Senate Standing Committee on Business, Professions and Economic Development

Good morning, everyone. Welcome to this morning's joint convening of the Assembly Business and Professions Committee and the Senate Committee on Business, Professions, and Economic Development. This morning, we will begin with a sunset review oversight hearing for the California State Board of Pharmacy.

Upon conclusion of that discussion, we will be adjourning the joint sunset review hearing and immediately transition into our joint informational hearing on the Department of Cannabis Control. For each of these two hearings today, we will begin by hearing from representatives of the entity under review. Then we will open the discussion up for questions or comments from Committee Members. Finally, we will invite other interested stakeholders here in the room to provide public comment.

Speakers will be limited to a maximum of two minutes per organization, and additional speakers making substantially similar comments may be asked to simply provide their name and state their alignment with prior testimony. Before we begin with today's sunset review agenda, I will turn it over to Senator Ashby for any remarks. Chair Ashby for any remarks.

Thank you, Chair Berman. So honored to be back in here with you today. Just a note to folks watching, we have entered that time where we have multiple committees going, so you will see Members coming and going a bit as they have other votes they have to take in other committees.

Least, certainly true for the Senators. But excited today to begin to dig into these topics. We will love to hear from everyone and then we will get to the work of putting together the bills that will address the issues that we talk about today. So honored to be here, and thank my colleagues from both the Senate and the Assembly for making time this morning to hear from folks about these items.

Thank you, Chair Ashby. And that's a great reminder that we are not making any decisions today. This is just an opportunity to talk about different issues. There are lots of issues raised in the background paper. All of these issues will continue to be kind of fleshed out as the year goes on. Testifying today.

So with that, we'll begin with a joint sunset review of the California State Board of Pharmacy. Testifying today is Board President Seung Oh, Board Member Renee Parker. Excuse me, Board Member Renee Barker, and Executive Officer Anne Sodergren. Yeah, we are ready when you are.

All right. Good morning. Good morning, Chairperson Berman and Chairperson Ashby and Members of the Committee. My name is Seung Oh, and I have the privilege of serving as the Board of Pharmacy's president and have had the honor of being a member of the board for the past five years.

Throughout my tenure on the board, I have been proud of our steadfast commitment to consumer protection and our role as a leader in many of our nation's pharmacy regulation standards. I'll keep my opening short as I hope to be able to answer any questions or comments during the hearing.

The board is a consumer protection agency charged with regulating the businesses, people, and products throughout the drug supply chain in our state until the product is dispensed to to the patient by a pharmacist. The variability in our regulation is significant and complex and encompasses a myriad of state and federal law to ensure California patients receive safe medication.

In addition to evaluation and dispensing of medications, the role of a pharmacist has evolved to include even greater patient care services. As included in the board's legislative report, the board is hoping to remove some of the overly prescriptive requirements in pharmacy law that have become barriers to care.

Recent actions taken at the federal level demonstrate that California needs to step into the moment and remove barriers to access, for example, preventative medicines such as HIV PEP and PrEP, hormonal contraception, and Naloxone, which are currently allowed to be provided by pharmacists but with protocols that seem to cause many of disruptions in care.

The proposed transition to a standard of care practice model will remove these by and other persistent barriers and allow for the natural transition of practice to occur without the administrative burdens currently placed on the board and its licensees. The board constantly strives to balance the competing needs of the industry. It regulates, patients desire for access to drug therapies, and the board's consumer protection mandate, which can be very challenging at times.

Competing priorities, false narratives, and industry pressures can make the board's work even more challenging. The board's ongoing effort to update its compounding regulations is a concrete example of this delicate balancing act.

In its report, the board made reference to misinformation circulating about the compounding regulations undergoing promulgation by the board. The board's public record is clear, but regrettably, misinformation has led to confusion and misunderstanding by many.

As the record shows, some believe aspects of the proposed regulations go too far, while others believe aspects of the regulations do not go far enough. As the board has progressed through the formal rulemaking process, the board has made many changes to the proposed regulation text in response to comments received.

I anticipate there will be discussion throughout the hearing today on this topic, and I'm hopeful everyone interested in learning more about this very complex area of pharmacy practice has had an opportunity to review federal law and guidance, the national USP standards, and state law, including provisions in the Health and Safety Code.

I'm looking forward to any questions, but would like to clearly state at the front end that, as currently proposed, the board is not banning the compounding of substances such as glutathione or methylcobalamin, as many advocates of these substances have claimed.

Our regulatory attempt is and has always been to provide a clear path for the regulated to be able to provide medications safely while understanding that certain non-sterile to sterile compounding pose significant risk to public health if not done so correctly. But I'll also highlight this issue is truly a complex issue that intersects many layers of pharmacy law. Which is why I asked one of our member and a compounding expert, Renee Barker, to join us during this hearing.

Over the past four years, the board has remained focused on its consumer protection mandate, considering issues facing patients and practices that impact the board's licensees. The board has raised a number of policy issues through its report, ranging from technical issues to changes in the regulation of pharmacists. The challenges and opportunities are great.

The board's proposal to transition to a more robust standard of care practice model for pharmacists promises to improve access to patient care and remove barriers inherent in some of the practices regulatory model. We must also address the root causes of pharmacy closures and unfair business practices.

I'll wrap up my remarks by saying that California State Board of Pharmacy the last four years have accomplished so much in bringing true meaning of consumer protection, which I will not list here due to time constraints, but it's provided in our initial report.

On behalf of the board, I would like to thank you for the opportunity to share some of the board's actions efforts during the past four years to fulfill its consumer protection mandate. We look forward to partnering with the Legislature, the administration, and stakeholders to address these challenges to protect Californians. Thank you for the opportunity to provide a few opening remarks.

Great. Would anybody else like to provide opening remarks, or here for questions? Gotcha. With that, we're going to open it up to colleagues for any questions or comments from Assembly Members who or Senators. Folks' coffee hasn't kicked in yet.

Just as a reminder. As a reminder, so what we do is we hear from the folks from the board and then Members and Senators do questions and comments and then we open it up to the to the public for any comments from members of the public. Dr. Jackson.

Thank you very much. A few things. On here in our report on issue number 27, it talks about pharmacy deserts, and certainly those deserts are growing. What actions have you, are you thinking about undertaking to help with addressing those things?

Thank you for the question. One area that we are looking at is if possibility of having a pharmacy fee waived, application fee as well as renewal fee waived, as long as the pharmacy is maintaining that business in the desert area.

And when are you going to come to a conclusion in terms of a plan? Is that just one of the things you're considering or, you know, what was the timeline that we should see some action being taken?

Thank you for the follow up question. So we are, that is an issue that we're bringing forward and hopeful that we can partner with the Legislature to establish authority for the board to waive fees under certain conditions. We do believe that that requires statutory change. So we believe that is one area that the board can address.

Another issue that the board is concerned about and believes that it may be leading to some of the closures of pharmacy are payer practices that are negatively impacting pharmacies. And so we are also hoping to partner with the Legislature and the administration on addressing some of those payer practices. And we look forward to continuing the dialogue in that area because we do believe that there are some unfair payer practices that are also resulting in pharmacy closures.

And the Legislature has done some things to, in your perspective, hinder you from denying people licenses based upon criminal backgrounds. And of course part of that is allowing people to have access to professions that will help them to have livable wages and those type of things. You, it says that you have some examples of why we should give you additional or reinstate authority to be able to deny license licensure for particular things in their background. Can you elaborate on what those instances are?

Thank you again for the question. So we did provide a few examples. One example that we discussed was students that were enrolled in a school of pharmacy and they took very significant actions to gain access to computers by professors and access and compromise the exams moving forward. So that's an example where the convictions were dismissed. And as such, then the board doesn't have an opportunity to, you know, consider whether or not that is appropriate for subsequent licensure. And in those instances, some of those individuals did reapply, enrolled in new schools, and have licenses.

But in that circumstance, did they use their dark powers to do anything else after that? Meaning you gave an example of an instance where someone broke a law, but did they then use that same offense in their profession?

So in the situation that I discussed, they used it for purposes of their pharmacy school education. And so we felt like that was directly related. So we're trying to explore whether or not that might be something that the Legislature would consider. Healthcare fraud is another example, given we're also looking to partner with the Legislature. If, you know, this is a process, about drug convictions. There's absolutely rehabilitation. The board absolutely believes in rehabilitation.

What we find sometimes is that we are unable to pursue things like probationary licenses where we can monitor them for a period of time when they're entering the practice. Because our ability to do so is through a denial of an application and securing or, you know, doing some sort of probation where there's terms and conditions where we can monitor, and that's not a tool that we have right now in some circumstances.

So that's similar to which you are using the same thing for pharmacists. You're using the same instance where you are providing alternatives to actually terminating people's licenses is that you also give them like a off ramp in a way when they already have their license. Maybe they have found to be now addicted to a substance, and now they're subject to random drug tests and things like that. Is that the same thing? Or you're looking to be able to also deny someone's license, not just on probation?

So the vehicle that the board would use to place an applicant on probation would go through the administrative case process, which is similar to the process that we go through when we are taking enforcement action, discipline against a pharmacist or another licensee. But what you are describing, where you place someone on probation for a period of time to monitor them to ensure necessary rehabilitation and then remove the restrictions. Yes, we are hoping to restore our ability to do that.

I would be supportive of the probationary. I just wouldn't be supportive of you denying someone licensure based upon a drug offense due to, you know, people get addicted while being a pharmacist, and you don't just terminate their licenses. Right. You give them an opportunity to be in a probationary process to be able to do that. Why are you denying people licenses based upon previous theft?

So we're not. Our ability is based on that... So here's... Let me... Sorry, I'm going to back up. Rewind. Super nervous, so I'm so sorry.

It's all good.

Okay. So the board can deny based on a number of different things. What we find sometimes is what a conviction is and what that underlying conduct are sometimes two different things. So we look at the totality of the circumstances and the underlying action. You know, this is a dopey example. But please, stay with me if you don't mind. Like someone might be convicted of vandalism because that's, you know, where the ultimate action was.

But when you look at, you know, the arrest report, you speak with the, you know, arresting officers or something like that, you find out that there was far more involved in it. The matter resolved with a conviction of something. But sometimes the totality of the circumstances and the underlying behavior is what the board is kind of focused on. Sorry. I hope that that made sense.

No, absolutely. I would just think that, my hope, of course, I'm just trying to learn through this myself, is that, you know, theft is a huge gray area. And making sure that we, again, find ways to not block people's ability to gain a trade, to gain a profession, I think is obviously what the bill was trying to get at. And so I just want to make sure that we're very careful about making sure we have appropriate balance and not finding, not closing opportunities down.

But would love to continue to have this discussion and definitely have a discussion, Mr. Chair, with you on your thoughts in terms of what we're going to be doing in this area. I think my final question is there seems to be a continuing education audit issue. Can you explain that a little bit more? Because it sure does seem that people are not doing good with passing these audits.

Thank you again for the question. So pharmacy law is very dynamic and it does evolve. And so as new continuing education requirements come on, sometimes there's just, there's a little bit of delay in kind of being integrated in fully into the profession.

I don't know that I'm saying that correctly, but hopefully you're picking up what I'm laying down here. And so what we find sometimes is, as new requirements come on, you know, we try to do the education because education is always the best to prevent something from happening.

But sometimes when we're doing the audits, we're maybe finding that people kind of missed out on some of it. What I would say is when we talk about the continuing education audits, the spectrum of kind of like that non-compliance can be very different. Right. The law requires the 30 hours. Someone that hasn't done any is much different than someone that maybe missed doing the, the pharmacy law one specifically. Do you know what I'm saying? And so when we're, when we're evaluating...

They weren't paying attention sometimes to the specific categories in which continuing education must be reached.

Yes. So technically those would result in a failure of the audit, but generally that's going to result in some sort of education and asking people to comply with it, if that makes sense. So the outcome would be a little bit different hopefully.

Absolutely. Thank you very much.

Thank you, Dr. Jackson. Look forward to future conversations. Any additional questions or comments from colleagues? Dr. Choi.

Thank you. I have a general question as a consumer. I see lots of advertisement on the non-FDA regulated vitamin kind of, as they say, supplemental or nutrition items. But on the other hand they claim lots of things, this will cure this and that.

And when they do make and then this claiming says that this is only supplemental thing that we recommend that will be good for your health. When they do claim heavy emphasis on curing certain pain, things like that, do you look into it or just let them go away?

And then consumers buy it and get cheated and it doesn't do anything. It is a very vague area, and I have done some listening and it's so convincing. I've tried several things. I don't even know whether that works or not. Isn't this your board's responsibility to look into those claims?

