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.

Existing law establishes the California Cannabis Tax Fund as a continuously appropriated fund consisting of specified taxes, interest, penalties, and other amounts related to commercial cannabis activity. Each fiscal year, AUMA requires the Controller to make specified disbursements from the fund, including amounts to the Board of State and Community Corrections for making grants to local governments to assist with law enforcement, fire protection, and other local programs addressing public health and safety associated with the implementation of AUMA. AUMA prohibits the board from making grants to local governments that ban both indoor and outdoor commercial cannabis cultivation, or ban retail sale of cannabis or cannabis products.

This bill would require the Board of State and Community Corrections to prioritize local governments whose programs seek to address the unlawful cultivation and sale of cannabis. The bill would also authorize the board to make grants to local governments that ban both indoor and outdoor commercial cannabis cultivation, or ban retail sale of cannabis or cannabis products.

AUMA authorizes the Legislature to amend its provisions with a ²/₃ vote of both houses to further its purposes and intent, except as specified.

This bill would declare that its provisions further the purposes and intent of AUMA.

SENATE COMMITTEE ON PUBLIC SAFETY

Senator Aisha Wahab, Chair

2023 - 2024 Regular

Bill No: AB 1616 Hearing Date: July 11, 2023

Subject: California Cannabis Tax Fund: Board of State and Community Corrections grants

HISTORY

Source: California Cannabis Industry Association

Prior Legislation: AB 2925 (Cooper), Ch. 394, Stats. 2022

AB 195 (Comm. on Budget), Ch. 56, Stats. 2022

AB 1872 (Comm. on Budget), Ch. 93, Stats. 2020

SB 94 (Comm. on Budget & Fiscal Review), Ch. 27, Stats. 2017

Proposition 64, as approved by the voters on November 8, 2016

Support: California State Association of Counties; League of California Cities; Rural County Representatives of California; The Parent Company

Opposition: ACLU California Action; Asian Americans Advancing Justice - Asian Law Caucus; California Public Defenders Association; Drug Policy Alliance; Ella Baker Center for Human Rights

Assembly Floor Vote: 79 - 0

PURPOSE

The purpose of this bill is to repeal 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.

Existing law establishes the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) to regulate the cultivation, distribution, transport, storage, manufacturing, processing, and sale of both medicinal cannabis and adult-use cannabis. (Bus. & Prof. Code, § 26000.)

Existing law establishes the Department of Cannabis Control (DCC) to regulate cannabis with the sole authority to create, issue, deny, renew, discipline, condition, suspend, or revoke licenses for commercial cannabis activity. (Bus. & Prof. Code, §§ 26010, 26012.)

Existing law defines “commercial cannabis activity” as the cultivation, possession, manufacture, distribution, processing, storing, laboratory testing, packaging, labeling, transportation, delivery, or sale of cannabis and cannabis products, or acting as a cannabis event organizer for temporary cannabis events. (Bus. & Prof. Code, § 26001, subd. (l).)

Existing law 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. (Bus. & Prof. Code, § 26180.)

Existing law 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. (Rev. & Tax. Code, § 34019, subd. (a).)

Existing law 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 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, the Controller, or those within DIR. (Rev. & Tax. Code, § 34019, subd. (a)(1).)

Existing law 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. (Rev. & Tax. Code, § 34019, subd. (b).)

Existing law 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. (Rev. & Tax. Code, § 34019, subd. (c).)

Existing law 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 to administer a community reinvestment grants program to local health departments. Allocates 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. (Rev. & Tax. Code, § 34019, subd. (d).)

Existing law requires the Controller to disburse $2 million annually to the University of California San Diego Center for Medicinal Cannabis Research to further its objectives. (Rev. & Tax. Code, § 34019, subd. (e).)

Existing law requires the Controller to disburse the remaining tax funds deposited into sub-trust accounts as follows:

• 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. Requires the programs to emphasize accurate education, effective prevention, early intervention, school retention, and timely treatment services for youth, their families, and their caregivers.
• 20% into the Environmental Restoration and Protection Account, disbursed to the DFW and the Department of Parks and Recreation to fund activities related to the natural resources and wildlife implications of legal cannabis.
• 20% into the State and Local Government Law Enforcement Account, disbursed to the CHP to 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 as well as 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. Prohibits the BSCC from making any grants to local governments that ban both indoor and outdoor commercial cannabis cultivation, or ban retail sale of cannabis or cannabis products. (Rev. & Tax. Code, § 34019, subd. (f).)

This bill repeals language prohibiting the BSCC from making grants to local governments that ban both indoor and outdoor commercial cannabis cultivation, or ban retail sales of cannabis and cannabis products.

This bill requires the BCCC, in awarding specified grant monies, to prioritize local governments whose programs seek to address the unlawful cultivation and sale of cannabis.

COMMENTS

1. Need For This Bill

According to the author:

Districts like mine urgently need resources to combat the predominance of illicit cannabis grows. When this criminal activity is allowed to thrive, communities wonder what protections we have for public safety, our natural resources and for individual’s labor. These bad actor are some of the most exploitive forces imaginable. We are allowing these criminal enterprises to plunder our operational autonomy. We need to crackdown on the illicit market to better protect California consumers and ensure that we are not forfeiting revenue.

This bill will provide resources to the jurisdictions that need it the most.

