Existing law, the Control, Regulate and Tax Adult Use of Marijuana Act (AUMA), an initiative measure, authorizes a person who obtains a state license under AUMA to engage in commercial adult-use cannabis activity pursuant to that license and applicable local ordinances. The Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), among other things, consolidates the licensure and regulation of commercial medicinal and adult-use cannabis activities. MAUCRSA establishes the Department of Cannabis Control within the Business, Consumer Services, and Housing Agency to administer the act.

Under existing law, the California Cannabis Equity Act, a local equity program is a program adopted or operated by a local jurisdiction that focuses on inclusion and support of individuals and communities in Californias cannabis industry who are linked to populations or neighborhoods that were negatively or disproportionately impacted by cannabis criminalization, as specified. The act authorizes the department to provide technical assistance to a local equity program that helps local equity applicants or local equity licensees, as defined. Under that act, the Governors Office of Business and Economic Development is required to administer a grant program to assist a local jurisdiction with the development of a local equity program or to assist local equity applicants and local equity licensees through a local equity program, as specified.

Existing law establishes the California Cannabis Tax Fund as a continuously appropriated special fund consisting of specified taxes, interest, penalties, and other amounts related to commercial cannabis activity. Each fiscal year, AUMA requires the Controller to make disbursements from the fund pursuant to a specified schedule. Existing law authorizes the Legislature to amend, on and after July 1, 2028, the provisions relating to the disbursement and allocation of moneys in the fund by majority vote to further the purposes of AUMA, as specified.

This bill would require, effective July 1, 2028, the Controller to disburse up to $15,000,000, as specified, to the department for the 202829 fiscal year and every fiscal year thereafter. The bill would require the department to use the disbursements to support local equity programs in eligible local jurisdictions to assist local equity applicants and licensees gaining entry into, and to successfully operate in, the states regulated cannabis marketplace, as specified. By expanding the purposes for which continuously appropriated moneys may be used, the bill would make an appropriation. The bill would declare that its provisions further the purposes and intent of AUMA.

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

AB 1565 (Jones-Sawyer) - California Cannabis Tax Fund: local equity program grants

Bill Summary:

AB 1565 requires the Controller to annually disburse $15 million to the Department of Cannabis Control (DCC) beginning July 1, 2028, to support local equity programs and assist local equity applicants, as specified. The bill also specifies that if the disbursement results in the reduction of funding to any of the other currently designated funds, then amount allocated is to be the highest amount that does not result in a reduction.

Fiscal Impact:

• Ongoing significant cost of up to $15 million annually to the Cannabis Tax Fund beginning in Fiscal Year (FY) 2028-29.
• DCC reports total costs of $790,000 in FY 2027-28 and $918,000 in FY 2028-29 and annually ongoing for 6.0 additional staff (3.0 Associate Governmental Program Analysts, 2.0 Staff Services Managers I, and 1.0 Staff Services Manager II) to research and develop the grant framework, administer the grant, communicate with grant applicants and recipients, and monitor and track outcomes of the program. As the bill does not provide an administrative set-aside for the department, and unless an ongoing allocation is made, DCC would need to utilize Cannabis Control Fund beginning in FY 2027-28 to administer a grant program of this scale and size. DCC notes concerns in regards to covering grant program administrative costs with revenue generated from license fees in lieu of setting aside a portion of grants funds for program administration.

Background:

Proposition 64 set up the Cannabis Tax Fund (Fund) for the collection of state cannabis excise tax and cultivation tax. AB 195 (Committee on Budget, Chapter 56, Statutes of 2022) suspended the state’s cultivation tax, effective July 1, 2022. AB 195 maintained the 15 percent cannabis excise tax, as required by Proposition 64, until June 30, 2025; however, AB 195 moved collection of that tax from the distributor to the point of sale. Cannabis tax revenues are deposited into the Fund and are then allocated for a variety of purposes in order of priority. Monies from the Fund are distributed in three allocations. This bill applies specifically to Tier 3 allocations.

Allocation 1 is dedicated to regulatory and administrative costs, reimbursing certain state agencies for reasonable costs associated with implementing, administering, and enforcing Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). The DCC is not eligible to be reimbursed through Tier 1 and is instead funded by license fees.

Allocation 2 revenues are distributed to support academic research grants, including researching the efficacy of medicinal cannabis and the impacts of legalization. Allocation 2 also directs funds for the Governor’s Office of Business and Economic Development to grant funds that reinvests in communities harmed by the War on Drugs. Funding is also allocated to the California Highway Patrol (CHP) to advance California’s impaired driving efforts.

Allocation 3 monies are set aside for youth education, prevention, early intervention, and treatment; environmental protection; and public safety-related activities. Specifically, Allocation 3 dedicates 60 percent of Funds for programs for youth designed to provide education about preventing substance use disorders, and harm from substance use. As part of this allocation, funding has gone towards the Youth Education Prevention, Early Intervention and Treatment Account, which dedicates funding to childcare slots, prevention programs, and public health efforts.

Another 20 percent of Allocation 3 is directed to the Department of Fish and Wildlife and the Department of Parks and Recreation for cleanup, remediation, and restoration of environmental damage from cannabis cultivation, including to facilitate the investigation, enforcement, and prosecution of illegal activities. The remaining 20 percent is allocated for public safety-related activities, including to the CHP to conduct training programs for detecting, testing, and enforcing laws against driving under the influence, including by cannabis, and to the Board of State and Community Corrections for grants to local governments to assist with law enforcement, fire protection, or other local programs addressing public health and safety associated with the implementation of Prop 64.

Proposed Law:

• Requires the Controller to disburse $15 million to the DCC beginning in the 2028–29 FY and every FY year thereafter.
  • Requires DCC to use the disbursements to support local equity programs in eligible local jurisdictions to assist local equity applicants and licensees gaining entry into, and to successfully operate in, the state’s regulated cannabis marketplace, as specified.
• States that if the amount of the disbursement would result in a reduction of funds to the statutorily allocated entities, any subsequent year from the amount allocated to each account in the 2027–28 FY, then the disbursement shall be the highest amount, if any, that would not result in that reduction to those accounts.