So thank you very much for the question. I think some of what you're probably, if I'm understanding correctly, some of your concerns, I think it's probably more the purview of the FDA as opposed to the board. We don't have generally regulation over over the counter, those kinds of things. Our swim lane is really kind of the, you know, dangerous drugs and devices, those kinds of things. So the over the counter stuff, I do believe that federal law speaks to that and I think that it's probably enforced by the FDA.

That's not the purview of your authority and you do not investigate any such claims, just FDA. I have to make a complaint or inquiry to the FDA if I have certain questions on certain items?

Yeah, I believe that that's true, and I don't know if this is appropriate, but offline I'd be very happy to try to help you with that.

Okay, thank you.

Thank you very much. Any additional questions from colleagues, Assembly Members, Senators? Chair Ashby? Oh, yeah, sorry. Assembly Member Caloza.

Thank you, Chair Berman. Thank you to the panel. I was wondering if you could give me a little bit more information and talk about some of the compounding issues of the sterile versus non-sterile medication and some of the stakeholder engagement that you've had and including any opposition.

I know we received a letter from the firefighters or a coalition that includes firefighters, which is, you know, an issue in my district. I am next to some of the wildfires like the Eaton wildfire. So would love to hear a little bit more from the board about that.

Thank you very much. So if I can just like kind of go 50,000 foot view for just a minute and then we can drill down, if that's okay. So federal law establishes the new drug approval process. The whole Food, Drug, and Cosmetic Act details out all of that. Then what the FDA has or what federal law says then is there's narrow exemptions to some of that full process for pharmacies to compound. And then they say that you have to do it in certain ways. Right.

And part of that is they talk about the conditions under which a pharmacy can do that, and they also talk about then like the types of, the types of products that you can use in the compound, if that makes sense. So federal law doesn't talk about the sterile and the non-sterile, really. That's more the national standards.

Just going back to federal law right now. So the federal law establishes the three different types of large buckets that you can use to compound. So you know, if there's a USP monograph, you know, drug monograph, you can use it. If it's part of an FDA approved drug, you can use it.

Or if it is part of a regulation that has been adopted by the secretary and so on there are six substances. So you've got, that's the federal law. Then you have federal guidance. So the FDA then puts forward federal guidances to help guide the practice and clarify their positions on things. So specifically related to this topic.

I'll mention that there are a couple of different guidances. One is specific to bulk substances that have been nominated for consideration by the FDA to put onto that regulation that I talked about. And so specific to, I'm going to just kind of go to the fire, to the comments about the firefighters, which I believe are speaking to glutathione, that they are used for inhalation therapy. And so glutathione falls under the category that has been nominated for inclusion into the federal law.

And so the FDA then says, you know, while they are considering some, and I'm oversimplifying, but where they are considering whether or not to accept some of these or add them into the federal law, they are going to exercise. I'm going to use the term enforcement discretion if certain conditions are detailed, if the pharmacy that's compounding meets certain conditions. One of those conditions is that they have to comply with the national standards, the USP standards. And there's a lot of standards out there.

So I'm going to stick with the glutathione, if that's okay, but I'm happy to go higher level at some point if that's helpful as well. So in addition to that interim guidance for the bulks, you also have to look at other interim guidances such as insanitary conditions, and the insanitary conditions, talk about the quality of the product that you are using and ensuring that you're using it for its intended purpose.

That same concept also exists in those national standards that I was referencing. And so specifically for, again, this product, the national standards that you're generally going to be looking at is the USP chapter 797 that speaks to sterile compounding. And again, following again the kind of like the glutathione swim lane, if that's okay. There's the chapter.

You have to look through the chapter to see which various things apply. And within the chapter, one of the elements that they talk about is the use of components and component selection. And they talk about in there that you cannot use something for other than its intended purpose.

So as an example, you know, using something that's dietary, right, if it says that it's not for pharmaceutical, you know, if it's not labeled is not for pharmaceutical use and others like you can't use it. And then the chapter also talks about the fact that you have to evaluate the quality and suitability of the product.

And so all of that goes into the decision making and more. I'm trying to keep it a little bit high level. Into the decision making about whether or not to, you know, whether or not something can be compounded and then, you know, what the routes of administration would be and those kinds of things. So I apologize if that was too deep a dive. Just tried to keep it high level. It's a complicated issue.

Thanks for sharing that and some of the process. One of the questions that I also asked was around stakeholder engagement and the opposition. Can you just talk us through, you know, about this letter? I know it says here that there's over 11,000 signatories in opposition to some of, you know, some of the items that you mentioned around these medications and compounding issues. But can you walk us through any stakeholder engagement that the Board of Pharmacy is engaged in?

Yeah. So through the regulation development process, the board does that through public meetings. And so we had a number of public meetings in 2019, and then we put that on pause because of something that was happening with the compounding chapters. And then we resumed in 2023. And all of those are public meetings. Everyone is welcome to participate.

If you're unable to participate, we accept, you know, letters in writing, those kinds of things. So that the development of the language is done in a very public setting, allowing for individuals to participate. Once the formal rulemaking process starts, then the board follows the government code requirements for promulgating a regulation.

And again, there are many opportunities to engage in the process. By law, the board must open up for written comments and can also do hearings. So we did both. We provided opportunity for written comments and we did a regulation hearing.

And then again, by law, the board must consider all of the comments that are received and then determine what action, if any, is appropriate based on those comments. So we have, we did a 45 day comment period where people had the opportunity. We did a regulation hearing.

Following that, the board then considered this at another, again another public meeting. They actually did it over a couple of public meetings, again giving people an opportunity to participate. The board voted to make changes to the proposed regulations. Once the board votes to make additional changes, additional comment periods are opened up. So this provides multiple opportunities for stakeholder engagement.

We follow the Administrative Procedures Act in terms of what that public engagement looks like. And so it's generally through the comment periods where people are welcome to submit comments, and then it's discussed then during full board meetings. So through this, through the formal rulemaking process, the board has made several changes and has... We are actually currently on our fourth modified text. So every time we modify, we release again. And we are currently on our fourth modified text. It's out for comment right now.

Thanks for sharing that. The other question that I had was to follow up with what Assembly Member Jackson had asked about, which is also some of the pharmacy deserts. Is, does your board track what that looks like? Or, you know, for instance, in Los Angeles, like in my district, I probably had like three or four pharmacies closed down, which has had a major impact, especially on some of my constituents, especially seniors, and the availability of medications to them. Do you guys do any work in ensuring that we have that coverage? And what does that look like in terms of sharing that information with the committee?

Thank you for the question. So we are reviewing what is happening in, in the, you know, in the market. We are concerned about an inability for patients to access pharmacies. That's why we have our legislative proposal. It's not a lot, but to the extent that that's the barrier, we want to remove that barrier so that people have good access to pharmacist care. But ultimately I think that that is, you know, that is, that will help.

But I think we have to get to the root cause of it, which I believe, you know, from the board perspective, we believe is some of the, the payer practices that involve, you know, clawing back reimbursements and those kinds of things, making it kind of an unsustainable business model.

Okay, I will just follow up with you directly and your board on some of the additional questions and district specific questions I have. Thanks.

Thank you, Assembly Member Caloza. Any additional questions or comments? Chair Ashby, if you're ready.

Okay, thank you so much. First, just thank you guys. You were so brief in your opening remarks. You caught us all off guard. That's great. I just want to broadly say that the Board of Pharmacy does significantly important work.

We need you, and that is important to ensuring the integrity of California's medication supply to all of our constituents, as well as providing pathways for millions of patients up and down the state to receive therapeutic help in a timely fashion. Pharmacies are small businesses mostly and of course the large corporations.

So finding the nuanced pathway for both is always a challenge. Pharmacy personnel are trained, they're hard working individuals who provide access to care and sometimes in places where options to come face to face with healthcare professionals is extremely limited.

Sometimes a pharmacist is all that they have for a healthcare provider and we want to make sure that they're supported and that is what this entire process is about. And so for everybody who's here, how do we help hard working people working in the pharmaceutical setting serve our constituents with the highest level of integrity?

Obviously, we will be uncompromised and uncompromised in terms of how we approach that for the health and well being of the folks that we represent. But access to care, as you've already heard, is so critically important. I have really two things that I would like the board to address.

One is the board's oversight responsibilities, for this board in particular, are massive, broad. From the integrity of the medication people need to live, to thousands of people providing care, to through lots of facilities across the state. How do you prioritize that work and scale that responsibility?

I'm going to ask you the second question too because I think you might be able to put some of the solutions, some of the answers together. Second piece is, as you're answering that, can you expand on the standard of care proposal and what barriers may exist to transitioning to that type of evaluation for the licensees? So those are, that's the gist of what I'd like you to address today before we move to the public comment.

Thank you. Senator Ashby. Thank you for the question. I'm gonna address the standard of care. And then the first question you ask, I'm gonna let my executive officer who handles the usual day to day operation. In terms of standard of care, it really is about providing the highest quality of care to Californians. Right.

And we want the pharmacist to be able to adjust and adapt to the best care that's available. And current practice model for pharmacists unfortunately is very protocol based. And we are not allowing pharmacists to be able to practice really to the best of the what's out there.

And so what we're hoping to do is to make sure that people in California can get the best care. And one of the best examples is really the HIV PEP and PrEP. The guidelines for that changes all the time. And you know what we want people to be able to do is to provide the best care possible without having to change the legislation or change the regulation. And I'll let Anne explain a little bit about how the Pharmacy Board really prioritizes and does its all the actions.

Thank you. So I would like to, again, if it's okay, start a little bit high level. So the board is a consumer protection agency, but consumer protection embodies a number of different activities. I think a lot of times people think consumer protection and they think enforcement. Consumer protection is so much more than that.

Because you want to prevent. Right. That's what, that's what it's all about. So the board focuses and spends time on education, communication, and both for our licensees as well as for consumers. So just, can I give a quick example? Okay, thank you. You're being super courteous, so thank you so much.

So the board's notice to consumers poster is I think a really good example. And so I'm just gonna... The board's notice to consumers. It's required to be posted in all pharmacies. And the board recently undertook a revamp of that and it now has focused, it has all of the required notices on it, but it also focuses on the actions that you can take to prevent medication errors. And that really gets to the key about prevention.

And so this is just an example where we then like have a QR code that will then take consumers to other languages where they can see this. But it's a great example of how prevention really is the goal. You're not going to be able to prevent everything.

But so we have, we have like our education and communication where we try to put the information out there to try to prevent. We use our licensing as another means, ensuring that only those businesses and individuals with minimum competency can secure licensure.

We use our policy piece where we believe that there are opportunities to improve our regulation, expand access, or shore up maybe some gaps in regulation. And then we use enforcement. So we try to embody all of that in what we do because enforcement in and of itself is a reactive activity.

So we do prioritize, when enforcement, when enforcement issues do come before the board, we then also prioritize those. And we have, like, our little categories, and we do focus on those. The ones that are most prioritized are those that we believe are, you know, eminent public harm kinds of things.

All consumer complaints are very valid and appropriate for for investigation and evaluation. So we do all. Want to be, like, very clear. But we do prioritize those that where we think that the, you know, the greatest risk to the public safety is there. I hope that answered your question.

Well, thank you very much for the wide ranging conversation. I'm going to add some other issues to the conversation. The first is as we're seeing what is really radical ideology infiltrate our federal health agencies under the Trump Administration.

I'm concerned about how actions by the FDA and other entities could impede California pharmacists ability to to provide important care like administering vaccinations and dispensing reproductive health medication.

Are these concerns that the board shares and do you have any recommendations for how we can work to prevent the Federal Government from harming California's patients within the context of pharmacy practice?

Thank you Chair Berman. That is an excellent question and I really appreciate you bringing that up. So the board, you know, I think one of the really important thing that I like to highlight is the really the standard of care practice model that we are proposing.

I we believe that that will really help us to take care of patients to the best of our abilities that are not tied to a law regulation. The pharmacists can practice to really do what is the best for patients. And we believe that is a one layer that we approach.

But also the board really believes in importance of providing, you know, equal access and providing health equity. And we are absolutely, you know, trying to ensure that patients get the best care possible.

Great, great. Thank you. I know that in the past there's been discussion about possibly adding a pharmacy technician Member to the board to give those licensees a voice in decision-making. Can the board provide any insight into whether it believes adding a pharmacy tech member would be appropriate?

The board looks forward to the discussion on that issue and we can definitely provide that. We have not yet, yet decided on that issue.

Gotcha, Gotcha. Thank you. I'm sure there'll be more conversations along the lines of more conversations. I've had many conversations around the pharmacy technician ratio. Some people who think we should definitely change it and that we're an outlier in the United States, others that say over my dead body, no way will we ever change it. Thoughts?

So the board has took a very deep dive into that topic and we have done a lot of stakeholder engagement and we have released members licensee surveys and where we landed is to do one to two.