1. Background

In November 2016, California voters passed Proposition 64, the “Control, Regulate and Tax Adult Use of Marijuana Act,” which decriminalized and legalized adult-use cannabis. In June 2017, SB 94 (Committee on Budget and Fiscal Review, Chapter 27, Statutes of 2017) was enacted and integrated the Medical Cannabis Regulation and Safety Act with Proposition 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. (Office of Governor Newsom, California State Budget 2020-21, p. 111 available at <https://www.egudget.ca.gov/2020-21/pdf/Enacted/BudgetSummary/FullBudgetSummary.pdf>.) In 2021, DCC was formally established with both licensing, regulatory and enforcement authority. (Office of Governor Newsom, California State Budget 2021-22, p. 175 available at <https://www.egudget.ca.gov/2021-22/pdf/Enacted/BudgetSummary/FullBudgetSummary.pdf>.)

1. Cannabis Tax Fund

Proposition 64 established the Cannabis Tax Fund (Fund) for the collection of state cannabis excise tax. The excise tax and cultivation tax revenues are deposited into the Fund and are then allocated for a variety of purposes in order of priority. As part of MAUCRSA, the allocation of funding is set in statute, and the Legislature is prohibited from making changes until 2028. Monies from the fund are distributed in three allocations. This bill affects funding specified in Allocation 3.

Allocation 1 is dedicated to regulatory and administrative costs, reimbursing certain state agencies for reasonable costs associate with implementing, administering, and enforcing MAUCRSA. (Rev. & Tax. Code, § 34019, subd. (a)(1).) The DCC is not eligible to be reimbursed through Tier 1 and is funded by license fees.

Following Allocation 1 distribution, Allocation 2 revenues are distributed to support academic research grants, including researching the efficacy of medicinal cannabis and the impacts of legalization. (Rev. & Tax. Code, § 34019, subd. (b).) Allocation 2 also allocates funds to GO-Biz to grant funds that reinvests in communities harmed by the War on Drugs. (Rev. & Tax. Code, § 34019, subd. (d).) Funding is also allocated to the CHP to advance California’s impaired driving efforts. (Rev. & Tax. Code, § 34019, subd. (c).)

Allocation 3 monies are set aside for youth education, prevention, early intervention, and treatment; environmental protection; and public safety-related activities. (Rev. & Tax. Code, § 34019, subd. (f).) Specifically, Allocation 3 dedicates sixty percent of funds for programs for youth that are designed to educate about, prevent substance use disorders, and harm from substance use. (Rev. & Tax. Code, § 34019, subd. (f)(1).) 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.

Twenty percent of Allocation 3 is directed to the DFW and the Department of Parks and Recreation for cleanup, remediation, and restoration of environmental damage from cannabis cultivation, including facilitating the investigation, enforcement, and prosecution of illegal activities. (Rev. & Tax. Code, § 34019, subd. (f)(2).) The final twenty 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 BSCC 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. (Rev. & Tax. Code, § 34019, subd. (f)(3).) The BSCC is currently prohibited from making any grants to local governments, which have banned the cultivation, including personal cultivation or retail sale of cannabis. (Ibid.)

This bill repeals the current prohibition on providing grant monies to those local jurisdictions that have specifically banned indoor and outdoor commercial cannabis cultivation or retail sales of cannabis or cannabis products and instead requires the BSCC to prioritize those local governments that have programs seeking to address the unlawful cultivation and sale of cannabis.

1. Proposition 64 Public Health and Safety Grant Program

As noted above, Revenue and Taxation Code section 34019, subdivision (f)(3)(C) provides that the BSCC will provide “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 Control, Regulate and Tax Adult Use of Marijuana Act.”

As of spring 2023, there have been three rounds of Prop 64 PH&S funding. (BSCC, Proposition 64 Public Health and Safety Grant Program available at <https://www.bscc.ca.gov/proposition-64-public-health-safety-grant-program/>.) The three-year grant period of Cohort 1 began on October 1, 2020 and awarded $9.9 million to 10 jurisdictions. (Ibid.) The three-year grant period for Cohort 2 began on May 1, 2021 and awarded $20.9 million to 22 jurisdictions. (Ibid.) Finally, the five-year grant period for Cohort 3 began on May 1, 2023 and awarded $93.7 million to 37 jurisdictions. (Ibid.)

The BSCC website provides detailed information about the projects being funded via the Prop 64 PH&S grant program. Of the 37 projects that received Cohort 3 funding, 14 had a lead public agency that was a city, city manager’s office, or county; 11 had a lead public agency that was a city police department or county sheriff’s office; 4 had a lead public agency that was a health-related agency or system; 2 had a lead public agency that was a probation department; and 2 had a lead public agency that was a fire department. (Ibid.) The other four projects had lead public agencies focused on community development, permitting, planning, or providing alcohol or drug services. (Ibid.)

A variety of projects have been funded through the PH&S grant program, although many of the Cohort 3 funded projects focus on drug education programs for youth. (BSCC, Proposition 64 Public Health and Safety Grant Program, Cohort 3 Project Summaries available at <https://www.bscc.ca.gov/wp-content/uploads/Project-Summaries-per-Applications.pdf>.) The City of Vallejo intends to use some of the $1.4 million it received to fund youth employment opportunities. (Id. at p. 7.) The City of Oakland was awarded $3 million to fund security measures to address an increase in armed burglaries of licensed cannabis operators as well as a public education campaign to support equity operators. (Id. at p. 4.) El Dorado County intends to use the $2.9 million it received to fund two deputy positions to investigate illegal cannabis activity as well as create a youth academy to support at-risk youth. (Id. at p. 8). Other funded projects include those that assist with licensing and code compliance.

A mandatory component of the Prop 64 PH&S Grants are Local Evaluation Plans (LEPs) which are intended to ensure that funded projects can be evaluated to determine their impact and effectiveness. LEPs describe how the project will be monitored and evaluated as well as show how evaluation results will be used for project improvement and decision making. In addition, the Prop 64 PH&S Grants are required to submit a 3-Year Local Evaluation Report to identify whether the project was successful in achieving its goals and objectives identified in their application for funding and LEP.