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SENATE COMMITTEE ON

BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT

Senator Richard Roth, Chair

2023 - 2024 Regular

Bill No: AB 1565 Hearing Date: July 10, 2023

Subject: California Cannabis Tax Fund: local equity program grants

SUMMARY:

Requires the Controller to annually disburse $15,000,000 to the Department of Cannabis Control (DCC) beginning July 1, 2028, for purposes of supporting local equity programs in eligible jurisdictions to assist local equity applicants and licensees, as specified, and if the amount results in the reduction of funding to any of the other currently designated funds, the amount allocated is to be the highest amount that does not result in a reduction.

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 DCC, under the jurisdiction, of the Business, Consumer Services, and Housing Agency, to administer and regulate provisions of MAUCRSA. (BPC § 26010)
   
3. Requires the DCC to establish a scale of application, licensing, and renewal fees, based upon the cost of enforcing the provisions of the Act, as specified. (BPC § 26180)
4. Requires the Department of Finance (DOF) to estimate annually the revenues received from the cannabis excise tax and provide those estimates to the Controller no later than June 15 of each year, which are to be used to distribute the funds, as specified. (Revenue and Taxation Code (RTC) § 34019(a))
   
5. Provides that before any of the excise tax funds are dispersed to the appropriate entities, the Controller is required to disperse those tax funds for the reasonable costs of the DCC, the Department of Tax and Fee Administration (DTFA), the Department of Fish and Wildlife (DFW), the Governor’s Office of Business and Economic Development, (GO-BIZ) the Controller, the Department of Finance (DOF), the Legislative Analyst’s Office, and the Division of Labor Standards Enforcement and the Division of Occupational Safety and Health within the Department of Industrial Relations (DIR), except the Controller may not disburse those tax funds for Fiscal Years 2022-23 2023-24 for DTFA, DCC, DFW, SWCB, Controller, or those within the DIR. (RTC § 34019(a)(1)
   
6. Requires the Controller to disperse $10,000,000 annually to a public university or universities until FY 2028-29 to research and evaluate the implementation and effect of MAUCRSA, as specified. (RTC § 34019(b))
   
7. Requires the Controller to disperse $3,000,000 annually to the California Department of the Highway Patrol (CHP) until FY 2022-23 to establish and adopt protocols to determine whether a driver is operating a vehicle while impaired, including impairment by the use of cannabis or cannabis products, and to establish and adopt protocols setting forth best practices to assist law enforcement agencies, as specified. (RTC § 34019(c))
   
8. Requires the Controller to disperse $10,000,000 until the 2022-23 FY, at which time the disbursement is to be $50,000,000 each year to the GO-BIZ for the following:
   
9. Labor and Workforce Development Agency and State Department of Social Services to administer a community reinvestment grants program to local health departments;
   
10. At least 50 percent to qualified non-profits organizations as specified, to support job placement, mental health treatment, substance use disorder treatment, system navigation services, among others.
    
11. Requires the Controller to disburse $2 million annually to the University of California San Diego Center for Medicinal Cannabis Research to further its objectives.
12. Requires the Controller to disburse the remaining tax funds deposited into sub-trust accounts as follows:
    
13. 60% into the Youth Education, Prevention, Early Intervention and Treatment Account, disbursed to the Department of Health Care Services for programs for youth that are designed to educate about and to prevent substance use disorders and to prevent harm from substance use. The programs shall emphasize accurate education, effective prevention, early intervention, school retention, and timely treatment services for youth, their families, and their caregivers.
14. 20% into the Environmental Restoration and Protection Account, disbursed to the Department of Fish and Wildlife and the Department of Parks and Recreation to fund activities related to the natural resources and wildlife implications of legal cannabis.
15. 20% into the State and Local Government Law Enforcement Account, disbursed to the California Highway Patrol to fund education regarding cannabis-impaired driving and to the BSCC to award grants to local governments to assist with law enforcement, fire protection, or other local programs addressing public health and safety associated with locally legalized cannabis. Specifies that the board shall not make any grants to local governments that ban indoor and outdoor commercial cannabis cultivation or ban retail sale of cannabis or cannabis products. (RTC § 34019(f))
    

This bill:

1. Requires the Controller to disburse $15,000,000 to the DCC beginning in the 2028–29 Fiscal Year (FY) and every FY year thereafter.
   
2. Requires the DCC to use the disbursements to support local equity programs in eligible local jurisdictions to assist local equity applicants and licensees gaining entry into, and to successfully operate in, the state’s regulated cannabis marketplace, as specified.
   
3. States that if the amount of the disbursement specified in 1) above would result in a reduction of funds to the statutorily allocated entities, any subsequent year from the amount allocated to each account in the 2027–28 fiscal year, then the disbursement shall be the highest amount, if any, that would not result in that reduction to those accounts.

FISCAL EFFECT:

This bill is keyed fiscal by Legislative Counsel. According to the Assembly Committee on Appropriations, this bill will result in costs of up to $15 million per year to the Tax Fund in fiscal year 2028-29 and ongoing.

COMMENTS:

1. Purpose. The author is the sponsor of this bill. According to the author, “As such, AB 1565 establishes ongoing funding to support local cannabis equity applicants and licensees beginning the first eligible year. In doing so, this bill provides front-end support to help reduce barriers to entry, further combatting the illegal market and ensuring equity for applicants and licensees. Additionally, this bill takes a balanced approach by ensuring that funding for youth programs, environmental protection, and law enforcement is not subsequently reduced.”
2. Background.

Cannabis Regulations and Cannabis Consumption. Shortly following the passage of Medical Marijuana Regulation and Safety Act (later renamed to the Medical Cannabis Regulation and Safety Act in November 2016, California voters passed Proposition 64, the “Control, Regulate and Tax Adult Use of Marijuana Act” (Prop 64), which decriminalized and 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 the Medical and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), the current regulatory structure for both medicinal and adult-use cannabis.

In 2020, Governor Newsom proposed consolidation of the three licensing and regulatory programs within separate state agencies to form a single department with a goal of streamlining and simplifying access to licensing and regulatory oversight of cannabis. In 2021, DCC was formally established with both licensing, regulatory and enforcement authority.