But also we look forward to working with the legislatures and the Administration on coming to the path that is, you know, the most appropriate. Gotcha. Just to add to that, that that also our proposal adds a possibility of flexibility as well for the board of pharmacy to promulgate and changes to that ratio. Gotcha. Thank you very much.

That's all the questions I have. Don't know if there are any. So let's open it up to the public. Let me find my talking points. I think my talking points just say, open it up to the public. Yeah. Folks get two minutes each. A soft reminder.

If somebody's already said what you were thinking about saying, just feel free to say, I want to align myself with everything that that other person said.

Please go ahead. Good morning, Assemblymember Berman, Senator Ashby, and Members of the Joint Sunset Committee. My name is Grant Miller. I'm a veterinarian, and I am the Director of Regulatory Affairs at the California Veterinary Medical Association. The CVMA brings forth concerns today in the Board of Pharmacy sunset review over veterinary drug availability in California.

California is the only state in the country in which veterinarians are reporting that they do not have access to critical drugs to treat their patients. These drugs are not available in FDA approved form formulations and thus we may only obtain them through compounding pharmacies.

However, excessively stringent Board of Pharmacy Regulations for compounding pharmacies have shrunk the number of California veterinary compounding pharmacies to just a few. And those pharmacies are disincentivized to provide these critical medications to the veterinary profession because of the prohibitive and stringent nature of Board of Pharmacy Regulations.

As a result, critical eye medications for horses and important medications for exotic animals such as birds and reptiles are nowhere to be found. Without drugs like ophthalmic diclofenac ointment, ophthalmic antifungal medications, certain ophthalmic antibiotics and others, veterinarians have to watch helplessly as innocent horses and other animals lose their eyesight.

We have approached the Board of Pharmacy about this issue several times, and while recent efforts suggest that they acknowledge the issue, they are not doing enough to solve the problem that they created.

We wish to thank you, your consultants, for hearing our concerns on this issue, and we ask for your assistance in bringing them to the table with stakeholders for the benefit of California animals. Thank you. Thank you very much.

Morning. Thank you for the opportunity. My name is Dr. Richard Dang. I'm a pharmacist and assistant Professor of Clinical Pharmacy at the University of Southern California. I'm a past President of, and I'm speaking on behalf of the California Pharmacists Association. Pharmacists do more than dispense medications. They are integral healthcare providers to a modern healthcare system.

Pharmacists are medication experts who optimize drug therapy to ensure safety and efficacy. The state itself recognizes this role, declaring that, quote, pharmacy practice is a dynamic patient oriented health service continually evolving to include more sophisticated and comprehensive patient care activities. Pharmacists are also healthcare providers with the authority to provide healthcare services, end quote.

With expertise in medication management and treatment protocols, pharmacists manage chronic diseases, advance public health, and collaborate with physicians to improve outcomes and expand access. Yet pharmacist care is currently constrained, putting patient access at risk. We urge your support for a standard of care model to modernize pharmacy regulation.

The current rigid statute based framework lags behind advances in health care for enforcing reactive legislation that delays care and risk patient harm. Current state statutes mandate strict adherence to protocols tied to CDC and FDA recommendations for various pharmacist services.

These statutes jeopardize patient care when federal priorities shift, as seen in January when key CDC documents were deliberately altered and restricted to obstruct public access. Under the current model, federal changes could immediately halt pharmacists provided services for HIV vaccines and birth control, leaving patients vulnerable to disruptions driven by shifting federal priorities and regulatory uncertainty.

Adopting a standard of care model empowers pharmacists to practice based on their expertise and evidence, not on outdated and rigid statutes. This approach safeguards patient access, aligns with best practices, and strengthens and protects California's health care system. To be clear, this is not an expansion of scope.

Moving to a standard of care model aligns with the state's definition of pharmacy practice and allows pharmacists to provide comprehensive care. Thank you very much. Thank you.

Sorry y'all. I'm going to keep it to a tight two because we got 22 people lined up.

Thank you Chair Ashby, Berman, and Members of the Committee for the opportunity to speak today. I'm a licensed pharmacist in Marin County and I work for an animal compounding pharmacy that has three California based facilities. We serve animal patients ranging from small pocket pets like guinea pigs up to elephants living in zoos and everything in between.

We've even helped treat wild sea lions during the summer season when they suffer from domoic acid poisoning and wash up on California beaches, seizing uncontrollably. It's estimated that 20% of pets will need compounded medications at some point during their lives, with that number growing to 40% for larger animals. Compounding is an essential tool for veterinarians.

I'm here today to advocate for animal patients, but I'm also a compounder that has seen this industry erode over the last eight years to the point that community based compounders are almost extinct in this state. 10 years ago, we had over 100 compounding pharmacies throughout California.

Now only a handful remain to service the 40 million residents, the 20 million pets and the 500,000 horses that live here. This is a dire situation as compounding serves an important role for these residents whose needs cannot be successfully treated by FDA approved medications.

As indicated in your report, the rulemaking process has been prolonged with almost every industry group in this state and beyond expressing serious concerns about the proposed regulations. While significant progress has been made, there remain issues that will further impact patient access to this important class of medication.

The board would benefit from a member that has expertise in the practice of community compounding. What we do is drastically different than compounding in a hospital, which is where the board's current expertise lies.

While this is a gross oversimplification, think of mixing two or more solutions in an IV bag versus batch compounds formulated by the compounder in direct consultation with the prescriber for a specific patient or patients and made from raw ingredients. Raw ingredients.

In my opinion, this gap has been the primary reason the rulemaking process has been so prolonged and heavily debated. I would strongly advocate for a community compounder position moving forward to fill this obvious, obvious knowledge deficit. And I sincerely thank you for the opportunity to provide comments today.

Thank you very much.

Jennifer Snyder. On behalf of the California National Association of Chain Drugstores, we'd like to just highlight a couple important issues as part of the sunset review process. One in particular has to do with the pharmacist and pharmacy technician ratio issue.

As we have had many, many, many discussions on this issue over the last few years, it is crucial that the state really look at what our limited and restricted ratio is. We are the only state in the nation that has a one to one pharmacist to pharmacy technician ratio.

And most states, 24 other states have an unlimited ratio. The average across the nation is one to four. We know that the board of pharmacy, as they stated earlier, is looking at a 1 to 2 looking at ways that they can provide a little bit of flexibility for pharmacists to determine what works for them in their pharmacy.

And we would strongly encourage the Legislature and the board to continue looking at that and continue to look at that as a very important issue. The second is remote processing as part of the board sunset review.

They do indicate that they're going to continue to look at ways to make permanent different provisions related to remote processing for retail pharmacies. Last year there was some advancement in the ability for hospitals to have utilized technology for remote processing. There was a promise by the board to also look at that for retail pharmacies.

So we would encourage them to look at ways that they can use technological advances, administrative work that can be done remote and allow for retail pharmacies to have that ability as well. Thank you.

Thank you very much. Thank you. Mr. Chair and Members. Peter Kellison, on behalf of Walgreens, want to briefly echo the comments regarding the pharmacy technician ratio issue the previous speaker just mentioned. The ratio has primarily been one to one, as was mentioned, for 33 years. Pharmacy services and access to them are under strain.

Throughout the state, we've seen pharmacy closures. This is one demonstrable way that by addressing workforce issues such as this, that would allow pharmacies to process prescriptions faster, get them to consumers in a safe, effective manner, would provide benefit to both the communities, the consumers, and to pharmacies.

And we encourage this issue to remain part of the dialogue through the process. Thank you. Thank you.

Good morning, Chair Members. George Soares with the California Medical Association just wanted to point out on issue number 12, the standard of care in the report. The way that we interpret this is the Board is not simply proposing to transition pharmacy practice to the standard of care.

Rather, the Board is proposing to expand the pharmacist scope of practice and apply a standard of care approach to some new services pharmacists would be able to provide. CMA wants to ensure that pharmacists are practicing within their scope of practice. And many services proposed by the Board go beyond the existing education and training requirements of pharmacists.

Pharmacists lack access to the complete patient records, which prevents them from able to develop an appropriate plan of care for patients. We fear that large retail pharmacies will exploit the broad language the standard of care model employs and pressure their pharmacists to practice in a way which increases their profit.

Rather than prioritizing patient care, physicians have a corporate bar in the practice of medicine which insulates them from this type of pressure that would influence medical decisions. This does not exist for pharmacists, so I wanted to flag that for folks. Secondly is issue number 23 as it relates to compounding regulations.

CMA has repeatedly expressed concerns that the Board's regulations lack clarity and have potential to impact physician standard of care. The medical board has confirmed that the regulations could impact the physician standard of care. This lack of clarity could be read to impose pharmacist centric requirements on physicians.

They're not feasible in medical offices and as a result could adversely impact patient care in California. The Board plans to push forward this adoption at the next March 26 meeting. Despite overwhelming opposition, we do not feel like the Board of Pharmacy is committed to seeking a resolution to stakeholder concerns based on our recent interactions.

But we of course welcome the continued conversation and appreciate everyone's time this morning. Thank you. Thank you.

Good morning. Thank you. Chairs Ashby, Berman and Members of the Committee for the Opportunity to speak today. I have been a licensed California pharmacist for almost 19 years. With 16 of those years of experience as a specialized compounding pharmacist. I would like to address two issues today.

First is issue number 23, the proposed compounding regulations currently being considered by the Board under practice issues as referenced in the California Board of Pharmacy background paper prepared by Committee staff. Though the Board has made significant changes and revisions, it has also rejected many important suggestions related to to patient access to medications.

The proposed regulations insist on going above national standards without evidence of how this makes patients safer. Pharmacists from many practice settings, including health systems chain pharmacies and independent compounding pharmacies, have all opposed these proposed regulations, citing the challenges that they create in caring for and protecting our California patients. Pharmacists are not opposed to regulations.

In fact, we ask for clarity of these regulations which currently exist in the national standards. In the recent March 6 board of pharmacy meeting, there was not one public comment in support of current proposed regulations. In fact, the outpouring of opposition by patients and medical providers has been unprecedented.

Additionally, I remain very concerned that the standard of care language deferring to a pharmacist professional judgment will create opportunity for ambiguous enforcement by board staff. In addressing issue number one. Board expertise. Obviously the Board should reflect appropriate expertise for the industry. Specifically, compounding pharmacy is a complex and constantly involved evolving industry.

Currently, there is no board member that reflects the kind of non sterile and sterile compounding knowledge and skill set specifically related to 503a Community Pharmacy.

Thank you very much.

Thank you very much.

Appreciate it.

Thank you. Chair Berman and Members. Tim Madden I'm representing the California Rheumatology Alliance and the California Society of Plastic Surgeons and we appreciate the opportunity to make comments related to the compounding regulations. We continue to be concerned with the direction that the proposed regulations are going.

Our fear is that we're interpreting them that it would prohibit physicians from from compounding medications in their office. Two quick examples of how this would impact patients when it comes to the application of lidocaine. It's very common to buffer lidocaine with sodium bicarbonate this makes it less acidic and less painful for the patient.

This has been done for decades in physicians offices. We're not aware of any issues related to this type of compounding. Our fear is these regulations will prohibit this type of activity in patients offices. For rheumatologists it's common for them to take medications that come in a powder form.

So Orencia for example, which is used for rheumatoid arthritis and it's simply water is added to it and then it's given to the patient. If this is not allowed to be done in the physician's office, it'll force that patient to go someplace other than the physician's office to have this medication applied.

We would also associate our comments from the California Medical Association as it relates to the standard of practice and care model and our concerns are shared with them on those thank you.

Thank you. Good morning Mr. Chair and Members. My name is Fred Noteworth and I'm here today representing the Pharmaceutical Research and Manufacturers of America or PhRMA.

And PhRMA is opposed to the changes recommended to Section 4052 of the Business and Professions Code as laid out by the board on page 263 of their report on sunset oversight review because it recommends changing California's long standing policy to now allow therapeutic interchange of physician prescribed drugs by a pharmacist without prior physician authorization.

The proposal reads in part. Such interchanges include but are not limited to the use of biosimilars if different dosage forms drugs within the same drug classification.

Many patients suffer from multiple conditions that are being managed by prescription drugs and therefore switching to another medication within the same therapeutic class could upset the stability of their ongoing treatment plan that only their prescribing physician is completely aware of. Patients also fill their prescriptions at more than one pharmacy.

This means that a pharmacist may not have the full medication history that a patient is taking, thereby making therapeutic interchange even more of a safety risk for patients.

PhARMA is concerned that the therapeutic interchange by a pharmacist is harmful to the patient physician relationship and we would urge the Board's proposal be rejected as part of the sunset review process. Thank you.

Thank you.