1. Interim Report on Local Control and Cannabis Bans

In March 2023, the UC Berkeley Cannabis Research Center published its interim report for a project funded by DCC on the causes and effects of local cannabis cultivation bans. The research conducted four in-depth studies of “ban counties” in Siskiyou, Napa, Yuba, and San Bernardino. (Getz, C., Petersen-Rockney, M., & Polson, M., Interim Report: Cannabis Bans, Local Control, and the Effects and Efficacy of Proposition 64 (Mar. 2023) available at <https://crc.berkeley.edu/wp-content/uploads/2023/06/InterimReport_Prop64_UCOP.pdf>.) These four counties were selected “for geographic, ecological, industry, land use, political dynamics, and socio-demographic diversity. … [and because] [e]ach county is home to incorporated cities that allow cannabis, and each county borders counties that permit cultivation, facilitating comparisons in ban/permit approaches.” (Id. at p. 3)

In the background on cannabis cultivation bans, the report provides:

Proposition 64 legalized commercial cannabis cultivation at the state level while allowing local municipalities – cities and counties – a high degree of local control to determine how, and even if, cannabis could be cultivated. Now, local cultivation bans are the most prevalent policy option, covering the majority of counties, cities, population, and land area in California. Since 2016, 69% of cities and counties have prohibited cultivation. While a majority of voters in California approved commercial cannabis cultivation in 2016, over 50% of California’s population lives in localities that have banned cultivation, denying a majority of California residents the opportunity to pursue commercial cultivation licenses and permits.

…

Wealthier residents who would like to cultivate commercially, medically, or personally may be able to move from ban jurisdictions to more permissive localities. However, for many growers, especially those who are experiencing poverty, who are minoritized, or who have been negatively impacted by the War on Drugs, moving is not a financial or social possibility. In short, commercial cultivation bans and de facto bans on personal cultivation are matters of economic, racial, and health justice.

When cannabis was fully prohibited, market prices were influenced by supply-side enforcement and the risks it imposed. Bans, however, simply restrict cultivation in particular geographic areas, with little effect on market prices. Price is now driven by total market production, much of which is legal. Enforcement, which was never particularly effective at reducing supply (McCoy and Block 2021), thus becomes merely punitive and restrictive, negatively affecting under resourced farmers.

Limited county government capacity appears to be both a driver and a result of cannabis cultivation bans. Under-resourced and thinly stretched county governments, especially in low-revenue rural areas of California, lack the capacity to develop their own permitting, licensing, and compliance systems for cannabis cultivation. Many such counties in California have therefore banned cannabis cultivation, creating a landscape wherein cultivators are violating local codes. Attempts to enforce against unpermitted cultivators draw limited public resources away from much-needed public services, such as the opioid crisis, and other government agencies and capacities, such as environmental protection. Bans are not the absence of a policy but are an active policy that has many causes, variables, effects, and costs.

(Id. at pp. 4-5.)

Some of the findings of the study are summarized as follows:

First, bans narrow the toolbox of options available to address cultivation, often leaving law enforcement as the only mechanism of attempting control, resulting in conflictive, oppositional dynamics. Second, even the most effective bans appear to simply push the problem elsewhere, either further underground (with negative ecological and social effects) or to other jurisdictions with less enforcement capacity. They do not appear to generally stop cultivation; rather, they often transform cultivation patterns and methods, albeit with less regulatory tools than permit programs would afford. Third, bans privilege certain definitions of “quality of life” that can exclude significant portions of local populations, who are either not opposed to cannabis cultivation or desire access to personal, medical, or adult-use cannabis. Finally, if the criteria of local quality of life revolves around reducing or stopping unlicensed cultivation, protecting environmental resources, and improving social inclusion, then cultivation bans often fail on their own aspirational terms.

(Id. at p. 6.)

The report concludes:

Our research illuminates some ways that the administration and enforcement of bans may mitigate the negative effects of bans. Taken as a whole, however, our work shows that bans often produce negative outcomes for social equity, environmental protection, and local communities. … [G]oals of social equity and inclusion, environmental protection, and rural development could be met if there were statewide exemptions from bans for small-scale farmers, particularly those who grow in ecologically sustainable ways. Such reforms could provide cannabis for residents in “access deserts'” and help fulfill the intent of Proposition 64 to build a cultivation sector of small and medium sized enterprises.

(Ibid.)

1. Argument in Support

According to the California Cannabis Industry Association, the bill’s sponsor:

The licensed cannabis industry continues to struggle with competition from an illicit market that is untaxed, unregulated, and untested. …

In an investigative series published last year, the Los Angeles Times described the scale of the illicit market challenges as “immense” and highlighted the numerous consequences associated with illicit cannabis activity…

Such consequences have had a dramatic impact on public health and safety, and robbed the state of billions in tax revenue. Meanwhile, enforcement efforts to combat illicit market activity are spread across a variety pf state and local law enforcement agencies with insufficient resources and competing priorities.

The Legislature has sought to bolster enforcement efforts but additional resources are desperately needed. …

Under existing law, grant funding administered by the Board of State and Community Corrections (BSCC) is limited only to those cities and counties that authorize commercial cannabis cultivation or retail. While the original intent of these limitations was laudable and intended to incentivize jurisdictions to adopt commercial cannabis ordinances, the significant uptick in illicit market activity has had a chilling effect on jurisdictions most impacted by the illicit market. In other words, rather than implementing commercial cannabis programs, as hoped, cities and counties have opted to just say no to legal cannabis entirely.