Cannabis Tax Fund. Proposition 64 set up the Cannabis Tax Fund (Fund) for the collection of state cannabis excise tax and cultivation tax. AB 195 (Committee on Budget) suspended the state’s cultivation tax, effective July 1, 2022. AB 195 maintained the 15 percent cannabis excise tax, as required by Proposition 64, until June 30, 2025; however, the bill moved collection of that tax from the distributor to the point-of-sale. Cannabis tax revenues are deposited into the Fund and are then allocated for a variety of purposes in order of priority. Monies from the Fund are distributed in three allocations. This bill applies specifically to Tier 3 allocations.

Allocation 1 is dedicated to regulatory and administrative costs, reimbursing certain state agencies for reasonable costs associated with implementing, administering, and enforcing MAUCRSA. The DCC is not eligible to be reimbursed through Tier 1 and is funded by license fees.

Allocation 2 revenues are distributed to support academic research grants, including researching the efficacy of medicinal cannabis and the impacts of legalization. Allocation 2 also directs funds for GO-Biz to grant funds that reinvests in communities harmed by the War on Drugs. Funding is also allocated to the California Highway Patrol to advance California’s impaired driving efforts.

Allocation 3 monies are set aside for youth education, prevention, early intervention, and treatment; environmental protection; and public safety-related activities. Specifically, Allocation 3 dedicates sixty percent of funds for programs for youth designed to educate about preventing substance use disorders, and harm from substance use. As part of this allocation, funding has gone towards the Youth Education Prevention, Early Intervention and Treatment Account (YEPEITA), which dedicates funding to childcare slots, prevention programs, and public health efforts.

Another 20 percent of Allocation 3 is directed to the Department of Fish and Wildlife and the Department of Parks and Recreation for cleanup, remediation, and restoration of environmental damage from cannabis cultivation, including to facilitate the investigation, enforcement, and prosecution of illegal activities. The remaining twenty percent is allocated for public safety-related activities, including to the California Highway Patrol to conduct training programs for detecting, testing, and enforcing laws against driving under the influence, including by cannabis, and to the Board of State and Community Corrections for grants to local governments to assist with law enforcement, fire protection, or other local programs addressing public health and safety associated with the implementation of the Cannabis Act. Another 20 percent of Allocation 3 funding is dedicated to the Environmental Restoration and Protection Account. The last 20 percent of Allocation 3 is dedicated to funding state and local law enforcement, which includes the Board of State and Community Corrections for making grants to local governments to assist with law enforcement, fire protection, or other local programs addressing public health and safety associated with the implementation of Proposition 64.

Social Equity Programs. In addition to establishing the provisional license pathway to address challenges with the numerous and complex requirements to obtain an annual license, the Legislature passed and the Governor signed into law SB 1294 (Bradford, Chapter 794, Statutes of 2018) which established the Cannabis Equity Act. SB 1294 created a grant program to provide funding to local jurisdictions. The aim was to develop and operate local assistance programs that focus on the inclusion of cannabis business from those communities negatively or disproportionately impacted by cannabis criminalization, including providing these business owners financial support and technical assistance during the local and state licensing process.

As part of MAUCRSA, the allocation of funding is set in statute and the Legislature is prohibited from making changes until July 1, 2028. Specifically, Prop 64 prohibits any changes to the allocations from resulting in a reduction of funds to GO-Biz or the sub-accounts from the amount allocated to each account in the 2027-28 FY, which is why the provisions of this bill do not take effect until July 1, 2028. This bill would amend the Cannabis Tax Law to create a new required disbursement from the Cannabis Tax Fund of $15 million. This money would then be used by the DCC to further support local equity applicants and licensees in gaining entry into, and successfully operating in, the state’s regulated cannabis marketplace. The new disbursement would avoid a reduction of funds to GO-Biz or the sub-accounts, as prohibited by Proposition 64.

1. Arguments in Support. Origins Council, Humboldt County Growers Alliance, Big Sur Farmers Association, Nevada County Cannabis Alliance, Mendocino Cannabis Alliance, and Trinity County Agricultural Alliance write in support and note, “When Proposition 64 was written, cannabis equity programs had not yet been established at either the state or local level. As a result, the initiative was not written to include dedicated funding for these programs, and also contained provisions that limit the ability of the legislature to reallocate the distribution of cannabis tax-derived funds until 2028. With the establishment of equity programs at both the state and local level, it is critical that the legislature maintain and expand its support for these programs as a core aspect of the legal cannabis framework.”

California Cannabis Industry Association writes in support and notes, “In 2021, CCIA was proud to publish the “California Cannabis Equity Accountability Report”, which analyzed the success and pitfalls of ongoing local equity programs throughout the state. Among other findings, CCIA found that as additional jurisdictions establish local equity programs, ongoing and guaranteed streams of funds to support equity applicants and licensees would be critical to the long-term viability of these programs.”

County of Los Angeles writes in support and notes, “The County of Los Angeles is in the process of establishing its cannabis business permit and equity program. AB 1565 would help to support this effort.”

The Parent Company writes in support and notes, “AB 1565 would direct more money to these entrepreneurs so that interim costs can be covered until sales can begin.”

California NORML writes in support and notes, “AB 1565 provides front-end support to help reduce barriers to entry, making it more likely that equity license holders can use other state assistance

1. Related Legislation. AB 1610 (Lackey of 2023) Repeals the current prohibition on the Board of State and Community Corrections (BSCC) from making grants to local governments that ban both indoor and outdoor commercial cannabis cultivation, or retail sale of cannabis products and instead requires the BSCC to prioritize local governments whose programs seek to address the unlawful cultivation and sale of cannabis. (Status: This bill is pending in the Senate Committee on Appropriations)

AB 2925 (Cooper, Chapter 394, Statutes of 2022) requires the Department of Health Care Services to provide the Legislature specified spending reports of funds from YEPEITA.