Good morning. Thank you all for your time and I appreciate the opportunity to comment. My name is Dr. Leena Pandya. I'm a Naturopathic Doctor and a clinical research fellow at ucsf. I'm also the current President of the California Naturopathic Doctors Association and the CN which is the cnda.

The CNDA actually has significant concerns regarding the language that The Board of pharmacy has proposed for inclusion in the upcoming sunset Bill specifically related to IV hydration clinics. Naturopathic doctors, or NDs are highly trained in IV therapy.

We're actually required to have additional training to obtain specific IV therapy licensure, which is in addition to what we're required to do for our general medicine license and also in addition to our continuing education requirements.

This actually ensures that we meet high standards of safety and competency when we're administering IV therapies, which are an integral part of our patient centered and evidence based care.

While we share the Legislature's concerns about med spas and other facilities offering IV hydration and similar treatments without proper patient evaluation, and they're oftentimes even administered in unsafe conditions by individuals who practice outside of the scope of their profession, we believe that the proposed language could have far reaching and unintended consequences for many stakeholders.

Given the complexity of this issue, we strongly recommend that it be addressed in a separate Bill allowing the Legislature to examine it more comprehensively and in the appropriate context. Thank you.

Thank you very much.

Mr. Chair, Members of the Committee, my name is Salomon Stupp. I represent the LISI Initiative for Pet Protection. I would like to know if the board of pharmacy has a timeline for implementing BPC4069, which requires pharmacists to give drug documentation to animal representatives with information about side effects, potential risk warnings, precautions.

I ask this Committee to make it a requirement to display BPC 4069 at pharmacies so that the public is aware of their rights. I also want to request that especially human pharmacies, they don't have veterinary drug handbooks, either the book itself or the digital version.

And that is good for pharmacies to have access, not to improvise Internet searches when they need information to verify about dosages. And that will empower the pharmacists to print information for pet owners. Last week, Jessica Zifferman said that they realized that people love pets as part of their families.

Well, it just so happens that we have the right to protect those Members of our families with pharmaceutical information. Thank you very much.

Thank you very much.

Chair Board Members, thank you so much for your time. I'm Dr. Simon Barker. I'm a Naturopathic Doctor practicing in Pasadena. I have significant reservations about the board of Pharmacy regulating IV therapy. The board is not the appropriate regulatory body for overseeing clinical operations.

Licensing and oversight should fall under the appropriate medical board such as the Board of Registered Nursing, the Medical Board of California, the Board of Vocational Nursing, and Psychiatric technicians. The California Board of Naturopathic Medicine is fully prepared to address any concerns related to ND's use of IV therapies.

The board of Pharmacy has a pattern of overreach that has already attempted to limit ND's access to glutathione for inhalation and IV use, despite this use being explicitly allowed under existing law.

Given the Board's history of intimidation and punitive actions against compounding pharmacists, we are deeply concerned that expanding its oversight in this area would lead to unnecessary, costly and burdensome investigations, potentially restricting NDS from safely and legally practicing IV therapy. Thank you for your time. Thank you very much.

Hi. Thank you for the opportunity to comment today. My name is Dr. Shannon Sinsheimer. I'm a naturopathic Doctor practicing in Palm Desert, California. The Board of Pharmacy has systematically targeted compounding pharmacies and restricted access to key compounding substances, particularly glutathione and methylcobalamin.

Despite being legal under both federal and state law, the BOP has taken it upon itself to penalize any pharmacy that provides glutathione for immediate use. As a result, no pharmacy in California is willing to compound it to due to fear of enforcement actions. Just a few years ago, dozens of pharmacies safely compounded glutathione.

Now only 1 out of state 503B pharmacy supplies it to California patients. This constitutes underground regulation, an unlawful practice that circumvents proper legislative processes. Pharmacies have been forced into costly legal battles, spending millions to defend themselves, even as judges constantly rule in their favor.

Yet the BOP is not required to comply with these rulings and continues to impose excessive restrictions. This regulatory overreach is not about safety, but control. By leveraging taxpayer resources, the Board is actively driving small pharmacies out of business and cutting off access to critical medications for seriously ill patients and first responders.

We are here today to ask that you hold this unaccountable authority responsible for its repeated unlawful overreach by launching a formal oversight investigation, appointing an actual practicing sterile compounding pharmacist to the board, and follow up with another sunset review next year to ensure the Board of Pharmacy is finally held to account. Thank you for your time.

Thank you.

Thank you. Mr. Chairman and Committee Members, my name is Dr. Stephen Minahan. I'm a naturopathic Doctor practicing in Los Angeles. Los Angeles. And I am the immediate past President of the California Naturopathic Doctors Association. The CNDA, along with other stakeholders, has participated in Board of Pharmacy meetings regarding proposed combining regulations over this last year.

Unfortunately, we have observed a troubling pattern.

The Board's Executive officer and the chair of their compounding Committee who authored the proposed regulations have been uncooperative, misleading and dismissive of concerns by stakeholders like myself, my patients, who include firefighters from across our state who risked their lives to save my city and motivated me to appear on behalf of them today.

These two individuals have repeatedly shut down discussions and have made false statements at Board Meetings. They've made false claims about endotoxin contamination and compounded substances in question when there have been no documented cases of safety concerning glutathione or methyl B12 in California.

There, these two individuals have falsely stated that proposed regulations do not exceed federal USB standards when they clearly do. And they have falsely claimed that the proposed regulations are just following FDA guidance when they are clearly not. On the contrary, the FDA has explicitly stated that their guidance for compounding should not interrupt patient access.

Fortunately, the Board of Pharmacy is composed of Members with integrity that have exercised their duties faithfully listening to stakeholders and delaying a vote on the regulations while they have gathered in order to gather more information. And to those board Members, we thank you.

And to the BMP Committee, we thank you for taking these concerns seriously and hope that you can find ways to hold them accountable. Thank you. Thank you very much.

Good morning Chairs Ashby, Burman and Members of the Committee. Thanks. Thank you for the opportunity to comment today on the Board of Pharmacy Sunset Review.

My name is Sarah Palumbo and I'm representing the California Community Pharmacy Coalition, a coalition of community pharmacy providers, retailers, grocers and community health access stakeholders committed to ensuring equitable patient access to healthcare services.

The CCPC has several concerns related to the board sunset review report and items in the report we support, which are outlined in our letter to the committees. Since I have a limited amount of time to comment, I will highlight a top area of focus for the CCPC for consideration by Members of the Committee.

Generally, we are in favor of the Board's effort to increase the pharmacy to technician ratio in California.

But we urge the Board and the Legislature to consider providing for more flexibility by not providing a specific number in statute to the ratio, but instead allow the pharmacist in charge to make the determination as the Legislature has granted the pharmacist in charge this type of staffing authority in other statutes.

California's requirements for pharmacy technicians are some of the most stringent in the nation, including completing at least 240 hours of instruction from an accredited program, passing a national exam, a formal license application process including background check and 20 hours of continuing education every two years.

California should expand its pharmacist to pharmacy technician ratio as our restrictive ratio limits the ability of pharmacies to optimize workflow, resulting in longer wait times and overburdened pharmacists.

By allowing more flexibility and providing the pharmacist in charge the ability to make these types of staffing decisions as they can already do in other situations, pharmacists could focus more on clinical services like patient consultations while delegating routine tasks to technicians, improving efficiency and access to care without compromising safety. Thank you for your time and consideration.

Thank you very much.

Good morning. Chair and Committee Members. Vanessa Gonzalez with the California Hospital Association appreciate today's discussion and we would encourage the Board of Pharmacy to ensure that regulations reflect the distinct roles of of hospital inpatient pharmacies versus community pharmacies. This is item number 26 in the background paper.

Given their unique settings, hospital and community pharmacies require tailored regulations to best support patient care and safety. Hospitals operate under oversight from multiple entities beyond the Board of Pharmacy, including cms, CDPH and the Joint Commission.

However, recent Board regulations have taken a one size fits all approach that don't align or are duplicative with standards from these other entities. Examples include duplicative medication error reporting, compounding regulations and closure notification requirements.

To address this, we would encourage the Board to clearly specify whether new regulations apply to hospitals or community pharmacies, distinguish compliance data by practice setting to to help inform policy development, and establish a hospital specific Advisory Committee to provide input on proposed regulations. We look forward to continuing with the Board and these committees. Thank you.

Thank you very much.

Good morning Mr. Chair and Members. Aaron Norwood representing FlavorRx. I just wanted to start by expressing our appreciation to the Committee and to the staff for the inclusion of issue number 24 regarding the addition of flavoring to medications.

As you know, this is an issue that we've been working on for the last few years to bring the, you know, act of flavoring back to pharmacies. There are 3,000 that stopped flavoring as a result of the Board's actions and we would like to see that come back as a result of the effort.

Last year, the Governor did Ask the board to try to come up with a solution. And I would like to thank the board for their efforts and their renewed appreciation for the value of flavoring through the regulatory process. I think we are close to resolving this issue.

There are a few tweaks that we still need to see in the language. We are hopeful that we can do that through the regulatory process, but if not, we look forward to continuing the conversation with you through this process. Thank you.

Thank you. Good morning, Mr. Chairman. Members. Ed Howard, on behalf of the United Food and Commercial Workers Union, thank you for your time today. Two quick points. The first is to affirm something that you heard from the board President.

It really is unquestionably the case that the leadership of this board and its staff and the leadership of the two committees represented here today have placed this board at the forefront of patient and consumer protection nationally. And for that, we're extremely grateful to these committees and to the board and its staff.

The second point has to do with two of the issues raised in the sunset review. Our Members overwhelmingly work for some of the largest publicly traded corporations in the world.

A recent survey of those Members found that 85% of them do feel as though they do not have sufficient staff to be able to do the things that they are required to do right now. That would include, by the way.

So we're very concerned with proposals that might add to, either advertently or inadvertently, the tasks of our pharmacist Members. That would include, by the way, supervising more people on both of these issues related to standard of care and the pharm tech ratio. We are working collaboratively, as we always have with the board.

We're moving toward, I think, a consensus, which we've always been able to achieve with this board. And we thank you and we look forward to working with you on both of those two issues. Thank you.

Thank you. Chairs Ashby, Berman and Members of the Committee for the opportunity to speak today. As a licensed California pharmacist, I would like to address issue number three, fund balance under fiscal issues as referenced in the California Board of Pharmacy background paper prepared by Committee staff as a consideration for state budget efficiency and transparency.

I would like to ask that the Legislature provide oversight of the board's budget by reviewing and revising its enforcement policies. The Legislature could consider that board staff offer informal conferences to licensees as a first step before escalating cases to the Attorney General's Office.

As a licensee who brought who board staff brought accusations against, I was never offered a chance for an informal conference, despite my repeated requests My case was ultimately brought before an administrative law judge who ruled that the main accusations against me were not supported by federal or state law.

The judge therefore only granted the board $10,000 of its requested $75,000 in cost recovery. That same year, board staff asked judges for a total of $1.93 million in cost recovery. It was only granted $1.43 million, representing a loss of over half $1.0 million by the board.

Before my administrative law case was heard, Ward staff told me to stop compounding Methylcobalamin and glutathione. Even though I was following all state and federal law, I was one of several compounding pharmacists told to stop compounding these medications. Word staff cited fined and disciplined numerous pharmacies like mine for not following proposed regulations that were never passed.

We respectfully asked for leadership from the Legislature to help restore transparency and accountability of the board and their system of enforcement. Thank you.

Thank you very much.

Mr. Chairman, Members of the Committee, I'm Randall Hager. I represent the Psychiatric Physicians alliance of California. And we have objections and concerns about the therapeutic interchange language that was provided to the Committee from the Board.

I think the best way I can explain that is to actually quote just a couple of sentences from an email I received from one of our psychiatrists on our board of directors. There's no way a pharmacist can know that I need sertoline, which is an antidepressant, as opposed to mirtazapine, fluoxetine, phenylefaxine, bupropion, or amyltriptyline.

Those are all antidepressants with completely different mechanisms of action, side effects and interactions with other medications, all of which I've taken into consideration in my 30 to 60 minute interview with a patient and or hours of interviews over a series of appointments.

And so, just by way of information, this is just about antidepressants, all of which have black box warnings by the Fda. So there are serious issues at risk here.

Here we would put forward the notion that there is not simply enough patient contact and there is not enough of the education and training necessary to make safe and effective decisions.

Psychiatrists also prescribe antipsychotic medications, and they can also prescribe medications that are used like benzodiazepines, which really can have therapeutic effects with some patients, but they have an overdose potential. They have a potential for withdrawal if not done correctly, and other side effects.

And we just simply think that this is a measure that's headed in the wrong direction for patient care. It's not quality. It's not safe. Could say more, but I've got my two minutes and I'm going to stop it right there. You nailed it. Okay, thank you very much. Thank you.