With more than 60 percent of jurisdictions still banning commercial cannabis retail and legal cannabis sales on the decline, more funding is needed at the local level to combat the illicit market.

…

AB 1616 would provide much needed funding to local governments for enforcement programs that aim to reduce unlicensed cannabis activity, which poses a serious public health and safety threat.

1. Argument in Opposition

The ACLU California Action writes:

…AB 1616 is counter to the will of the voters, redirecting money from needed social services and education programs to old-school, failed criminalization measures in localities that declined to participate in legalization in the first place. By directing State money to enforcement-only localities, AB 1616 would increase arrests, fines, and incarcerations of predominantly Asian-American and Latine-American marijuana cultivators at the expense of localities that have legalized marijuana.

When voters passed Proposition 64 in 2016, they voted for a measure that specifically directed money raised via legalization towards “afterschool programs…; for job placement, job training, and mental health treatment; for drug prevention education for teens; to treat alcohol and drug addiction; and to fund training and research for law enforcement to crack down on impaired driving” – not the continued War on Drugs, which the official measure language termed an “enormous waste of law enforcement resources”… Accordingly, Proposition 64 prohibited funds raised via legalization from being used by localities that refused to legalize commercial cannabis.

AB 1616 would not only reverse voters’ decision but would specify that grants of legalization funds be directed towards enforcement-focused programs.

The enforcement practices in many localities that have banned cannabis cultivation and sales are often racially biased. AB 1616 would fund those practices. In Siskiyou County, for instance, 93% of people arrested for illicit cultivation are Asian-American. …

Some of these localities banned cannabis for explicitly racialized reasons. …

AB 1616 would, for the first time, allow counties like Siskiyou to qualify for BSCC grants, funneling State dollars to their racialized crusades against marijuana. AB 1616 would do nothing to ease the rocky road of legalization. Instead, it would lead to increased incarceration and policing of cannabis, turning California away from full legalization.

-- END --

SENATE COMMITTEE ON

BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT

Senator Richard Roth, Chair

2023 - 2024 Regular

Bill No: Hearing Date: June 26, 2023

Subject:

SUMMARY:

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.

NOTE:

Double-referral to Committee on Public Safety, second.

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 Department of Cannabis Control (DCC) 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. Requires the DCC to administer the portions of MAUCRSA related to and associated with the cultivation of cannabis and with the manufacturing of cannabis products. Delegates to the DCC authority to create, issue, deny, and suspend or revoke cultivation or manufacturing licenses for violations of MAUCRSA. (BPC §§ 26010, 26012)
   
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 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, the Controller, or those within 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. Repeals the current prohibition, which prohibits the BSCC from making grants to local governments that ban both indoor and outdoor commercial cannabis cultivation, or ban retail sales of cannabis and cannabis products.
   
2. Authorizes the BCCC to prioritize local governments, in awarding specified grant monies, whose programs seek to address the unlawful cultivation and sale of cannabis.
   
3. Makes other minor and technical changes.

FISCAL EFFECT:

This bill is keyed fiscal by the Legislative Counsel. According to the Assembly Committee on Appropriations analysis, “BSCC states this bill significantly increases the number of eligible applicants and number of grants made by the BSCC. The BSCC would require additional field, program, and research staff, among other things, totaling $530,000 per year.”

COMMENTS:

1. Purpose. The California Cannabis Industry Association is the sponsor of this bill. According to the author, “…While many of these jurisdictions have highlighted the need for additional resources, existing grant funding, administered by the Board of State and Community Corrections, is largely limited to cities and counties that authorize commercial cannabis cultivation or retail. While the original intent of these limitations was to incentivize jurisdictions to adopt commercial cannabis ordinances, the significant uptick in illicit market activity has had a chilling effect on jurisdictions most impacted by the illicit market, so that they have been largely discouraged from authorizing commercial cannabis activity altogether.

AB 1616 seeks to remedy this issue by amending existing law to expand local grant eligibility so that all of California's 482 cities and 58 counties can access existing grant funding. The bill further provides that grant funding should be prioritized for programs intended to seek to address unlawful retail and cultivation cannabis activities.”

1. 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. The excise tax and cultivation tax revenues are deposited into the Fund and are then allocated for a variety of purposes in order of priority. As part of MAUCRSA, the allocation of funding is set in statute and the Legislature is prohibited from making changes until 2028. Monies from the fund are distributed in three allocations. This bill affects funding specified in Allocation 3.

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

Following Allocation 1 distribution, 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 allocates funds to 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 that are designed to educate about, prevent 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 DFW and the Department of Parks and Recreation for cleanup, remediation, and restoration of environmental damage from cannabis cultivation, including facilitating the investigation, enforcement, and prosecution of illegal activities. The final 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 BSCC 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 BSCC is currently prohibited from making any grants to local governments, which have banned the cultivation, including personal cultivation or retail sale of cannabis. This bill deletes that current prohibition on providing grant monies to those local jurisdictions that have specifically banned indoor and outdoor commercial cannabis cultivation or retail sales of cannabis or cannabis products and would instead authorize the BSCC to prioritize those local governments who have programs seeking to address the unlawful cultivation and sale of cannabis.