AB 1085 (McCarty of 2019) would have (1) encouraged After School Education and Safety (ASES) programs, the 21st Century Community Learning Centers (21st CCLC) programs, and the 21st Century High School After School Safety and Enrichment for Teens (ASSETs) programs to establish programs that are designed to educate about and prevent substance use disorders or to prevent harm from substance abuse; (2) required the State Department of Health Care Services (DHCS) to enter into interagency agreements with the California Department of Education (CDE) to administer those programs and allocate their funding; and (3) specifically authorized DHCS to consider selecting those programs for funding from the Control, Regulate and Tax Adult Use of Marijuana Act. (Status: This bill was vetoed)

1. Policy Question: Is this bill premature? While equity funding is no doubt extremely important to the success of the legal cannabis marketplace, the new funding formula is set to take effect in five years. It is unknown at this time how the market will change or what, if any changes will ultimately be necessary to grant recipients in the future.

SUPPORT AND OPPOSITION:

Support:

Big Sur Farmers Association
California Cannabis Industry Association
California Norml
County of Los Angeles Board of Supervisors
Humboldt County Growers Alliance
Mendocino Cannabis Alliance
Nevada County Cannabis Alliance
Origins Council
The Parent Company
Trinity County Agriculture Alliance

Opposition:

None received

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1565

Author:(Jones-Sawyer)

As Introduced Ver:February 17, 2023

Majority vote

SUMMARY

Beginning July 1, 2028, requires the Department of Cannabis Control (DCC) to use a disbursement of $15 million from the California Cannabis Tax Fund to assist local equity applicants and licensees gaining entry into, and to successfully operate in, the state’s regulated cannabis marketplace.

Major Provisions

1. Effective July 1, 2028, requires the Controller to disburse the sum of $15 million to the DCC each fiscal year, which the DCC shall then use to support local equity programs in eligible local jurisdictions to assist local equity applicants and licensees gaining entry into, and to successfully operate in, the state’s regulated cannabis marketplace.
2. Provides that if the amount of the above disbursement would result in a reduction of funds to GO-Biz or the sub-trust accounts from the amount allocated in the 2027–28 fiscal year, then the disbursement shall be the highest amount, if any, that would not result in that reduction.

COMMENTS

Under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (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. One of the principal arguments made by the proponents of Proposition 64 was that legalizing cannabis would result in significant tax revenue for use by state and local governments. In its analysis of Proposition 64, the Legislative Analyst’s Office (LAO) stated that the initiative’s fiscal effects were "subject to significant uncertainty." However, the LAO suggested in the Proposition 64 voter guide that over time, the legal sale of legalized cannabis could result in state and local tax revenues the LAO said "could eventually range from the high hundreds of millions of dollars to over $1 billion annually."

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. First, expenditures incurred by state agencies responsible for implementing cannabis laws are to be paid for through the Tax Fund. This includes reasonable costs incurred by the CDTFA for administering and collecting the taxes, not to exceed 4% revenue; reasonable costs incurred by the DCC and other licensing agencies for licensing and enforcement programs; reasonable costs incurred by the Department of Fish and Wildlife, the State Water Resources Control Board, and the Department of Pesticide Regulation for carrying out their environmental protection duties under the state’s cannabis laws; and other state agencies. Allocations to reimburse these state entities shall only be made to the extent the entities are not otherwise reimbursed for their costs.

A trailer bill enacted as part of the Budget Act of 2022 made a series of changes to the imposition and collection of cannabis taxes. Specifically, AB 195 (Committee on Budget) suspended the state’s cultivation tax, effective July 1, 2022. The trailer bill maintained the 15% cannabis excise tax, as required by Proposition 64, until June 30, 2025; however, the trailer bill moved collection of that tax from the distributor to the point-of-sale.

After state agency cost reimbursement, Tax Fund revenue is next allocated to fund a series of specific programs designated under Proposition 64. These programs are to be provided with precise amounts of funding totaling $25 million and are to be appropriated annually until the 2028-29 fiscal year. After each of the above allocations have been made in sequential order, totaling $25 million, any remaining revenue in the Tax Fund is divided into sub-trust accounts according to a percentage outlined by Proposition 64.

Proposition 64 expressly prohibited the Legislature from changing how money in the Cannabis Tax Fund is allocated until July 1, 2028. Beginning on that date, the Legislature will be authorized to change those allocations by majority vote to further the purposes of Proposition 64. However, Proposition 64 prohibits any changes to the allocations from resulting in a reduction of funds to GO-Biz or the sub-accounts from the amount allocated to each account in the 2027-28 fiscal year.

This bill would amend the Cannabis Tax Law to create a new required disbursement from the Cannabis Tax Fund of $15 million. This money would then be used by the DCC to further support local equity applicants and licensees in gaining entry into, and successfully operating in, the state’s regulated cannabis marketplace. The provisions of the bill would not go into effect until July 1, 2028, and the new disbursement would be prohibited from resulting in a reduction of funds to GO-Biz or the sub-accounts, as prohibited by Proposition 64. While the changes in this bill would not go into effect until several years from now, as authorized by the AUMA, the author’s intent is to allow for equity applicants and licensees to receive support funds from cannabis tax revenue at the earliest possible date, to the extent allowed by Proposition 64.

According to the Author

"Support for equity applicants and equity license holders has been lacking historically. As more and more jurisdictions create equity license programs to help those disproportionately affected by the criminalization of cannabis to enter the industry, the State must provide more resources to get these businesses online. Last year, the Legislature provided $20 million in tax credits for equity operators. However, this is not enough support as tax credits require the business to be up and running. As such, AB 1565 provides front end support to help reduce barriers to entry, making it more likely that equity license holders can use other state assistance. With almost 90% of cannabis businesses in Los Angeles operating in the illegal market, more pathways to legal operation are essential."

Arguments in Support

The California Cannabis Industry Association (CCIA) supports this bill. According to the CCIA: "AB 1565 provides front-end support to current and prospective social equity licensees,, by guaranteeing $15 million in the Cannabis Tax Fund will go toward supporting local equity programs in 2028 and onward. With almost 90% of cannabis businesses in Los Angeles alone operating in the illegal market, and more equity programs coming online each year, more pathways to support operators transitioning to licensure are essential."

Arguments in Opposition

None on file.

FISCAL COMMENTS

According to the Assembly Committee Appropriations, costs of up to $15 million per year to the Tax Fund in fiscal year 2028-29 and ongoing.

