing fee waiver or deferral, it is unclear whether fees paid by non-equity program licensees would be enough to cover enforcement costs. Staff notes possible ongoing costs pressures, which could result with fees needing to be increased through the regulatory process.

-- END --

SENATE COMMITTEE ON

BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT

Senator Steven Glazer, Chair

2019 - 2020 Regular

Bill No: SB 595 Hearing Date: April 8, 2019

Subject: Cannabis: local equity programs: state fee waivers

SUMMARY:

Requires a cannabis licensing authority to develop and implement a program by July 1, 2020 that provides a fee deferral or fee waiver to obtain or renew a license for a local equity applicant or local equity licensee.

Existing law:

1. 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)
2. Establishes the Bureau of Cannabis Control (Bureau) under the Department of Consumer Affairs (DCA) 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))
3. Requires the California Department of Food and Agriculture (CDFA) to administer the portions of MAUCRSA related to and associated with the cultivation of cannabis. Delegates to CDFA the authority to create, issue, deny, and suspend or revoke cultivation licenses for violations of MAUCRSA. (BPC § 26012 (a)(2))
4. Requires the State Department of Public Health (DPH) to administer the provisions of MAUCRSA related to and associated with the manufacturing of cannabis products. Delegates to DPH the authority to create, issue, deny, and suspend or revoke manufacturing licenses for violations of MAUCRSA. (BPC § 26012 (a)(3))
5. Authorizes the licensing authorities to collect fees in connection with activities they regulate concerning cannabis. (BPC § 26012 (b))
6. Requires each licensing authority to establish a scale of application, licensing, and renewal fees, based upon the cost of enforcing MAUCRSA, as follows:
   1. Each licensing authority shall charge each licensee a licensure and renewal fee, as applicable. The licensure and renewal fee shall be calculated to cover the costs of administering this division. The licensure fee may vary depending upon the varying costs associated with administering the various regulatory requirements of this division as they relate to the nature and scope of the different licensure activities, including, but not limited to, the track and trace program, but shall not exceed the reasonable regulatory costs to the licensing authority.
   2. The total fees assessed pursuant to this division shall be set at an amount that will fairly and proportionately generate sufficient total revenue to fully cover the total costs of administering this division.
   3. All license fees shall be set on a scaled basis by the licensing authority, dependent on the size of the business. (BPC § 26180)
7. Establishes the California Cannabis Equity Act of 2018 (Act), which authorizes an eligible local jurisdiction to submit an application to the Bureau for a grant to assist local equity applicants and local equity licensees through that local jurisdiction’s equity program. The local jurisdiction shall use the grant funds to assist local equity applicants and local equity licensees in that local jurisdiction to gain entry to, and to successfully operate in, the state’s regulated cannabis marketplace. (BPC § 26244)
8. Requires the Bureau to serve as a point of contact for local equity programs, and by July 1, 2019, publish approved local equity ordinances and model local equity ordinances to the Bureau’s Internet Web site to facilitate greater equity in business ownership and employment in the cannabis market. Requires the Bureau, to the extent feasible, to coordinate with the relevant local jurisdictions to carry out these responsibilities. (BPC § 26246)
9. Defines the following terms:
   1. “Local equity applicant” means an applicant who has submitted, or will submit, an application to a local jurisdiction to engage in commercial cannabis activity within the jurisdictional boundaries of that jurisdiction and who meets the requirements of that jurisdiction’s local equity program.
   2. “Local equity licensee” means a person who has obtained a license from a local jurisdiction to engage in commercial cannabis activity within the jurisdictional boundaries of that jurisdiction and who meets the requirements of that jurisdiction’s local equity program. (BPC § 26240)
10. Establishes cannabis application and license fees between $500 and $300,000. (Chapter 16, California Code of Regulations (CCR) § 5014; 3 CCR §§ 8101, 8200; 17 CCR § 40150)

This bill requires a licensing authority to develop and implement a program by July 1, 2020 to provide a fee deferral or waive the fee required to obtain or renew a license issued by that licensing authority for a local equity applicant or local equity licensee, notwithstanding contrary current law.

FISCAL EFFECT:

Unknown. This bill is keyed fiscal by the Legislative Counsel.

COMMENTS:

1. Purpose. This bill is sponsored by Drug Policy Alliance. According to the Author’s office, “The high costs associated with state cannabis licensing and renewal fees prevent people without large amounts of capital from entering the industry. Cannabis licensing and renewal fees in California are tiered, but based on a business’ projected revenue. As a result, licensing and renewal fees cost tens of thousands of dollars. This creates a tremendous barrier for people with prior convictions, people from communities most harmed by cannabis prohibition, and particularly people of color, who hope to enter the industry. In addition, lack of access to traditional sources of capital are either limited or prohibited due to cannabis still being a Schedule I drug on the federal level. Waiving or deferring fees for local equity applicants and licensees will allow new revenue-generating, job-producing businesses to enter the industry. SB 595 simultaneously helps chip away at the illicit market by providing additional assistance to operators interested in entering the legal industry. In addition, it furthers the intent of Prop. 64 by reducing barriers to entering the industry.”