According to information provided on the BSCC’s website, “Proposition 64 legalized adult use of marijuana and established that a portion of the tax revenues from sales would come to the BSCC as the Public Health and Safety Grant Program. The five-year grants are for mitigations such as eradicating illegal grows compliance monitoring, environmental remediation, and substance-use prevention. The Board awarded $93.7 million of $150 million available to the 39 jurisdictions whose applications met grant criteria. The remaining funding will roll over to the next round of funding.” This bill would alter how the BSCC would be able to issue grant funding, potentially reducing or eliminating grant funding for programs such as fire protection or other programs addressing public health or safety if the prioritization efforts are solely for law enforcement addressing the illicit market. The BSCC currently provides a number of grants already designated for illegal cannabis, enforcement and other compliance efforts and has discretion in selecting grant recipients.

As noted by the DCC, only 44% of local jurisdictions (cities and counties) permit at least one type of cannabis business, while 61% of local jurisdictions do not permit any retail sales of cannabis and cannabis products and 56% of local jurisdictions prohibit any kind of cannabis business. This bill would open up the grant funding to an additional 302 cities and counties that currently do not allow any type of cannabis or cannabis products sales, cultivation, manufacturing, testing, etc.

1. Related Legislation. AB 1565 (Jones-Sawyer of 2023) 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. (Status: This bill is also pending in this Committee.)

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. Arguments in Support. California Cannabis Industry Association writes in support, “AB 1616 would provide much needed funding to local governments for enforcement programs that aim to reduce unlicensed cannabis activity, which poses a serious public health and safety threat.”

Rural County Representatives of California, the League of California Cities, and the California State Association of Counties write, “AB 1616 will bolster the licensed industry throughout the state by allowing enforcement resources to be deployed across California and prioritizing enforcement against unlawful operators that undermine the legal marketplace and undercut local economies.”

San Bernardino County Board of Supervisors write in support, “By allowing all local agencies access to this grant funding – both those that permit legal cannabis business and those that do not – the state will better support law enforcement against illegal cannabis in all areas, thereby helping to shore up the legal cannabis market.”

San Bernardino County Sheriff's Department writes in support and notes, “…AB 1616 will assist the San Bernardino County Sheriff’s Department in funding these critical public safety operations.”

The Parent Company writes in support, “In those citifies that have not permitted cannabis businesses, especially retail businesses, the illegal market is especially thriving, and a thriving illegal cannabis business no matter where it is located, is harmful to all legal businesses.”

1. Arguments in Opposition. The ACLU California Action writes in opposition and notes, “When voters passed Proposition 64 in 2016, they voted for a measure that specifically directed money raised via legalization towards “afterschool programs that help kids stay in school; for job placement, job training, and mental health treatment; for drug prevention education for teens; to treat alcohol and drug addiction; and to fund training and research for law enforcement to crack down on impaired driving” – not the continued War on Drugs, which the official measure language termed an “enormous waste of law enforcement resources” caused by “more than 8,800 felony arrests for growing or selling marijuana in California” every year.1 Accordingly, Proposition 64 prohibited funds raised via legalization from being used by localities that refused to legalize commercial cannabis. AB 1616 would not only reverse voters’ decision but would specify that grants of legalization funds be directed towards enforcement-focused programs. Currently, these funds are currently used by localities for “youth-focused outreach, mentorship, diversion, and substance use prevention education,” “high need [environmental] restoration missions that pose risks to natural resources,” and enforcement in localities with regulated cannabis programs.3 Under AB 1616, that money would just be prioritized for enforcement.”
   
2. Policy Issues for Consideration. This bill is a departure from existing law as currently only those local jurisdictions that allow for the cultivation and retail sale of cannabis and cannabis products are eligible to receive the grant monies designated by the BSCC to assist with law enforcement, fire protection, or other local programs addressing public health and safety. Those monies that are allocated for these purposes are collected from the revenues of licensed cannabis. This bill would allow jurisdictions, which do not allow cannabis retail or cultivation to obtain grant money generated in other localities. This approach would take monies away from jurisdictions that have embraced the legal cannabis market, this could potentially lead to a reduction of funding in those communities where efforts to fight illicit cannabis directly affects the licensed market.

Data. Although eliminating illicit cannabis is a desirable goal, it is unclear if this bill will address this widespread problem. This bill does not require data from those local grant recipients to inform the Legislature of any successful outcomes from this new grant funding opportunity. This bill does not require any type of action plan or program specifically focused on addressing the illicit market. Although the BSCC would likely be able to make that determination, without some guidance, it may be challenging to decide how to prioritize funding in the most appropriate manner.

SUPPORT AND OPPOSITION:

Support:

California Cannabis Industry Association (sponsor)
California State Association of Counties

League of California Cities

Rural County Representatives of California

San Bernardino County

San Bernardino County Sheriff's Department

The Parent Company

Opposition:

ACLU California Action

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1616

Author:(Lackey)

As Introduced Ver:February 17, 2023

2/3 vote

SUMMARY

Authorizes the Board of State and Community Corrections (BSCC) to award grants from the California Cannabis Tax Fund to local governments that were previously ineligible and requires BSCC to prioritize grants to local governments whose programs seek to combat the illicit cannabis market.

Major Provisions

1. Authorizes the BSCC to make grants to local jurisdictions that were previously ineligible because they ban both indoor and outdoor commercial cannabis cultivation or they ban the retail sale of cannabis or cannabis products.
2. Requires the BSCC to prioritize local governments whose programs seek to address the unlawful cultivation and sale of cannabis.