VOTES

ASM BUSINESS AND PROFESSIONS: 17-0-1

YES: Berman, Flora, Alanis, Alvarez, Bonta, Chen, Dixon, Gipson, Grayson, Irwin, Jackson, Lee, Lowenthal, McKinnor, Stephanie Nguyen, Joe Patterson, Ting

ABS, ABST OR NV: McCarty

ASM APPROPRIATIONS: 15-0-1

YES: Holden, Megan Dahle, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Hart, Lowenthal, Mathis, Papan, Pellerin, Sanchez, Weber, Ortega

ABS, ABST OR NV: Robert Rivas

UPDATED

VERSION: February 17, 2023

CONSULTANT: Robert Sumner / B. & P. / (916) 319-3301 FN: 0000526

Date of Hearing: May 10, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 1565

Author:(Jones-Sawyer) – As Introduced Ver:February 17, 2023

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

SUMMARY:

This bill requires, the Department of Cannabis Control (DCC), beginning July 1, 2028 and annually thereafter, to use a disbursement of $15 million from the California Cannabis Tax Fund (Tax Fund) to assist local equity applicants and licensees gaining entry into, and to successfully operate in, the state’s regulated cannabis marketplace. The bill also stipulates that if the $15 million disbursement would result in a reduction of funds to other specified accounts in any subsequent year, then the disbursement will be the highest amount, if any, that would not result in that reduction.

FISCAL EFFECT:

Costs of up to $15 million per year to the Tax Fund in fiscal year 2028-29 and ongoing.

COMMENTS:

1. Purpose.
2. According to the author:

Support for equity applicants and equity license holders has been lacking historically. As more and more jurisdictions create equity license programs to help those disproportionately affected by the criminalization of cannabis to enter the industry, the State must provide more resources to get these businesses online. Last year, the Legislature provided $20 million in tax credits for equity operators. However, this is not enough support as tax credits require the business to be up and running. As such, AB 1565 provides front end support to help reduce barriers to entry, making it more likely that equity license holders can use other state assistance. With almost 90% of cannabis businesses in Los Angeles operating in the illegal market, more pathways to legal operation are essential.

1. Background. Proponents of the Adult Use of Marijuana Act of 2016 (AUMA or Proposition 64) argued that the state’s legalization of recreational cannabis should recognize and address the devastating effects of cannabis prohibition on low-income and minority populations as a lawful industry begins to profit from the newly regulated marketplace. During the decades when the sale and use of cannabis was illegal, innumerable individuals, the majority of whom are people of color, were incarcerated for engaging in activities that Proposition 64 made lawful. With the passage of the AUMA representing the state’s comfort with allowing legal sales of cannabis, many argued communities that were aggressively penalized by the previous illegality of cannabis should be afforded an opportunity to participate in the marketplace.
   
2. California Cannabis Equity Act of 2018 (Equity Act). Compliance with cannabis licensing laws, in addition to standard business start-up costs, creates significant barriers for populations without capital or financing to enter the cannabis industry. The Equity Act, SB 1294 (Bradford), Chapter 794, Statutes of 2018, codified 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 Equity Act, local jurisdictions may apply for and receive grant funding for purposes of providing assistance to local equity applicants or licensees seeking to gain entry to the state’s regulated cannabis marketplace. Trailer bill language relating to cannabis modified the Equity Act to provide that a local jurisdiction must make an “equity assessment” to inform the creation of a local program. A local equity program is a local program that focuses on inclusion and support of individuals and communities in California’s cannabis industry who are linked to populations or neighborhoods that were negatively or disproportionately affected by cannabis criminalization, as evidenced by the local jurisdiction’s equity assessment. An equity assessment is conducted by a local jurisdiction, and may include local historical rates of arrests or convictions for cannabis law violations, identification of the effects that cannabis-related policies have had historically on communities and populations in that jurisdiction, and other information demonstrating how individuals and communities within the jurisdiction have been disproportionately or negatively affected by the War on Drugs.

Analysis Prepared by: Allegra Kim / APPR. / (916) 319-2081

Date of Hearing:

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

Marc Berman, Chair

ABPCA Bill Id:AB 1565

Author:(Jones-Sawyer) – As Introduced Ver:February 17, 2023

SUBJECT: California Cannabis Tax Fund: local equity program grants.

SUMMARY: Beginning July 1, 2028, requires the Department of Cannabis Control (DCC) to use a disbursement of $15 million from the California Cannabis Tax Fund to assist local equity applicants and licensees gaining entry into, and to successfully operate in, the state’s regulated cannabis marketplace.

EXISTING LAW:

1. Enacts the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) 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. Establishes the DCC within the Business, Consumer Services, and Housing Agency (previously established as the Bureau of Cannabis Control, the Bureau of Marijuana Control, the Bureau of Medical Cannabis Regulation, and the Bureau of Medical Marijuana Regulation), for purposes of administering and enforcing MAUCRSA. (BPC § 26010)
3. Authorizes the director of the DCC to appoint a deputy director of equity and inclusion. (BPC § 26010.5)
4. Establishes the California Cannabis Equity Act, enacted to ensure that persons most harmed by cannabis criminalization and poverty be offered assistance to enter the cannabis industry. (BPC §§ 26240 et seq.)
5. Defines “local equity program” as a local program that focuses on inclusion and support of individuals and communities in California’s cannabis industry who are linked to populations or neighborhoods that were negatively or disproportionately impacted by cannabis criminalization as evidenced by the local jurisdiction’s equity assessment. (BPC § 26240(e))
6. Defines “equity assessment” as an assessment conducted by a local jurisdiction that was used to inform the creation of a local equity program, and that assessment may 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.