Thank you Chairs Ashby and Berman and the Committee for taking my comments. I've been a licensed California pharmacist for over 42 years, 25 of which have been in the field of compounding. I would like to address issue number 23, the proposed compounding regulations.

Many stakeholders are very wary of the current rulemaking by the board because there is a lack of trust on how the board enforces its regulations. I would like to ask the Legislature provide oversight by reviewing and revising the board's enforcement policies.

Members of the compounding pharmacy community in California like myself are very concerned by the Board's pattern of overturning judges decisions when it comes to compounding cases.

In two recent cases, two separate judges that now two states that the federal law, state and federal law had not been violated yet the board rejected those judges views of the law or interpretation of the law.

The Legislature could consider revising the current policy to ensure the board defers to judge interpretations of the law Due to the board's enforcement actions. In 2020 there have been a significant reduction in 503A sterile compounding pharmacies in California. We believe there may be less than 20 at this point.

Yet the board staff has put in a budget request for $2.5 million in additional funding over the next two fiscal years to increase regulation against these pharmacies. Board staff have stated in public meetings that they believe that the compounders do not wish to be regulated. That is untrue. Many compounders have the same goal as a border pharmacy.

To protect and serve the patients. What compounding pharmacies want is evidence based standards that are thorough, understandable and consistently enforced. The consequence of misguided enforcement is that patients suffered as capable and law abiding consumers can no longer. Compounders can no longer provide important medications.

We are looking forward to the Legislature's leadership and oversight to help serve California patients. Thank you for your time.

Thank you.

Thank you Chair Berman and Members. I'm Jackie Jorkerson, founder and Executive Director of the Volunteer Fire Foundation, a FEMA funded nonprofit born from the ashes of the Sonoma county fires. Our most critical work is in firefighter cancer prevention.

VFF and its partners are in round three of a study that uses a glutathione centric protocol to reduce toxins like PFAS in firefighters by 80%. We've also seen reversals of liver and kidney disease and bladder cancer. Since the January fires, VFF and our partners have spent nearly every weekend in LA.

We've treated 1,400 firefighters with nebulized glutathione and continue to work with Pasadena Fire, Long Beach Fire and LAFD Station 69 in the Palisades. These firefighters have called these fires their 911. They were terrified before they knew there was an antidote. Many said they felt instant relief after inhaling a single dose of Doctor administered glutathione.

But that's not the protocol. They need 30 to 60 doses of self administered glutathione but they can't get it no matter what this board will tell you. It's devastating to tell a firefighter that it can help you. It's allowed by the FDA, available in 49 other states and a Doctor can prescribe it.

But not a single pharmacist in this country will make it for you for fear of retribution from their board. That's been the reality In California since 2023, nearly a year before these regulations were ever proposed. Desperate firefighters are now seeking treatment across state and country lines.

One recently asked me if he could mix the contents of a glutathione capsule into saline and nebulize it. I begged not to. Firefighters are problem solvers and risk takers and I have very real concerns about the risks that they are willing to take to get this treatment.

So I'm here to humbly ask for your leadership for increased oversight of this board, for fairness and consistency and enforcement, and for the appointment of a Member who has not just training but actual experience working as a community sterile compounding pharmacist. On behalf of thousands of firefighters statewide, from chiefs and union leaders to volunteers. Thank you.

Thank you very much.

Good morning Chair Berman and Committee Members. I am Dr. Meredith Bull. I'm a naturopathic Doctor in California or in Los Angeles. And I've been one of the providers actually treating our firefighters following the January fires.

And as prescriber, I'd just like to confirm the lack of access I've had getting this medication to my patients because the board does like to paint a different picture as well as to highlight the board's behavior in response to this concern.

Because at the last board of pharmacy meeting I commented on the lack of access I have to prescribe glutathione for at home daily use, which is what my firefighter patients need. This requires a 503a pharmacy and as Jackie just spoke, not a single 503a pharmacy is currently making this for the reasons she highlighted.

And instead of acknowledging this lack of access or taking responsibility for it, the board's response to my comment was to meet with my medical board and suggest that we the doctors are actually the access problem because technically we are able to take office stock and make it into a patient specific treatment.

But it's a complicated process that essentially makes us compounders and I really don't want to be and also just it makes us under the board of Pharmacies oversight when we do that. And it's just not a risk I want to take given their history of actions against compounders in General. It's also not the point.

The point is that we shouldn't have to do this in the first place. Our patients should have access to 503Amedications. And my hope is that the Committee will take this lack of access seriously and the board's lack of accountability seriously because they are not doing it themselves. Thank you.

Thank you.

Short Hi, my name is Stephanie Ensley. I'm a 20 year volunteer firefighter EMT and I'm a captain with Goldridge Fire. I want to second everything that you're hearing here. If I had written it all myself, I would love to have done that. But I back every single thing that's been said here.

I'm here because I have personal experience with this. I had a tox screen done back in 2023. I was in the red with almost every single thing, including forever toxins. I was luckily able to become part of a firefighter detox study. 16 weeks it was glutathione centric. It included at home glutathione nebulized treatments.

16 weeks later I was retested. I was no longer in the red. I was in the green for almost everything. A couple of things were in the yellow. Let's call that a little risky. But I was cleared. This stuff works. I'm willing to put myself on the line for you.

I'm asking that you put yourself on the line for us. I could barely breathe. My lung capacity had shrunk. After this treatment that I've had and I've continued to have follow up treatments but not at home nebulized treatments.

I have to do a three hour round trip drive to get to the nearest place where I can get this treatment so that I can stay healthy enough to have the vitality to go out and do what I can do for my community and serve. I run towards problems. I don't run away. You do the same.

My Lung capacity has come back. Last month, I'm happy to report I was able to go to Africa and climb Kilimanjaro. And I will continue to fight fires because I know what glutathione can do.

And I have faith that you will oversee our ability to have access to it so that myself, 30,000 other firefighters in the state and all those who are exposed to the toxins. And it's not just us, it's you as well. What do you think you're breathing when all that smoke comes into our communities?

Thank you.

Thank you.

Thank you very much. Thank you for your service.

Good morning and thank you to the Committee for your time and consideration. My name is Michael Wyman. I've been an emergency responder in Northern California for the last 40 years. For myself and my colleagues who have had repeat and acute and ongoing toxic exposure, glutathione represents the most promising solution we have found in my entire career.

For cancer risk reduction, which is at the top of my mind at this point in my career. It is by all accounts safe and effective. I participated in several of the clinics in the Los Angeles and Pasadena areas for the firefighters there who were acutely impacted.

And I heard firsthand accounts of the impacts that these treatments made on them in a positive direction. However, I heard over and over from the doctors that home use of this drug was not available because of the board's actions.

Now, I don't understand much about pharmacy law, but I do understand the actions that the board's regulatory division has on the street availability of the drug and the the simple fact, which has already been stated, that no compounding pharmacy will fill a prescription for home use of nebulized glutathione.

The board has been dismissive of our concerns in the face of overwhelming negative public comment and has only recently responded to a year long outpouring of this. Of this public comment. They do not seem to be serving the people of California and I urge a change in this direction for myself and all of my fellow responders.

Thank you very much.

Thank you very much.

Good.

Good morning, Honorable chair, Members of the Committee, I'm Andre Peters. I'm a pharmacist with the California Society for Health System Pharmacists. I'm here today to advocate for a standard of care enforcement model for pharmacists in California. One that better reflects the evolving role of pharmacists in healthcare. Pharmacy is no longer just about dispensing medications.

The biggest growth in our profession in recent years is happening in ambulatory care. Settings where pharmacists are embedded in medical practices, working side by side with physicians to manage chronic diseases, we improve medication safety and enhance patient outcomes this way.

These collaborative models increase patient access to care and are backed by a growing body of evidence demonstrating improved health outcomes, from better diabetes control to reduced hospital readmissions. Yet California's current enforcement model is outdated and is focused on the technical aspects of filling prescriptions rather than the quality of patient care.

A standard of care enforcement model with align the pharmacy regulation with that of physicians and nurses, ensuring that enforcement is based on clinical judgment and patient outcomes rather than rigid, outdated rules. This shift will provide value to all stakeholders. For the Board of Pharmacy, it ensures enforcement focus on real patient risks, not minor technical violations.

For patients, it improves access to patient care in medical practices leading to better health. For pharmacists, it allows us to utilize all our training and education to practice at the top of our license. For physicians, it strengthens collaboration, ensures seamless medication management as part of a true healthcare team. Thank you very much. Thank you.

Hi everyone. Oops. Okay. Hi Committee Members. My name is Crystal Frost and I'm a California resident, a voter, and I'm the organizer of the petition you received a copy of yesterday on behalf of Stop the bop.

Stop the BOP is a nonpartisan patient led advocacy effort that simply seeks to protect access to our compounding pharmacies and compounded treatments that have been improving our lives and our health conditions.

This is a movement that I launched without funding and while fighting my own severe illness because my Doctor told me I was likely going to be losing access to two of my treatments, both of which I'd already been having a hard time getting in California, and both of which are legal.

The petition has been signed by over 11,000 stakeholders, most of whom are California patients and California firefighters. I urge you to read through the first 15 pages. They're informational and it will help because two minutes won't be enough for me to cover everything.

Stop the BOP exists to give patients a voice and I came all the way from Los Angeles despite my own illness, to represent patient populations who've been directly harmed by this Board of Pharmacy and their attempts to turn their underground rules into law.

Through extensive Updates to Title 16, the Underground Rules that deprived patients of widely prescribed federally legal category 1 compounds that are available in every other state. I can speak on behalf of many patients who have received messages and comments from who have lost access to their methylcobalamin, vitamin B12 shots and nebulized glutathione, cyanocobalamin has cyanide in it.

It's the only FDA approved form of vitamin B12. And this is, it's really important for many illnesses that people don't consume cyanide because it can actually deplete glutathione. So people with impaired detox pathways can get harmed by it. So Methylcobalamin is the next choice.

People have not been able to get prescriptions filled of Methylcobalamin since 2023, even though the formal rulemaking process had barely even begun at that point. These are not experimental substances. The FDA reviewed hundreds of non FDA approved bulk drug substances used in compounding and they classified them into three lists. Categories 12 and 3.

Categories 2 and 3 were ones that the FDA had problems with, but category one had passed FDA safety review. Those are the treatments we're fighting for, the legal ones. And those are the treatments that this board is trying to restrict and has been restricting.

Thank you very much. And I can assure you we've, we've printed out the. The petition. I thought my consultant was stealing packs of paper, but it was the petition. Okay. So we did receive it.

Thank you. I really appreciate your time today and I feel free to reach out to me if you have questions about the petitions contents.

Thank you very much. Okay. Any additional comments from Members of the public? Seeing none. Thank you very much for the broad spectrum of issues that were raised. I'm sure we'll have plenty more conversations moving forward as the process moves forward.

I want to thank the representatives and Members of the board for being here and we're going to transition to the next, the next part of today's hearing. Thank you very much. So we will now formally adjourn the joint sunset review hearing.

And in a moment, in a very awkward moment of pause, we will begin our joint informational hearing for the Department of Cannabis Control.

So I think, I don't, I don't have it with me, but I think one of the measures that was discussed and so that you have education in the works, including like reference to the appropriate resource in that privacy. I can't remember. Where is the box of. Yeah, I think that. So we did contact the Veterinary Medical Board.

They gave us a recommendation. Okay. Yeah, so. So we're referencing that. zero, I did not bring a card, but my contact information is actually on the website. If you want I can just send you an email and then you'll have my email address. Zero, sorry. Thank you very much.

It. And then I'll.

Okay, the awkward silence has been long enough. We will now formally adjourn. oh, we did that. Will now begin our joint informational hearing on the Department of Cannabis Control, where we will be hearing a presentation on the condition and health of the cannabis industry.

As a reminder, just as we did for the prior hearing, we will begin by hearing remarks from the representatives of the Department. Then we will open the discussion up for questions or comments from Committee Members. And then finally, we will invite other interested stakeholders here in the room to provide public comment.

Speakers will be limited to a maximum of two minutes per organization, and additional speakers making substantially similar comments may be asked to simply provide their name and state their alignment with prior testimony. With us today are Clint Kellam and Christina Dempsey with the Department of Cannabis Control, along with economist Duncan McEwen, Ph.D.

before we begin with the presentation, I would like to recognize some colleagues who will be joining us for the discussion today. We've same as before, I got Chair Ashby still here and then also at some point during the the hearing we might have Assembly Member Mike Gibson, Chair of Revin Tax Revenue and Taxation Committee.

And we have with us Assembly Member Sharon Quirk-Silva, Chairman Chair of Assembly Budget Subcommitee 5. And with that. oh, excuse me, Assemblymember. Well, first Chair Ashby, would you like to make any remarks?