COMMENTS

California Cannabis Tax Fund. 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. 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:

1. $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;
2. $3 million to the California Highway Patrol to establish and adopt protocols to determine whether a driver is operating a vehicle while impaired;
3. $50 million to the Governor's Office of Business and Economic Development (GO-Biz) to administer a community reinvestment grants program; and
4. $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 has 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% of the remaining revenue is deposited in the Youth Education, Prevention, Early Intervention and Treatment Account, and disbursed by the Controller to the Department of Health Care Services for programs for youth that are designed to educate about and prevent substance use disorders and to prevent harm from substance use.
2. 20% of the remaining revenue is deposited in the Environmental Restoration and Protection Account, and disbursed by the Controller to the Department of Fish and Wildlife and the Department of Parks and Recreation to mitigate environmental harm resulting from cannabis cultivation and to combat cannabis activity on public lands.
3. 20% of the remaining revenue is deposited in the State and Local Government Law Enforcement Account and disbursed by the Controller to the California Highway Patrol for training, education, prevention, and enforcement of law related to driving under the influence of cannabis, and 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 is currently prohibited from awarding any grants to local governments that have banned the commercial cultivation or retail sale of cannabis.

Proposition 64 Public Health & Safety Grant Program. Existing law requires the BSCC to award grant funds to local governments engaged in or providing services related to law enforcement, fire protection, and public health and safety associated with the implementation of the Control, Regulate and Tax Adult Use of Marijuana Act. The funding is intended to support programs in four Project Purpose Areas: 1) Youth Development/Youth Prevention and Intervention; 2) Public Health; 3) Public Safety; and 4) Environmental Impacts. Since September 2020, the BSCC has awarded over $30 million in grants to 33 jurisdictions. BSCC is currently prohibited from making any grants to local governments that ban indoor and outdoor commercial cannabis cultivation or ban the retail sale of cannabis or cannabis products.

This bill would authorize the BSCC to provide grants to any local government. Additionally, this bill would require the BSCC to prioritize local jurisdictions whose programs seek to address the unlawful cultivation and sale of cannabis. A study published by the Reason Foundation, with support from Good Farmers Great Neighbors and Precision Advocacy (the lobbying firm representing this bill's sponsor), estimates that as much as two-thirds of cannabis sales in California occur in the illicit market, which is consistent with the widespread consensus that illegal cannabis has continued to proliferate notwithstanding the legalization of recreational adult-use cannabis in California. The author and sponsor of this bill contend that the thriving illicit market for cannabis is discouraging local jurisdictions who have not legalized commercial cannabis in their city or county from doing so. At the time of this writing, 56% of cities and counties do not allow any type of cannabis business to operate within their jurisdictions. They stipulate that allowing these jurisdictions to apply for funding is necessary to support and bolster enforcement activity so that more cities and counties may embrace commercial cannabis operations within their jurisdictions.

According to the Author

"Districts like mine urgently need resources to combat the predominance of illicit cannabis grows. When this criminal activity is allowed to thrive, communities wonder what protections we have for public safety, our natural resources and for individual's labor. These bad actor are some of the most exploitive forces imaginable. We are allowing these criminal enterprises to plunder our operational autonomy. We need to crackdown on the illicit market to better protect California consumers and ensure that we are not forfeiting revenue. This bill will provide resources to the jurisdictions that need it the most."

Arguments in Support

According to the California Cannabis Industry Association, the sponsor of this bill:

Under existing law, grant funding administered by the Board of State and Community Corrections (BSCC) is limited only to those cities and counties that authorize commercial cannabis cultivation or retail. While the original intent of these limitations was laudable and intended to incentivize jurisdictions to adopt commercial cannabis ordinances, the significant uptick in illicit market activity has had a chilling effect on jurisdictions most impacted by the illicit market. In other words, rather than implementing commercial cannabis programs, as hoped, cities and counties have opted to just say no to legal cannabis entirely. With more than 60 percent of jurisdictions still banning commercial cannabis retail and legal cannabis sales on the decline, more funding is needed at the local level to combat the illicit market.

Arguments in Opposition

None on file.

FISCAL COMMENTS

According to the Assembly Appropriations Committee: "The BSCC states this bill significantly increases the number of eligible applicants and number of grants made by the BSCC. The BSCC would require additional field, program, and research staff, among other things, totaling $530,000 per year (California Cannabis Tax Fund)."

VOTES

ASM BUSINESS AND PROFESSIONS: 18-0-0

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

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: Kaitlin Curry / B. & P. / (916) 319-3301 FN: 0000533

Date of Hearing: April 26, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 1616

Author:(Lackey) – As Introduced Ver:February 17, 2023

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

SUMMARY:

This bill requires the Board of State and Community Corrections (BSCC), in using its annual disbursement from the California Cannabis Tax Fund, to prioritize grants to local governments whose programs seek to address the unlawful cultivation and sale of cannabis. This bill also authorizes the BSCC to make grants to local governments that (1) ban commercial cannabis cultivation, or (2) ban retail sale of cannabis or cannabis products.

FISCAL EFFECT:

The BSCC states this bill significantly increases the number of eligible applicants and number of grants made by the BSCC. The BSCC would require additional field, program, and research staff, among other things, totaling $530,000 per year (California Cannabis Tax Fund (Cannabis Fund)).

COMMENTS:

1. Purpose. This bill is sponsored by the California Cannabis Industry Association. According to the author:

Districts like mine urgently need resources to combat the predominance of illicit cannabis grows. When this criminal activity is allowed to thrive, communities wonder what protections we have for public safety, our natural resources and for individual’s labor. These bad actor are some of the most exploitive forces imaginable. We are allowing these criminal enterprises to plunder our operational autonomy. We need to crackdown on the illicit market to better protect California consumers and ensure that we are not forfeiting revenue. This bill will provide resources to the jurisdictions that need it the most.