(BPC § 26240(b))

1. 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 within that jurisdiction and who meets the requirements of its local equity program. (BPC § 26240(c))
2. Defines “local equity licensee” as a person who has obtained a license from a local jurisdiction to engage in commercial cannabis activity within that jurisdiction and who meets the requirements of that jurisdiction’s local equity program. (BPC § 26240(d))
3. Authorizes the DCC to provide technical assistance to a local equity program that helps local equity applicants or local equity licensees. (BPC § 26242)
4. Establishes a grant program wherein local jurisdictions may apply to the Governor’s Office of Business and Economic Development (GO-Biz) for a grant to assist with the development of an equity program or to assist local equity applicants and local equity licensees through that local jurisdiction’s equity program. (BPC § 26244)
5. Requires the DCC to serve as a point of contact for local equity programs and to publish on its internet website local equity ordinances that have been enacted by the legislative body of the respective local jurisdiction, and model local equity ordinances created by advocacy groups and experts. (BPC § 26246)
6. Requires GO-Biz to annually submit a report to the Legislature regarding the progress of local equity programs that have received funding. (BPC § 26248)
7. Requires the DCC to develop and implement programs to provide waivers and deferrals for application fees, licensing fees, and renewal fees for equity applicants and licensees whose businesses are no less than 50 percent owned by persons who satisfy one of the following:
   1. They have previously been convicted of an offense related to the sale, possession, use, manufacture, or cultivation of cannabis, under past criminal justice policies implementing cannabis prohibition.
   2. They have previously been arrested for an offense related to the sale, possession, use, manufacture, or cultivation of cannabis, under past criminal justice policies implementing cannabis prohibition.
   3. Residence in a household with a household income less than or equal to 60 percent of the area median income for the applicable local jurisdiction.
   4. Residence in an area with a population disproportionately impacted by past criminal justice policies implementing cannabis prohibition.

(BPC § 26249)

1. Establishes the Cannabis Tax Law. (Revenue and Tax Code (RTC) §§ 34010 et seq.)
2. Imposes a 15 percent excise tax upon purchasers of cannabis or cannabis products sold in this state in addition to the sales and use tax imposed by the state and local governments. (RTC § 34011.2)
3. Imposes a cultivation tax on all harvested cannabis that enters the commercial market at a rate of $9.25 per dry-weight ounce for cannabis flowers and $2.75 per dry-weight ounce for cannabis leaves; suspends the imposition of this tax effective July 1, 2022. (RTC § 34012)
4. Provides the Department of Tax and Fee Administration (CDTFA) with responsibility for administering and collecting taxes on cannabis businesses. (RTC § 34013)
5. Establishes the California Cannabis Tax Fund (Tax Fund) in the State Treasury wherein cannabis tax revenues are deposited. (RTC § 34018)
6. Specifies that money in the Tax Fund shall be disbursed by the Controller in the following order of funding priority:
   1. Funds sufficient to reimburse departments for any reasonable costs incurred through the implementation of the state’s cannabis laws that are not otherwise reimbursed.
   2. $10 million to a public university in California annually to research and evaluate the implementation and effect of the state’s cannabis laws, including the impact of legal cannabis on public health; the public safety implications of legal cannabis; the effectiveness of certain drug treatment programs; whether additional antitrust protections are needed in the recreational cannabis market; the economic impacts of the state’s cannabis laws; and how to best tax cannabis based on potency, and the structure and function of licensed cannabis businesses; among other topics of study.
   3. $3 million to the Department of the California Highway Patrol (CHP) annually to establish and adopt protocols to determine whether a driver is operating a vehicle while impaired by the use of cannabis.
   4. $10 million beginning with the 2018-19 fiscal year, then increasing by $10 million each year until reaching $50 million annually, to GO-Biz to award community reinvestments grants to local health departments and at least 50 percent to qualified community-based nonprofit organizations to support job placement, mental health treatment, substance use disorder treatment, system navigation services, legal services to address barriers to reentry, and linkages to medical care for communities disproportionately affected by past federal and state drug policies.
   5. $2 million annually to the University of California San Diego Center for Medicinal Cannabis Research to further its objectives.
   6. Remaining funds deposited into sub-trust accounts as follows:
      1. 60 percent into the Youth Education, Prevention, Early Intervention and Treatment Account, disbursed to the DHCS for programs for youth that are designed to educate about and to prevent substance use disorders and to prevent harm from substance use. The programs shall emphasize accurate education, effective prevention, early intervention, school retention, and timely treatment services for youth, their families, and their caregivers.
      2. 20 percent into the Environmental Restoration and Protection Account, disbursed to the Department of Fish and Wildlife and the Department of Parks and Recreation to fund activities related to the natural resources and wildlife implications of legal cannabis.
      3. 20 percent into the State and Local Government Law Enforcement Account, disbursed to the CHP to fund education regarding cannabis-impaired driving and to the Board of State and Community Corrections (BSCC) to award grants to local law enforcement to address the public health and safety implications of locally legalized cannabis.

(RTC § 34019)

1. Requires the Controller to additionally disburse, to the extent available, an amount necessary to enable funds disbursed to the sub-trust accounts to be equal to the 2020–21 fiscal year baseline. (BPC § 34019.01)
2. Prohibits the Legislature from changing the cannabis tax revenue funding allocations before July 1, 2028. (RTC § 34019(h))

THIS BILL:

1. Effective July 1, 2028, requires the Controller to disburse the sum of $15 million to the DCC each fiscal year, which the DCC shall then use to support local equity programs in eligible local jurisdictions to assist local equity applicants and licensees gaining entry into, and to successfully operate in, the state’s regulated cannabis marketplace.
2. Provides that if the amount of the above disbursement would result in a reduction of funds to GO-Biz or the sub-trust accounts from the amount allocated in the 2027–28 fiscal year, then the disbursement shall be the highest amount, if any, that would not result in that reduction.

FISCAL EFFECT: Unknown; this bill is keyed fiscal by the Legislative Counsel.

COMMENTS:

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

“Support for equity applicants and equity license holders has been lacking historically. As more and more jurisdictions create equity license programs to help those disproportionately affected by the criminalization of cannabis to enter the industry, the State must provide more resources to get these businesses online. Last year, the Legislature provided $20 million in tax credits for equity operators. However, this is not enough support as tax credits require the business to be up and running. As such, AB 1565 provides front end support to help reduce barriers to entry, making it more likely that equity license holders can use other state assistance. With almost 90% of cannabis businesses in Los Angeles operating in the illegal market, more pathways to legal operation are essential.”

Background.

Brief 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. This regulatory scheme was further refined by SB 420 (Vasconcellos) in 2003, which established the state’s Medical Marijuana Program. After several years of lawful 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. Threat of action by the federal government created apprehension within California’s cannabis community.