We're really doing well with the formalities today. That's okay, as long as we hear from you. That's the important part and look forward to moving through this. Thanks to everyone. Great participation here in the last hearing and look forward to the participation here on this hearing.

This is again a very important, important topic and one that we will take today's information and feedback from and then push forward with our legislation this year. So thanks Chairman.

Thank you Chair Ashby and Chair Quirk-Silva.

Good morning. First, I want to thank the Department of Cannabis Control for the report on the condition and health of the cannabis industry in our state. But frankly, the findings in this report are very concerning. Licensed cannabis production and cannabis units that are sold are up.

Yet the number of active licenses and total retail cannabis sales value are both down. This raises serious questions about the financial sustainability of of the licensed cannabis industry. To me, these numbers suggest that licensed businesses are being forced to produce more while cutting prices just to compete with the illicit market.

We've even heard of some licensed retail that are actually operating in the unlicensed. At the same time, is California doing enough to support this industry? So that's going to be a major question. I appreciate some of the key factors highlighted in the report to help support the industry enforcement being critical for limiting the illicit cannabis market.

And again, I'm going to be very repetitive about the enforcement, as I've heard much about this. Or the opposite being the lack of enforcement. Taxes and fees are substantial share of licensed business costs. Hemp market integration is important to monitor as well.

And I was actually hoping this report would provide guidance on continuing financial viability of the legal cannabis industry. And at this point, we're not seeing that. So what I'm asking is what is missing is clear guidance on how we ensure the financial viability of this industry moving forward. And again, what are we going to do about enforcement? The numbers paint a picture, but they do not provide a roadmap for action. I look forward to our discussion today. Thank you.

Great. And we will come back for questions, but for now, we're just going to kick it off to our guests from the Department of Cannabis Control to go ahead and get us started with a panel discussion. And then our Chairman will be back in just a few minutes. Let's make sure your mic is on.

Okay, thank you. First time in this Committee room, so. That's right.

It's not my first time and I always forget to hit that button.

Appreciate it.

Doing fine.

Good morning, chairs and Committee Members. My name is Clint Kellum. I'm the Chief Deputy Director of the Department of Cannabis Control. Appreciate the opportunity to be here today in this informational hearing and present the findings of the overall cannabis market as requested by the Committee.

We will provide a brief presentation that provides background on the cannabis evolution of state laws, its establishment of a regulatory framework. That will be followed by a report from our economist on the overall cannabis market and will conclude with being available for questions and answers. So appreciate the opportunity.

With that, I will pass it to our first presenter, our Deputy Director of Government Affairs, Christina Dempsey. Thank. Thank you.

Thank you. And so we did prepare a presentation, so I'll let them cue it up really quick.

Okay, let's go ahead and start. And we'll let them get that started. But we want to be respectful of the Members time for sure. So if you can kick us off, that would be great.

So. zero, perfect. All right. So as Clint said, I'm Christina Dempsey. I'm the department's Deputy Director of Government Affairs. In this presentation, I'm going to give you a little bit of background on the state's cannabis laws and the development of the regulatory and oversight framework.

I'm going to try and keep this part of our presentation as brief as possible so that we can spend the majority of the hearing talking about the economics of the marketplace and you can go to the next slide. All right. In 1996, California became the first U.S. state to legalize cannabis for medicinal use.

This occurred through a ballot initiative, Prop 215, which was driven by patients and their advocates who were using cannabis to alleviate the devastating symptoms of HIV and AIDS. In 20153 bills were passed by the Legislature. Collectively known as the Medical and Medical Cannabis Regulation and Safety Act. These laws created the initial regulatory framework for cannabis.

But of course, the next year, in 2016, voters passed Proposition 64, which legalized adult use of cannabis. Less than a year later, the Legislature passed a budget trailer Bill which integrated the medical cannabis laws with Prop 64. This resulted in the medicinal cannabis. The Medicinal and Adult Use Cannabis Regulation and Safety act, also known as maracrsa.

MACRSA establishes that protection of the public is the highest priority. It created a comprehensive regulatory structure which requires businesses to be licensed, tracking of cannabis throughout the supply chain, rigorous production standards, testing of finished products, and it also limits sales to Those who are 21 years and older or those who have a medical recommendation from a physician.

It requires standardized packaging and labeling to inform consumers about the products they purchase. This graphic is a basic representation of how cannabis moves through the supply chain. Starting from the left at cultivation, plants are grown, harvested and processed.

If the cannabis is going to be sold as flour or a non manufactured good like pre rolls, it follows this upper trajectory. A distributor picks up the cannabis from the cultivator and brings it to their facility where a testing sample is retrieved.

After the flower passes testing, the distributor transports it to a retailer where it can be sold. If the cannabis is going to be used to make products, it follows the lower path. A distributor transport the transports the cannabis from a cultivator to a manufacturer where it is extracted and infused into a product.

The distributor then transports the finished good to their facility where a testing sample is retrieved. Once the product passes testing, it is transported to a retailer where it can can be sold. Under Prop 215, we had a very large existing market in place that until 2018 was mostly unregulated.

This is part of what makes California's regulatory efforts so unique. Other states that legalized cannabis have for the most part been establishing new markets. But in California, we were tasked with shifting an existing market into a complex regulatory framework.

On the state side, not only did we need to stand up infrastructure, hire and train staff, develop regulations, develop basic processes and procedures, but we also had to go out and educate those existing businesses about the New requirements that they would be held to from the business perspective.

They had to get licensed, develop their processes and procedures and and they had to start keeping records, something that was previously. They were previously disincentivized to do because it could lead to prosecution. Some businesses even had to move locations because they were in jurisdictions that opted to prohibit Cannabis operations after Prop 64's passage.

Overall, making a shift at this scale has required a significant sustained effort. State oversight of the cannabis industry was initially split between three programs. The early rationale behind this was that it placed the regulatory programs where there was comparable existing expertise.

For example, the manufacturing program was placed within the Department of Public Health alongside the Food and Drug Branch. The cultivation program was placed within the Department of Food and Ag along other farm based products programs. The remaining licensing programs were placed within the Department of Consumer affairs, which licenses various professions and business activities.

But these three programs were housed within three different departments within different agencies. And in a short span of time it became clear that dividing these functions was creating gaps and making the effort more challenging.

In 2020, Governor Newsom announced a proposal to merge the three programs, the enforcement Team and Cannabis Testing Lab into a new Standalone Department, Cannabis Control. Because of COVID this proposal was delayed a year. But on July 122021 the Department was formed. One of the first steps in transitioning the existing market into a regulatory structure was licensing.

The first wave of licensure was through temporary licenses. These had no cost and very few requirements. They were only valid for a few months at a time. The idea was to create a quick on ramp into the for existing businesses, a way for them to opt in to being part of the new regulatory framework.

Temporary licenses Sunset at the end of 2018 but local governments were still in the middle of setting up their programs. So the Legislature created provisional licenses. These are 12 month licenses that allow businesses to continue operating while they complete local permitting processes and CEQA requirements. Once businesses complete these requirements, they are given a full annual license.

We have been diligently focused on moving businesses into annual licensure as they complete the requirements to do so. And you can see here the progress that we've made. When the Department was formed, there was a 6535 percentage split of provisionals to annuals. 8,360 businesses were in provisional licensure.

Today only 17% of businesses are still provisional, which is about 1500. Just as we had to transition the existing market into licensure, we've also had to transition them into compliance.

Initially, the state focused heavily on education and outreach helping businesses understand their obligations and make the shift into fulfilling those in the last several years we've shifted into strict enforcement of market wide standards and compliance.

Our goal is to uphold the integrity of California's legal cannabis industry and ensure that all cannabis products available to Californians meet the highest standards of safety. We conduct inspections, both routine scheduled audits and unannounced visits. We utilize the Seed to Sale tracking system to identify potential non compliance and prioritize our resources accordingly.

We established a first in the Nation product sampling and testing program called the CAASPP Program. Through this program we select products held at distribution or retail for random sampling and it creates a mechanism for proactive monitoring of the market.

We conduct product safety investigations focusing heavily on potential adulteration or misbranding and we still partner with other state agencies who have long standing expertise in areas that intersect with our work. When we do find issues, we take progressive disciplinary action and we focus on issues of health and safety.

You can see in this slide how our efforts have ramped up in the last few years. We're utilizing a full spectrum of enforcement tools including notices to comply, citations, embargoes, voluntary and mandatory recalls, and license discipline. A continued challenge is that there are multiple cannabinoid markets in California.

There is the licensed cannabis market which is regulated by DCC and includes rigorous product standards, worker safety requirements, prevention of youth access and requirements to inform the consumer about the products that they purchase. Then there is the illicit cannabis market.

This existed before legalization and has continued to persist although our enforcement efforts seem to be containing its growth. More recently, a market has emerged for hemp derived cannabinoids. These products can be highly intoxicating and are now prohibited in this state but still found widely.

These products are made through chemical synthesis and can contain dangerous byproducts of that reaction. There is a marked difference in the safety profile of the products in these three markets and within the unlicensed cannabinoid markets, products may be sold to kids or contain harmful ingredients.

Because of these public health and safety risks, the state has made a concerted effort to shift consumers away from unlicensed sources. The Department has been leading a public awareness campaign called Real California Cannabis which educates consumers about buying from legal licensed sources and provides education about the differences between the licensed and unlicensed markets.

It speaks directly to consumers through social media and advertising. We are also making significant efforts to combat the unlicensed market through our Enforcement division. We have 87 staff who are specifically dedicated to investigating and shutting down illegal cannabis activity. Since the Department was formed in July 2021.

The enforcement division has seized over $2.2 billion worth of product from the illegal marketplace and has significantly expanded law enforcement actions. DCC also co chairs the state's cannabis enforcement task force called us a TEF, which was created in 2022 by, by Governor Newsom.

You Setf leverages the expertise and resources of more than two dozen local, state and federal agencies to combat and disrupt the illegal cannabis market. These efforts seek to make it harder and more costly to operate as an illegal business in California. That is the quick overview of the state's cannabis laws and regulatory framework. So at this point, I'll turn it over to Duncan for a look at the market economics.

All right, thank you, Christina. Good morning chairs and Committee Members. Give folks a second to pull up my slides as well. I'm Duncan MacEwan with ERA Economics, obviously working with the Department of Cannabis Control and before that we were working with the Department of Food and Agriculture.

So actually been working on these regulatory programs and looking at the economics of the licensed cannabis market since the passage of Malcoursa. So what I'm going to cover today is kind of a high level overview of where the market's going. I've got some slides which we'll hopefully pull up in a second to help boil this down.

So we got to have some graphics if we're going to talk economics, otherwise I'll put everybody to sleep. But you know, we'll, we'll cover what's going on in the market, talk about fundamental drivers in supply and demand. We're economists, after all. That's what, that's what's driving market outcomes.

Talk a bit about the market outlook, some headwinds and opportunities as we see them, really focusing on some of the cost drivers and some of the headwinds and opportunities looking forward in 2025 and beyond. So we'll start with what's going on in the market.

I like to start with grabbing some headlines from recent news articles and clicking through these. And the team at the office that is working on these analyses with us, we see these and it's always interesting to see what's the underlying data source, what are some of the drivers of the information.

There's a lot of conflicting information out there. There's some good reporting and there's some good headline articles on what's going on. But there's information about what's happening at an individual business level which can be informative. And then there's information about what's going on as part of the overall market.

And some of those metrics for what the size of the market is and how it's trending are conflicting and confusing. Sometimes we can be talking about a retail sales value or are we talking at the value, talking about the value of the product at the farm?

Are we talking about a weight of production coming off the farm or final units that are sold at retail? And if you're looking at different points in the supply chain, you get kind of a different feeling for how the market is trending and what the value of the industry is.

So we like to kind of take some of these with a grain of salt. And the question that we ask is, you know, what's the data show? Right. So to zoom back out to kind of a 30,000 foot overview, like what does the data tell us about where the market is heading and what are those drivers?

So I'll lead with the punchline and then I'll kind of explain how we get to these conclusions. But the graphic on the left kind of shows the main headline changes. So total number of licenses is down. There's been continued consolidation in the market since day one.

Total production going through the licensed market is increasing and has increased by double digit percentage points year over year. So what's coming off of a farm, a licensed farm and making its way through final licensed retail has been increasing. So in General you would say from that perspective, the market's growing.

However, unit prices for retail and unit prices at wholesale are down, and those are down by more than the increase in the unit that's produced or sold. So the overall gross value of the industry is down. So back to the headlines that we just kind of clicked through.

It's right to say that the gross sales value of the industry is down, Quantity produced through the industry is up, but retail prices and wholesale prices have fallen. So we'll step through these pieces one by one.