1. Background. Cannabis excise tax and cultivation tax revenues are deposited into the Cannabis Fund, and the State Controller allocates the funds for a variety of purposes in a prescribed order of priority. For example, first, the controller disburses funds to cover expenditures incurred by state agencies for implementing cannabis laws. After state agency cost reimbursement, the Controller allocates Cannabis Fund revenue to fund a series of specific programs designated under Proposition 64, also known as the Adult Use of Marijuana Act. These programs receive prescribed amounts of funding totaling $25 million annually until the 2028-29 fiscal year.

Any remaining funds are divided into three accounts, with 20% allocated to the State and Local Government Law Enforcement Account, which provides funds to the California Highway Patrol for education regarding cannabis-impaired driving, and to the BSCC. The BSCC is required 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, and is prohibited from make any grants to local governments that ban indoor and outdoor commercial cannabis cultivation, or ban retail sale of cannabis or cannabis products. This bill repeals the prohibition on funding local governments that have cannabis bans.

1. Related Legislation.
   
   1. AB 1448 (Wallis) authorizes a local jurisdiction to establish administrative penalties for violations of local law relating to commercial cannabis activity, including a special lien. AB 1448 also authorizes a local jurisdiction that has established procedures for collecting those administrative penalties to also collect specified civil penalties as administrative penalties, and redirects portions of civil penalties collected for unlicensed commercial cannabis activity from the General Fund to the localities that brought the action for the penalties. AB 1448 is pending in Assembly Judiciary Committee.
      
   2. AB 1565 (Jones-Sawyer) requires the State Controller, beginning July 1, 2028, to disperse $15 million to the Department of Cannabis Control (DCC) for the 2028-29 fiscal year and every fiscal year thereafter, to support local equity programs in eligible local jurisdictions to assist local equity applicants and licensees gain entry into, and successfully operate in, the state’s regulated cannabis marketplace. AB 1565 is pending in Assembly Business and Professions Committee.
      
2. Prior Legislation. AB 1872 (Assembly Budget Committee), Chapter 93, Statutes of 2020, as it relates to this bill, prohibits the BSCC from making grants to local governments that ban both indoor and outdoor commercial cannabis cultivation or that ban the retail sale of cannabis or cannabis products.

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

Date of Hearing: April 11, 2023

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

Marc Berman, Chair

ABPCA Bill Id:AB 1616

Author:(Lackey) – As Introduced Ver:February 17, 2023

SUBJECT: California Cannabis Tax Fund: Board of State and Community Corrections grants.

SUMMARY: Authorizes the Board of State and Community Corrections (BSCC) to award grants to local governments that were previously ineligible and requires BSCC to prioritize local governments whose programs seek to combat the illicit cannabis market.

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) §§ 26000-26325)
2. Establishes the Department of Cannabis Control (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. Imposes a 15% 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. (Revenue and Tax Code (RTC) § 34011)
4. 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. (RTC § 34012)
5. Provides the Department of Tax and Fee Administration (CDTFA) with responsibility for administering and collecting taxes on cannabis businesses. (RTC § 34013)
6. Establishes the California Cannabis Tax Fund (Tax Fund) in the State Treasury wherein cannabis tax revenues are deposited. (RTC § 34018)
7. 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 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 the Governor’s Office of Business and Economic Development to award community reinvestments grants to local health departments and at least 50% 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% 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.
      2. 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.
      3. 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)

1. Prohibits the Legislature from changing the cannabis tax revenue funding allocations before July 1, 2028. (RTC § 34019(h))
2. Requires the Controller to periodically audit the Tax Fund to ensure that funds are used and accounted for in a manner consistent with what is required by law. (RTC § 34020)

THIS BILL:

1. Authorizes the BSCC to make grants to local jurisdictions that were previously ineligible because they ban both indoor and outdoor commercial cannabis cultivation or they ban the retail sale of cannabis or cannabis products.
2. Requires the BSCC to prioritize local governments whose programs seek to address the unlawful cultivation and sale of cannabis.
3. Makes various technical and clarifying changes.

FISCAL EFFECT: Unknown. This bill is keyed fiscal by Legislative Counsel.

COMMENTS:

Purpose. This bill is sponsored by the California Cannabis Industry Association. According to the author:

Districts like mine urgently need resources to combat the predominance of illicit cannabis grows. When this criminal activity is allowed to thrive, communities wonder what protections we have for public safety, our natural resources and for individual’s labor. These bad actor are some of the most exploitive forces imaginable. We are allowing these criminal enterprises to plunder our operational autonomy. We need to crackdown on the illicit market to better protect California consumers and ensure that we are not forfeiting revenue.

Background.

California Cannabis Tax Fund. 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. 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 California Highway Patrol to establish and adopt protocols to determine whether a driver is operating a vehicle while impaired;
• $50 million to the Governor’s Office of Business and Economic Development (GO-Biz) to administer a community reinvestment 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 has 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% of the remaining revenue is deposited in the Youth Education, Prevention, Early Intervention and Treatment Account, and disbursed by the Controller to the Department of Health Care Services for programs for youth that are designed to educate about and prevent substance use disorders and to prevent harm from substance use.
   
2. 20% of the remaining revenue is deposited in the Environmental Restoration and Protection Account, and disbursed by the Controller to the Department of Fish and Wildlife and the Department of Parks and Recreation to mitigate environmental harm resulting from cannabis cultivation and to combat cannabis activity on public lands.
   
3. 20% of the remaining revenue is deposited in the State and Local Government Law Enforcement Account and disbursed by the Controller to the California Highway Patrol for training, education, prevention, and enforcement of law related to driving under the influence of cannabis, and 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 is currently prohibited from awarding any grants to local governments that have banned the commercial cultivation or retail sale of cannabis.