1. 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 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 Bureau within Department of Consumer Affairs, DPH, and CDFA.

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.

1. Cannabis Equity Program. SB 1294 (Bradford, Chapter 794, Statutes of 2018) established the Act, which allows a local jurisdiction to submit an application to the Bureau for a grant to assist local applicants and licensees through that local jurisdiction’s equity program. The intention of equity programs are to focus on inclusion and support of persons in the cannabis industry who are linked to populations or neighborhoods that were negatively or disproportionately impacted by cannabis criminalization.

The Bureau was appropriated $10 million in the 2018 California Budget to effectuate the Act, and stated in a March 1, 2019 press release they were accepting applications from eligible cities and counties until April 1, 2019, with plans to distribute all funds no later than June 30, 2019. However, on March 30, 2019, the Bureau sent out another press release stating they were cancelling the application window to review and revise the grant program guidelines. No reopening date has been set.

1. Cannabis Business Costs. This bill authorizes a state licensing authority to provide a fee waiver or deferral for the cost to obtain or renew a license issued by that licensing authority for a local equity applicant. Application fees from the three licensing authorities range from $135 – $1,000 depending on the type and size of the business, with commensurate license fees ranging from $200 to $300,000.

Given the uncertainties of this nascent market, it is likely that the cost of an application and license are among the lowest barriers to starting a cannabis business in California. A July 2018 article from Marijuana Business Daily, “Profits are a rarity: California’s new regulated marijuana market six months in” indicate that capitalization is a key part of starting and maintaining a business in these early days. The article states that “the harsh financial reality of 2018 has been a combination of compliance with new regulations, high state and local taxes, lost revenues to the illicit market, and supply chain uncertainties.”

The combination of the Act’s administrative support and this bill’s license fee waivers or deferrals will likely be of substantial support to local equity applicants and licensees as the cannabis market matures.

1. Conflict with MAUCRSA. As passed by the voters, current law explicitly states that the licensing authorities are required to charge a license and renewal fee calculated to “fairly and proportionately generate sufficient total revenue to fully cover the [MAUCRSA’s administration] costs.” It is unclear whether a waiver would be considered in compliance with the text of Proposition 64, but a deferral certainly could be. It could also be argued that a waiver is considered “fair” in the context of Proposition 64, as one of its purposes is to “[r]educe barriers to entry into the legal, regulated market.”
2. Previous Related Legislation. SB 1294 (Bradford, Chapter 794, Statutes of 2018) established the California Cannabis Equity Act of 2018, which will allow, upon appropriations by the Legislature, a local jurisdiction to submit an application to the Bureau of Cannabis Control (Bureau) for a grant to assist local equity applicants and local equity licensees through that local jurisdiction’s equity program; requires the Bureau to post model ordinances; and requires the Bureau to publish a report on local jurisdiction equity programs, as specified.
3. Suggested Committee Amendments. The committee may wish to clarify that this bill applies to both application and licensing fees, as follows:
   1. On page 2, line 5, delete “fee” and “or waive the fee” and insert after “or” “waiver for an application fee and/or a licensing fee”

Delete line 6 and on line 7, delete “authority”

The new section shall read, “Notwithstanding Sections 26012 and 26180, on or before July 1, 2020, a licensing authority shall develop and implement a program to provide a deferral or waiver for an application fee and/or a licensing fee pursuant to this division for a local equity applicant or local equity licensee.”

If signed, SB 595 will become effective on January 1, 2020. However, this bill requires the licensing authorities to develop and implement a fee waiver or fee deferral program for local equity applicants or licensees six months later, by July 1, 2020. Due to the practical time constraints of rulemaking, the licensing authorities should promulgate emergency regulations in order to make this deadline.

• 1. On page 2, line 8 after “licensee.” insert “Each licensing authority may adopt emergency regulations to implement this section.”

1. Arguments in Support. Drug Policy Alliance writes, “Social equity programs were created to remedy the failures of the drug war by ensuring that applicants with prior convictions, communities that have been over-policed, and communities where poverty is significant are able to enter the burgeoning industry. The underlying goal is for the new legalized cannabis industry to be more equitable and to reflect the diverse demographics of the state.

“The state plays a pivotal role to ensure that the conditions exist to create an equitable cannabis industry reflecting the broad diversity of California. Redressing the harms imposed disproportionately upon communities of color requires addressing barriers to entry—specifically uneven access to capital— and ensuring that all Californians have a fair chance at becoming successful in the industry. For local social equity programs to be brought up to scale, the dual incentives of waiving the licensing fees and deferrals will provide a model for local jurisdictions to adopt and further facilitate the implementation of social equity programs in an impactful and meaningful manner.”

SUPPORT AND OPPOSITION:

Support:

Drug Policy Alliance (Sponsor)

Minority Cannabis Business Association

One individual

Opposition:

None on file as of April 2, 2019.

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