And you know, as, as I go through this again, I'm going to boil things down to supply side and demand side drivers. So what's going on on the production side? Cost of production, taxes, fees, regulatory costs. And then what's going on on the demand side? You know, how much is license consumption changing?

How is that looking over time? Because that gives us an indicator for what's sold here. And then as you know, underlying this, there's differences across California and other states and an importantly linked illicit market that competes with the licensed market.

I think the other point I'll make before I dive into the supply analysis is we are focused on the overall market And I'll try to drill down into some of the individual business considerations when we're looking at costs, but really we're looking at, at the overall market.

So there's kind of different stories when you're looking at an individual business, a licensed business at a farm or manufacturer or retailer. Okay. So on the supply side, market size and components, first thing, make sure we're talking about consistent metrics. When we're talking about weight.

Everything that I'm talking about in this presentation is normalized on a dry flower weight equivalent. So, so cannabis at the end of the day is kind of an agricultural commodity, right? Comes off of a field, is processed into different end consumer goods and sold.

So when we start at the field, we're talking about a dry flour weight equivalent. And then in the supply chain we'll focus on wholesale. So value at the farm and then also talk about value of retail.

And we kind of, we're not going to drill into the different steps in the supply chain, but we could look at value at those different points in the supply chain which are all very important. But when we're looking at the overall market health, it's really the farm to final retail that we're concerned with. Other considerations.

I'll talk a little bit about exports that's licensed or, excuse me, illicit production that's not being, you know, that's produced in California but not being consumed in California. And then some of the enforcement activities to, to limit illicit production. So the illicit market is a large share of production in California.

There's a historical industry, a legacy industry that's been here in this state for many decades and it does continue to operate in some form and importantly, it competes with the licensed market.

So when we're thinking about how the market is doing and trending, the first thing that we're looking at is how the illicit market is trending over time. Data on that is limited.

So we're pulling information from multiple sources, local, state and federal law enforcement eradications, including USATEF that Christina just explained, as well as limited geospatial data that's been done on mapping illicit grow sites in some of the different areas of the state. And that's what's up on the screen here.

An example from the what's about 10 years old now from some grow sites in the northern part of the state. So when we're looking at eradications, how have those been trending over time? In General, those have been increasing.

So you could see increasing enforcement of illicit activity and eradication of plants Coming off and out of the illicit market. Now, part of that is driven by better data and tracking that we have over time on this information as the license market is rolled out.

And these trends are also supported by increasing expenditures on enforcement and eradication efforts. The other thing is that this data, you know, these eradication activities are done typically with joint operations, local, state and federal authorities that are working together. So we can't really, we can't add these pieces together.

Most the data here is representative of, of multiple operations that have joint agencies working together. So the illicit market's important, competes with the licensed market. How does this look?

If we look at this data over time and look at license production over time, this is just the licensed market going back to 2020, split between the adult use or recreational and medicinal sales.

Anything that's in the licensed market, what we're showing here is something that is produced by a licensed cultivator and ultimately sold by a licensed retailer. So anything that were that leaves the supply chain at any point in time or is not part of that supply chain is what we're calling illicit production.

So you can see the trends going back to 2020. It's about a, you know, it was about a 17% year over year increase in production between 2020 and 20211314 and then last year was about 11.8, about a 12% increase year over year in license production.

But the illicit or the unlicensed market is still an important factor in California. And this table breaks down what licensed production looks like, illicit or unlicensed production, and then the total within the state. So license Production is about 1.4 million pounds. Unlicensed, if we take a midpoint estimate, is about 11.

You guys would like to see the table at the same time, License Production is about£1.4 million. Illicit or unlicensed is about 11.4. What you'll notice there is there's a very wide confidence interval. There's a very wide sensitivity range shown for the illicit market. And that's because of the data limitations that we have for that market.

If I were to say kind of qualitatively, where it's likely to lie in that confidence interval, Given the data limitations and the way that we have to address those, it's probably on the lower side, but even in the lower end of that range, it's still a substantial share of total production that's occurring in California.

All right, so shifting gears over to demand. So on the production side, about 1.4 million pounds as of 2024, produced in the licensed market that makes its way all the way through final retail. What's going on on the demand side?

So when we're looking at total cannabis demand, we're looking not just in California, we're looking across states, pulling national data so that we can estimate how things are changing over time and what consumption in California is likely to be and how that compares to other states to get a sense for how much it's likely to grow.

We obviously don't know exactly how much everybody consumes because a good share of consumption is coming from the illicit market. So we're using data on surveys on reported use to tease out total consumption and then figure out how much of that is coming from the illicit market versus the unlicensed market.

So this graph shows changes in the share or the prevalence of use in California, Washington, Oregon and Colorado, other states with licensed markets that started a few years before California. And there's really three things to note. One, California is a little bit above the US Average, but it's well below that of neighboring states with licensed markets.

The second thing is that if you look over time, there's an increasing trend, but there's no change in that trend when the Malcoursa legislation was when the license market was implemented. So there's nothing in the data that's showing that consumption ticked up as a result of the license market.

It's kind of been following a smoother trend over time. So it shows in General that there's still some room to grow within California for the licensed market. So when we put these pieces together with the production data, with the supply data that we just went through, how does that look for the California market?

This graph shows in blue, the share of production that's coming from the share of consumption that's coming from the licensed market, and the remainder of that is coming from the illicit market. And so, you know, as of 2020, that was about 33%.

If you go back farther than that, it was in the 20%, you know, kind of the early days of the licensed market. And today it's around. As of 2024, it's around 38%, or we say about 40%. And again, there's kind of a statistical sensitivity range on all of these parameters.

So in General, the share of consumption that's coming from the licensed market has been increasing. Licensed market is increasing. But what's going on with the total value of the market and what's going on with prices in the industry? That's what's the outcome of these supply and demand factors?

So if we look at the market wholesale, we'll start at the wholesale price level and then we'll also look at retail prices. Prices as the licensed market was introduced, generally increased. So this graph here is showing normalized prices adjusting for inflation going back to 2018.

And so you could see after introduction of the license market, prices were flat, jumped up a little bit for different types of production. And then in 20212022 prices fell pretty substantially. This is consistent with trends that we've seen that you can see in other states with licensed markets.

There's kind of an initial rush into the market, enthusiasm, money and investment that comes with that. Prices bump a little bit, maybe there's a bit of a supply glut eventually and prices start to fall. And prices fell pretty substantially by double digit percentage points year over year in 2021 and 2022.

And that was difficult at all points in the supply chain, I think is a Fair statement. Since 2022, prices have stabilized and fell by single digit percent, 3 or 4% year over year.

And then actually if we drill down a little bit deeper into the data and just look at quarterly changes, as of Q4, 2024, wholesale prices had come up a few percentage points, I think like 4.8%.

So prices have stabilized for the last few years at the wholesale level and then come up a little bit right at the end of last year. So an important question is how do licensed markets prices look relative to the illicit market? Those two markets compete. They compete in price and for consumers.

And a related question is how important is that illicit market? How much is it affecting price in the licensed market? So what this graph shows is an analysis that we did to look across state lines and figure out the effect of the illicit market on prices in California and really other licensed markets as well.

If there was no effect of the licensed market, we wouldn't expect to see any correlation between prices across states. Right. Colorado has a different market than Oregon. They've got a different regulatory framework, they've got different consumers, different production costs. We wouldn't expect to see those prices correlated.

What we do see is that those prices are correlated across state lines. And we could look across all states with licensed markets and we see this and that link is the illicit market. So you can see in the data that the illicit market is affecting prices in the license market.

All right, so that's kind of wholesale level looking across state lines. Now let's step up the supply chain a little bit at the retail level. Retail price trends have largely followed wholesale price trends, but not fallen as dramatically. So there's been a softer adjustment.

The graph that's up here is not normalized, but it is inflation adjusted and it shows prices for retail going back to quarter one of 2020. And you can see that prices have fallen similar to the wholesale prices through 2021 and 2022, and then leveled out in the last 18 months or two years.

So unit prices at retail are lower. That's what's driving the decrease in the gross value of the industry. Because what's happening at the same time is that retail sales are actually up and there's a change in the mix of products that are being sold at retail.

So this graph shows the data going back to quarter 12020 for retail sales of flour and a few other product categories. And you can see the shift over time away from flour into other things that we'd call like value added products. Right.

Things that are going to require some processing and manufacturing and other innovation to meet changing consumer demand. So total product mix has been changing, and then the total retail sales quantity has also been increasing. And this is kind of the punchline at the retail level. This is how this paradox, that gross value of the industry is down. It's down because unit prices are down, but the total quantity sold is up. It's just not up enough to offset the retail sales.

Sales. So if we put these together, these components together on the supply and demand side, look at where prices have been going and boil it down into eight headwinds and market opportunities as we see them. So I think on the opportunity side, we have seen good continued growth in the license market.

And year over year production is up double digit percentage points and has been up double digit percentage points pretty much every year going back to the start of the license market. It was up about 12% last year.

And then we've continued to see increasing demand and a shift in the mix of products that are produced and ultimately sold at retail. Prices are stabilizing. Things are down, there's but not down as much as they were in the 21-22 time period, which is good.

That's not to say again, you know, we're talking at kind of industry level trends underlying that are going to be some real business struggles as those prices are lower, the market is slowly maturing.

And again, if we look at Colorado and we look at Oregon and Washington and some of these other states that have a few years, there are a few years ahead of California, you see some of these trends as well. But market exits and consolidation has continued. That's something you would expect, you know, fewer licenses as folks consolidate.

Some exit the industry due to lower price pressures and you expect some consolidation to more efficient businesses that end up continuing to operate in the market. And then last is that the market is continuing to expand again, the shift at the retail level into value added products innovation.

On the product side, we got a question mark on possible hemp market integration and you know, introduction of animal products and some of these other regulatory changes. You know, those are going to bring more consumers to the licensed market and do, do help grow that industry.

However, on the headwind side of the market, you know, there's, there's kind of four things if we boil it down. First is, is taxes and fees and it's, you know, it is expensive to operate in the licensed market relative to the illicit market.

And you can see that in the data going back and the effect of the suspension of the cultivation tax. And then at the local level, additional taxes and fees mean that like the effective tax rate for a licensed business in some parts of the state is well into the double digits, 20 or 30%, it's substantially higher.

And again that's an issue when we think about the illicit market and competition with that market, which leads to the second headwind, which is the illicit market. It's simply cheaper to produce cannabis. If you're not complying with laws and regulations through the licensed market, that provides a cost advantage.

And we've seen that competition here and in other states that you can look at with licensed markets. Again, back to some of the local prohibitions, prohibitions at the local level for cities and counties that affect the ability of businesses to operate there.

To the extent that there's limited licensed businesses, that pushes folks to the illicit, that pushes consumers to the illicit market as well. And then I think I've already covered diversion and inversion. So on the policy considerations and regulatory changes, we've actually got that in yellow because these things kind of cut both ways.

So changes to regulations can be set up in ways to help benefit the licensed market, help it operate more efficiently and meet consumer needs. But those also impose costs. And as costs go up for the licensed market, that makes it less competitive with the illicit market.

And then lastly is the business environment we've focused here on, you know, the overall market trends, supply and demand, price, what's being produced and ultimately sold through the licensed market. What we're not drilling down to is looking at an individual business. We've seen consolidation, lower prices, push out some of the less efficient businesses.

And those adjustment costs are real. And you can see it in how the license market has evolved in different communities across the state since it was introduced. And then I think related to that is the competition with the illicit market.

The cost of enforcement and managing the illicit market, to the extent that's coming and being paid through by the licensed market is increasing their costs. And that enforcement activity is helpful for making it costly to produce in the illicit market.

But to the extent that those costs are coming from the licensed market, it makes that difficult and kind of mutes the effect of, of changing that competitive balance. So the last piece is just to summarize and go back. Is the licensed market working? So the data is growing. The data shows that the market is growing.

There is a change in the mix of products that are being sold towards the value added products. There is room for growth and consumption within the state, as we've seen in some of that national data that I showed. Production is increasing, wholesale prices have stabilized, but are still falling, and the same thing at the retail level.

So in General, there's growth in the amount going through the license market. However, the need for improved enforcement to combat the illicit market is a big factor in risk. I've mentioned some of the state and local prohibitions that can help push folks to the.

Push consumers to the illicit market and keeping licensed business costs lower and increasing Costs for the illicit market is really kind of the key to longer term changes. And so that is a quick summary of in a few slides what distills 60 or 70 pages of report down into the key points.

But kind of the punchline is the market is growing with some, you know, with some headwinds that, that, that are comparable to what we've seen in other states with markets, licensed markets. Thank you.