Proposition 64 Public Health & Safety Grant Program. Existing law requires the BSCC to award grant funds to local governments engaged in or providing services related to law enforcement, fire protection, and public health and safety associated with the implementation of the Control, Regulate and Tax Adult Use of Marijuana Act. The funding is intended to support programs in four Project Purpose Areas: 1) Youth Development/Youth Prevention and Intervention; 2) Public Health; 3) Public Safety; and 4) Environmental Impacts.^[1] Since September 2020, the BSCC has awarded over $30 million in grants to to 33 jurisdictions.^[2]

In 2019, the law at that time prohibited the BSCC from awarding grants to any local government that has banned all indoor and outdoor cultivation, including cultivation for personal use, or the retail sale of cannabis or cannabis products.^[3] In 2020, however, AB 1872 (Assembly Budget Committee) Chapter 93, Statutes of 2020, eliminated the prohibition on making grants to local jurisdictions that have banned indoor and outdoor cultivation, inclusive of personal cultivation.^[4] The existing law today specifies that the BSCC shall not make any grants to local governments that ban indoor and outdoor commercial cannabis cultivation or ban the retail sale of cannabis or cannabis products.^[5]

This bill would authorize the BSCC to provide grants to local governments that have banned the commercial cultivation and retail sale of cannabis. Additionally, this bill would require the BSCC to prioritize local jurisdictions whose programs seek to address the unlawful cultivation and sale of cannabis. A study published by the Reason Foundation, with support from Good Farmers Great Neighbors and Precision Advocacy (the lobbying firm representing this bill’s sponsor), estimates that as much as two-thirds of cannabis sales in California occur in the illicit market, which is consistent with the widespread consensus that illegal cannabis has continued to proliferate notwithstanding the legalization of recreational adult-use cannabis in California.^[6] The author and sponsor of this bill contend that the thriving illicit market for cannabis is discouraging local jurisdictions who have not legalized commercial cannabis in their city or county from doing so. At the time of this writing, 56% of cities and counties do not allow any type of cannabis business to operate within their jurisdictions.^[7] They stipulate that allowing these jurisdictions to apply for funding is necessary to support and bolster enforcement activity so that more cities and counties may embrace commercial cannabis operations within their jurisdiction.

Current Related Legislation.

AB 1448 (Wallis) would authorize a local jurisdiction to establish administrative penalties for violations of local law relating to commercial cannabis activity, including a special lien. The bill would also authorize a local jurisdiction that has established procedures for collecting those administrative penalties to additionally collect specified civil penalties as administrative penalties. In addition, the bill would redirect specified portions of civil penalties collected for unlicensed commercial cannabis activity from the General Fund to the treasurers of the localities that brought the action for the penalties. AB 1448 is pending in this committee.

AB 1565 (Jones-Sawyer) would require the Controller, beginning July 1, 2028, to disperse $15,000,000 to DCC for the 2028-29 fiscal year and ever fiscal year thereafter. The bill would require 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. This bill provides that the disbursement shall be the highest amount, up to $15,000,000, that would not result in a reduction to other specified funds. This bill is pending in this committee.

Prior Related Legislation.

AB 1872 (Assembly Budget Committee), Chapter 93, Statutes of 2020, as it relates to this bill, prohibited the Board of State and Community Corrections from making grants to local government that ban both indoor and outdoor commercial cannabis cultivation or that ban the retail sale of cannabis or cannabis products.

ARGUMENTS IN SUPPORT:

According to the California Cannabis Industry Association, the sponsor of this bill:

Under existing law, grant funding administered by the Board of State and Community Corrections (BSCC) is limited only to those cities and counties that authorize commercial cannabis cultivation or retail. While the original intent of these limitations was laudable and intended to incentivize jurisdictions to adopt commercial cannabis ordinances, the significant uptick in illicit market activity has had a chilling effect on jurisdictions most impacted by the illicit market. In other words, rather than implementing commercial cannabis programs, as hoped, cities and counties have opted to just say no to legal cannabis entirely.

With more than 60 percent of jurisdictions still banning commercial cannabis retail and legal cannabis sales on the decline, more funding is needed at the local level to combat the illicit market.

ARGUMENTS IN OPPOSITION:

None on file.

REGISTERED SUPPORT:

California Cannabis Industry Association (sponsor)
California State Association of Counties
League of California Cities
Rural County Representatives of California
San Bernardino County
San Bernardino County Sheriff's Department
The Parent Company

REGISTERED OPPOSITION:

None on file.

Analysis Prepared by: Kaitlin Curry / B. & P. / (916) 319-3301

1. Howard, K. T. (2022, October 19). NOTICE OF FUNDS AVAILABILITY (NOFA) AND RELEASE OF REQUEST FOR PROPOSALS (RFP). ↑

2. California Board of State and Community Corrections. (n.d.). Proposition 64 Public Health & Safety Grant Program. California Board of State and Community Corrections. Retrieved April 7, 2023, from https://www.bscc.ca.gov/proposition-64-public-health-safety-grant-program/ ↑

3. Ibid. ↑

4. Ibid. ↑

5. RTC § 34019(f)(3)(C) ↑

6. Lawrence, G. M. (2022, May). The impact of California's cannabis taxes on participation within the legal market. Reason Foundation. Retrieved April 7, 2023, from https://reason.org/policy-study/the-impact-of-california-cannabis-taxes-on-participation-within-the-legal-market/ ↑

7. Department of Cannabis Control. (n.d.). Where cannabis businesses are allowed. Department of Cannabis Control. Retrieved April 6, 2023, from https://cannabis.ca.gov/cannabis-laws/where-cannabis-businesses-are-allowed/ ↑