After several prior 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 established, for the first time, a comprehensive statewide licensing and regulatory framework for the cultivation, manufacture, transportation, testing, distribution, and sale of medicinal cannabis. 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 could also choose to ban cannabis establishments altogether.

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 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 the spring of 2017, SB 94 (Committee on Budget and Fiscal Review) was passed 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. On January 16, 2019, the state’s three cannabis licensing authorities—the Bureau of Cannabis Control, the California Department of Food and Agriculture, and the California Department of Public Health—officially announced that the Office of Administrative Law had approved final cannabis regulations promulgated by the three agencies respectively.

In early 2021, the Department of Finance released trailer bill language to create a new Department with centralized authority for cannabis licensing and enforcement activities. This new department was created through a consolidation of the three prior licensing authorities’ cannabis programs. As of July 1, 2021, the Department has been the single entity responsible for administering and enforcing the majority of MAUCRSA. New regulations went into effect on January 1, 2023 to effectuate the consolidation and make other changes to cannabis regulation.

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, local jurisdictions may apply for and receive grant funding for purposes of providing assistance to local equity applicants or licensees seeking to gain entry to the state’s regulated cannabis marketplace. Subsequent trailer bill language relating to cannabis modified the Act to provide that a local jurisdiction must make an “equity assessment” to inform the creation of a local program. These equity assessments 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 jurisdiction may receive grant funding to fund the administration of 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.

The Budget Act of 2021 included $20 million to fund the California Cannabis Equity Act. It also changed the grantmaking agency from the DCC to GO-Biz. The Budget additionally authorized the newly established DCC to appoint a Deputy Director of Equity and Inclusion to further the Department’s mission to implement inclusive cannabis policies.

In 2019, SB 595 (Bradford) was enacted to provide further relief to equity applicants and licensees seeking to enter the marketplace by allowing the DCC to waive or defer fees. This provides another form of financial support for individuals seeking to become successful cannabis licensees who are already seeking or who are receiving support through a local equity program. SB 595 was conditioned on the allocation of funds to backfill lost revenue associated with the fee waiver or deferral prior to it being offered by the DCC. The Budget Act of 2021 allocated $30 million to implement the fee waiver and deferral programs and required the DCC to develop and implement a fee waiver program by January 1, 2022, and a fee deferral program by January 1, 2023, for all social equity applicants and who meet certain criteria.

In June of 2022, the DCC modified its interpretation of statute’s definition for the term “equity applicants and licensees,” increasing the gross revenues threshold applied in its previous regulations from $1.5 million to $5 million. In its Finding of Emergency and Notice of Proposed Readoption, the DCC explained the increase in the gross revenues threshold:

“Based on feedback from licensees that currently participate in their local jurisdiction’s equity programs, the Department determined that an expected gross revenue less than or equal to $5,000,000 more accurately corresponds to licenses held by equity commercial cannabis business operators. This subsection is necessary to ensure that fee waivers are appropriately allocated to the range of equity businesses, including retailers, which often have larger gross receipts. To ensure that licensees are aware of how to demonstrate their gross revenue, this subsection also provides an example of the types of financial data that is typically held by the applicant or licensee and may be submitted for the Department’s consideration.”

The DCC’s regulations also provided that an applicant or licensee may be eligible if they have an immediate family member that was arrested or convicted of a cannabis related offense. In support of this change, the DCC argued that “when an immediate family member was arrested for, or convicted of, an offense related to cannabis activity, the disproportionate impact affected the entire family.” The regulations define “immediate family member” as “a child, stepchild, parent, stepparent, brother, sister, half-brother, half-sister, stepsibling, legal guardian, grandparent or great grandparent. The Department identified these particular family members because such family members’ cannabis arrests or convictions generally have had a direct impact on household income and stability of family structures.”

Cannabis Taxation. Under MAUCRSA, a 15 percent 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. One of the principal arguments made by the proponents of Proposition 64 was that legalizing cannabis would result in significant tax revenue for use by state and local governments. In its analysis of Proposition 64, the Legislative Analyst’s Office (LAO) stated that the initiative’s fiscal effects were “subject to significant uncertainty.” However, the LAO suggested in the Proposition 64 voter guide that over time, the legal sale of legalized cannabis could result in state and local tax revenues the LAO said “could eventually range from the high hundreds of millions of dollars to over $1 billion annually.”

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. First, expenditures incurred by state agencies responsible for implementing cannabis laws are to be paid for through the Tax Fund. This includes reasonable costs incurred by the CDTFA for administering and collecting the taxes, not to exceed 4% revenue; reasonable costs incurred by the DCC and other licensing agencies for licensing and enforcement programs; reasonable costs incurred by the Department of Fish and Wildlife, the State Water Resources Control Board, and the Department of Pesticide Regulation for carrying out their environmental protection duties under the state’s cannabis laws; and other state agencies. Allocations to reimburse these state entities shall only be made to the extent the entities are not otherwise reimbursed for their costs.

After state agency cost reimbursement, Tax Fund revenue is next allocated to fund a series of specific programs designated under Proposition 64. These programs are to be provided with precise amounts of funding totaling $25 million and are to be appropriated annually until the 2028-29 fiscal year. This includes $10 million to a public university to research and evaluate the implementation and effect of legal cannabis and make recommendations to the Legislature and Governor regarding possible changes to the law; $3 million to the CHP to establish and adopt protocols to determine whether a driver is operating a vehicle while impaired; $10 million to GO-Biz, which subsequently increases by an additional $10 million each fiscal year until reaching a total disbursement of $50 million annually beginning in the 2022-23 fiscal year, to administer a community reinvestments grants program; and $2 million to the University of California San Diego Center for Medicinal Cannabis Research to further the objectives of the center, including the enhanced understanding of the efficacy and adverse effects of cannabis as a pharmacological agent.

After each of the above allocations have been made in sequential order, totaling $25 million, any remaining revenue in the Tax Fund is divided into sub-trust accounts according to a percentage outlined by Proposition 64. The division is as follows:

1. 60 percent of the remaining revenue is deposited in the Youth Education, Prevention, Early Intervention and Treatment Account, and disbursed by the Controller to the DHCS for programs for youth that are designed to educate about and to prevent substance use disorders and to prevent harm from substance use.
   
2. 20 percent of the remaining revenue is deposited in the Environmental Restoration and Protection Account, and disbursed by the Controller as follows:
   
   1. To the Department of Fish and Wildlife and the Department of Parks and Recreation for the cleanup, remediation, and restoration of environmental damage in watersheds affected by cannabis cultivation and related activities including, but not limited to, damage that occurred prior to enactment of Proposition 64, and to support local partnerships for this purpose. The Department of Fish and Wildlife and the Department of Parks and Recreation may distribute a portion of the funds they receive from the Environmental Restoration and Protection Account through grants.
   2. To the Department of Fish and Wildlife and the Department of Parks and Recreation for the stewardship and operation of state-owned wildlife habitat areas and state park units in a manner that discourages and prevents the illegal cultivation, production, sale, and use of cannabis and cannabis products on public lands, and to facilitate the investigation, enforcement, and prosecution of illegal cultivation, production, sale, and use of cannabis or cannabis products on public lands.
   3. To the Department of Fish and Wildlife to assist in funding the watershed enforcement program and multiagency taskforce to facilitate the investigation, enforcement, and prosecution of these offenses and to ensure the reduction of adverse impacts of cannabis cultivation, production, sale, and use on fish and wildlife habitats throughout the state.
3. 20 percent of the remaining revenue is deposited in the State and Local Government Law Enforcement Account and disbursed by the Controller as follows:
   
   1. To the CHP for conducting training programs for detecting, testing and enforcing laws against driving under the influence of alcohol and other drugs, including driving under the influence of cannabis.
   2. To the CHP to fund internal programs and grants to qualified nonprofit organizations and local governments for education, prevention, and enforcement of laws related to driving under the influence of alcohol and other drugs, including cannabis; programs that help enforce traffic laws, educate the public in traffic safety, provide varied and effective means of reducing fatalities, injuries, and economic losses from collisions; and for the purchase of equipment related to enforcement of laws related to driving under the influence of alcohol and other drugs, including cannabis.
   3. To the BSCC for making grants to local governments to assist with law enforcement, fire protection, or other local programs addressing public health and safety associated with the implementation of Proposition 64. The BSCC shall not make any grants to local governments which have banned the cultivation, including personal cultivation or retail sale of cannabis.
   4. The Department of Finance shall determine the allocation of revenues between the agencies; provided, however, beginning in the 2022–23 fiscal year the amount allocated to CHP for training programs shall not be less than $10 million annually and the amount allocated to the CHP for grants shall not be less than $40 million.

A trailer bill enacted as part of the Budget Act of 2022 made a series of changes to the imposition and collection of cannabis taxes. Specifically, AB 195 (Committee on Budget) suspended the state’s cultivation tax, effective July 1, 2022. The trailer bill maintained the 15 percent cannabis excise tax, as required by Proposition 64, until June 30, 2025; however, the trailer bill moved collection of that tax from the distributor to the point-of-sale.

The trailer bill required the CDTFA to adjust the excise tax every two years by a rate that would generate an amount of revenue equivalent to what would have been collected from the cultivation tax. Finally, the trailer bill also set a baseline of new cannabis tax revenue for Allocation 3 entities (these entities use cannabis revenues to operate youth programs related to substance use education, prevention, and treatment, environmental programs, and law enforcement) at $670 million in 2022-23, 2023-24, and 2024-25, which may be satisfied with tax revenues, or General Fund backfill if needed. The Budget Act of 2022 set aside $150 million General Fund to backfill any lost revenue.

Proposition 64 expressly prohibited the Legislature from changing how money in the Cannabis Tax Fund is allocated until July 1, 2028. Beginning on that date, the Legislature will be authorized to change those allocations by majority vote to further the purposes of Proposition 64. However, Proposition 64 prohibits any changes to the allocations from resulting in a reduction of funds to GO-Biz or the sub-accounts from the amount allocated to each account in the 2027-28 fiscal year.

This bill would amend the Cannabis Tax Law to create a new required disbursement from the Cannabis Tax Fund of $15 million. This money would then be used by the DCC to further support local equity applicants and licensees in gaining entry into, and successfully operating in, the state’s regulated cannabis marketplace. The provisions of the bill would not go into effect until July 1, 2028, and the new disbursement would be prohibited from resulting in a reduction of funds to GO-Biz or the sub-accounts, as prohibited by Proposition 64. While the changes in this bill would not go into effect until several years from now, as authorized by the AUMA, the author’s intent is to allow for equity applicants and licensees to receive support funds from cannabis tax revenue at the earliest possible date, to the extent allowed by Proposition 64.

Prior Related Legislation. AB 195 (Committee on Budget, Chapter 56, Statutes of 2022) suspended the cultivation tax and made changes to the collection of the excise tax.

AB 2925 (Cooper, Chapter 394, Statutes of 2022) requires the Department of Health Care Services to provide a spending report regarding funds from the Youth Education, Prevention, Early Intervention and Treatment Account derived from cannabis tax revenue.

SB 595 (Bradford, Chapter 852, Statutes of 2019) required the DCC to develop and implement a program that provides a fee deferral or waiver to obtain or renew a license for needs-based applicants and licensees.

SB 1294 (Bradford, Chapter 794, Statutes of 2018) authorized local jurisdictions to request technical assistance from the DCC to establish local equity programs and authorized, upon appropriation, the DCC to fund grants for the same purpose.

ARGUMENTS IN SUPPORT:

The California Cannabis Industry Association (CCIA) supports this bill. According to the CCIA: “AB 1565 provides front-end support to current and prospective social equity licensees,, by guaranteeing $15 million in the Cannabis Tax Fund will go toward supporting local equity programs in 2028 and onward. With almost 90% of cannabis businesses in Los Angeles alone operating in the illegal market, and more equity programs coming online each year, more pathways to support operators transitioning to licensure are essential.”

ARGUMENTS IN OPPOSITION:

None on file.

REGISTERED SUPPORT:

California Cannabis Industry Association

California NORML

The Parent Company

REGISTERED OPPOSITION:

None on file.

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