Thank you very much. So we're going to bring it back. Did you have any comments you want to make your questions. Perfect. Bring it back to colleagues for questions or comments. I just want to first give the Chair of Rev and Tax an opportunity to make some comments if you have any, and then we'll.

Thank you very much. And thank you very much for your leadership. I'm glad that we able to come together. Here's some information in this space, but it's happy to be here. Chair Rev and Tax and a lot of this will be coming to my Committee and so look forward to the precursor to that particular meeting. So thank you very much. Thank you, Mr. Chair.

Thank you, Chair. Senator Niello

Thank you, Mr. Chair. I appreciate the presentations. This issue has frustrated me ever since I returned to the Senate and we've had a great presentation with regard to the regulatory issues and the market, all dealing with the supply side, which is, in a word, dysfunctional, almost destined to be so by the Proposition in the first place.

But we're not talking about the demand side, that is to say, consumers. I visited a health clinic several months ago and the nurse there was talking about their experience with regard to patients showing the effects of chronic Marijuana use. I haven't heard much about this.

And my staff pulled up a newspaper article from the New York Times published just last October. I'm going to read a little bit from this. As Marijuana legalization has accelerated across the country, doctors are contending with the effects of an explosion in the use of the drug and its intensity.

A $33 billion industry has taken root, turning out an ever expanding range of cannabis products so intoxicating they bear little resemblance to the Marijuana available a generation ago. Tens of millions of Americans use the drug for medical or recreational purposes and and admittedly, most of them without problems.

But with more people consuming more potent cannabis more often, a growing number, mostly chronic users, are enduring serious health consequences. The accumulating harm is broader and more severe than previously reported.

And the gaps in state regulations, limited public health messaging, limited public health messaging and federal restraints on research have left many consumers, government officials and even medical practitioners in the dark about such outcomes. There are. There have been discovered such issues as cannabinoid hypermesis syndrome. Has anybody heard of that?

I doubt is a very serious condition that is brought on and often misdiagnosed, but brought on by chronic Marijuana use psychosis. Here's a quote by a Dr. Deepak Cyril D'Souza, a Professor at Yale Medical School. Not everyone who smokes cigarettes develops lung cancer and not everyone who has lung cancer smoked cigarettes.

But we now know after denying it for many decades, that the association between the two is very important. The same is true for cannabis and psychosis. Now, maybe this is an issue for the Health Committee, but the fact of the matter is we have legalized a substance by a vote of the people.

Of course, this institution has continually tried to correct the dysfunctions in the marketplace so that it can function. We're failing at that. And we're not talking at all about the health consequences of the legalization and therefore significant increased use of the substance.

As I said, perhaps something for the Health Committee, but I can't let this hearing just which is dispassionately talking about a marketplace and only the supply side of the marketplace without the very serious consequences on the demand side. Thank you.

Thank you, Senator. I'm going to take those as comments, not questions.

There is no question in there. Thank you, sir.

I'm going to bring it over to Senator Smallwood Cuevas.

Thank you, Mr. Chair, and thank you for this thorough overview of the status of our, of our industry. I just had a couple questions because honestly, I could not read the PowerPoint and I don't think we didn't have all of the slides. We're going to share those. Okay, great. You are absolutely right.

Because, you know, I was, I was curious about one of the slides talked about the influence of the illicit market on the regulated market. What I couldn't make out was, was the impact driving down the costs and increasing additional production costs. I was, I wasn't sure what the actual impact was. If you could just highlight that.

And then my other question has to do with the enforcement. And you mentioned the other states, Colorado and others. I'm curious, is there joint enforcement powers in this? And are some of the illicit market challenges similar in nature where there could be opportunities for bringing resources together to think about a broader enforcement strategy and resources? Those are just two questions from your presentation. And then I have a couple of others.

Thank you, Senator, for the questions and sorry you couldn't see the slides. It's one thing to listen to me drone on and another thing without being able to see the slides. So the short answer is for the market integration slides. So what that was showing was prices in California and other states.

And it's just illustrating that in the absence of an illicit market. Right. That's operating across state lines, as we well know, you wouldn't expect those prices to move the same way. When we do a statistical analysis of those, they are actually moving the same way.

And the driver of that, the common link across these states is the illicit market. And then to the second part of your question is how is that affecting the licensed market? It does put downward pressure on price because the cost to produce in the illicit market is less.

And they're to some extent at least currently a substitute good for some consumers. Even though there's safety and other implications that are different between those two markets, that's not always recognized at the consumer level. So it does have an effect on the price. And so that's what, that's what that slide was showing. And summarizing an analysis of the data that supports those conclusions.

And then to your question about enforcement across state lines. So one of the benefits that we've had of participating in UCTF in this really organized way for different levels of government, local, state and federal, to coordinate in enforcement activities is some of these federal agencies work across state lines and so then become a connector piece for us.

So for example, there is the high intensity drug trafficking. I can't remember what the A stands for. It's not agency, but something along those lines that has regions within the country that are much broader than a single state. And so when they're looking at drug markets, they are looking at them across states.

And so by participating in those efforts, we can not only think about the enforcement efforts that need to happen within California, but also how enforcement efforts in other states and enforcement efforts across the entire western region might affect what we need to do.

There are also, so outside of, on the other end of enforcement, let's say there are groups like the Attorney General's alliance who coordinate really closely in the prosecution of cases.

So thinking about the various states that are dealing with the same enforcement issues that exist across state lines, they are really taking it from the point of enforcement action into, into a court case. And so their coordination also links us all together.

So there's, there is coordination that is going on between the states and there's also focus specifically on California. So it's all happening.

Appreciate, appreciate that. I was just curious from the presentation how those efforts are helping to address this problem. And I noticed There was in the analysis a lot of uncertainty around the federal continued engagement and protection of the regulated markets, and at least from California and these other states points of view.

And we'll be closely watching that outcome. And to hear more on that, I guess I want to shift my questions now a little bit to our regulated market and wanted to get a sense of, you know, as our. The prices have stabilized and in some sense that the revenues are showing upticks, what is our employment looking like?

What is the scale and size of our workers in this industry? And I'm also curious how many people who have had, you know, previous Marijuana drug convictions, are they currently employed and sort of a targeted employment strategy in this industry.

So, again, good question. On the total industry employment, that's not a number that I have off the top of my head, but. But I think it's something that our team can put together because it's implicit to the work that we're doing for the regulatory packages to get put together.

We have a model that you could use to come up with some estimates of total employment. And then in terms of workers within the industry and their experience with. I think the point that you're making is their experience with the war on drugs. There are programs primarily at the local level in certain jurisdictions that. That facilitate their entry into the market.

There's some worker training programs that are supported by even the state through the employment development Office that try and create entry into those marketplaces for them so that they have access to opportunities. Not everyone wants to be a business owner. Some people just want to participate in the industry in different ways. So we have seen that in the local level.

Do we have a sense of a percentage of the workforce that comes through that pathway?

We really don't collect data on the workers in particular and their criminal past criminal engagement. And so we don't have good numbers on that.

I think when we talk about the value add and sort of the, you know, we talked about supply and demand, I think there's also other opportunities of seeing how this industry is growing and who is growing with it and being very particular about moving individuals from what could often be, especially if you've had engagement in the.

Or a survivor of the war on drugs, to see them move out of a safety net and into an actual pathway in career. I think that's important for our agencies, our departments, our research, the Legislature is investing in to make sure that we are tracking those opportunities, which I think is important to see our success there.

The other question I had is about these very similar Individual survivors of the war on drugs. Just, you know, how many of these individuals who fit that criteria are actually license holders, meaning they're the business owners. They are, you know, part of this growth process. And are we tracking that and what's our progress there?

Yes, we are tracking that. Our latest numbers are that There are about 2100 businesses within the canvas industry in California that are licensed by the Department and that qualify as equity under the state's criteria or under their local criteria. So that represents about a quarter of the licenses that are held in the state.

I should also note, since we're talking about equity, so I think one of the ways that we think about equity is that it is. It is a very broad umbrella. So if the state has a goal to remedy some of the past harms of the war on drugs, and sometimes that is by creating opportunities for business ownership.

And some of the programs, like extending provisional license opportunities for equity, retailers have been instrumental in that. Some of the programs, like equity fee waivers and deferrals or some of the tax credits have been really instrumental in creating more available capital for those businesses.

The other component of that is trying to remedy some of the harms that were done to communities. So. So in some communities throughout the state, the there was an over policing that happened as part of the war on Drugs.

And so there is dedicated funding that goes out through Go Biz for the community reinvestment grant program that targets those communities that were disproportionately harmed by the war on Drugs and tries to facilitate through funding programs and infrastructure investments that really start to rebuild those communities from the harms that were done.

So it has to be a number of different things that the state is doing. It can't just be business opportunities needs to also include workers. It also has to include investment into those communities. So I think we're trying to address that in a lot of different ways. Some of which are not all under the Department.

Yeah, appreciating the diversity of approaches. And I know this Legislature has worked hard in creating a new reality for some communities that were deeply, deeply impacted by that period. And that raises one issue that I hear a lot from some of my local communities and jurisdictions in LA County that are participating in social equity programs.

And one is that DCC operates a local jurisdictional assistance grant program. And there has just been some pretty significant delays in that process and mainly the funding to transition those provisional licenses to the annual licenses. I think the State Auditor found that the Department remained fairly slow in responding to those concerns from local jurisdictions.

And specifically, the DCC has set a four week deadline to respond to requests to amend grant provisions. But it took 160 days to just respond to the requests from LA County, which didn't give much time for much else. So, you know, and I think there was one community, the City of Adelanto, where it was 540 days.

So just what is driving the delays? What are some of those barriers in terms of getting the requests to amend the grants? And what steps can the Department take to expedite the process?

Because the longer it delays, it deeply impacts those license holders who are just trying, you know, to do the best to make this a vibrant and robust industry so that we can see more of these numbers ticking up.

Yes, thank you for the question. So I think early on in the grant program it was kind of what you hear a lot from a new Department is you're building the plane as you fly it. It was one of the Department's first grant programs. And so putting those process procedures in place, building into that infrastructure.

And so I think that's part of some of the early delays and confusions that the State Auditor talked about. Since then, we have put those structures in place and are being more responsive.

That program is statutorily set to expire at the end of this fiscal year, and we are confident, based on the jurisdictions we've worked with, that we will be able to transition those provisional licenses within there that are appropriate to annual licensure. So it is achieving its intended goal.

There were bumps along the road to get there, but we're at sort of a period where it is achieving its intended goal purpose, which was transitioning licenses from provisional licenses to annual licensure.

Thank you, Assembly Member Irwin.

Thank you very much. One of the big promises of the legal market was that consumers would be able to trust that the product was safe. And there were, I'm sure you have read the recent LA Times articles that are insinuating that the policies for testing cannabis are flawed. Can you talk about what the Department is doing? How accurate is that article and how do you regain the public's trust?

Yeah, there has been a lot of suggestive reporting out there about the flaws of the legal market in comparison to the illicit market. I would start with, I think the department's under strong, capable leadership. We show up every day working hard on all the activities that are necessary to have a strong legal market.

The implication is that basically what a consumer gets in the legal market is the same as the illicit market. And that's just untrue. The Illicit market.

When we go out and see these cultivation sites have illegal pesticide mold contamination everywhere, dangerous operations with wiring, they perpetuate even more significant, you know, criminal activity along with human trafficking and those types of things. But the Department does have a role in improvement.

We're working on some regulatory changes that are internal right now to address this pesticide issue. Working with the Department of Pesticide Regulation about making a more expansive list, figuring how we can do it better in our laboratories and sort of building that front.

I think on laboratories, I think it's one thing to put it in context that a lot of laboratory work is done based on what happens at the federal level. And they use that as a proxy in their states and in the individual labs. In cannabis, that's not the case.

And so that really has created some of the challenges as we go into a new industry and we're really building these things from the ground up. And there isn't really the framework to build on before.

So you're. The story said you're not testing for a lot of the pesticides or was there not thorough enough testing of legal products in General? What, what are you saying? The, the issue was that was. I mean, basically they're insinuating that the. I mean, you're comparing it to the illicit market. And I don't think that.

That we already understand that the illicit market. There's all sorts of issues there. But what are the issues specifically here? That you weren't testing for enough pesticides or you weren't testing enough product?

So the main findings were that there are a lot of pesticides that aren't on our required list of 66 pesticides. So the Department of Pesticide Regulation sort of took that under advisement and has created an expanded pesticide list which will be incorporated into future regulations.

And there is enough testing of the product, though. v

All final product goes through testing before it goes to...

And then an ongoing issue for me has been advertising to children and just want to know, where are you on that? What are you doing to make sure that at least in the legal market, we're not seeing these products that are aimed at children.

So the Department has increased their compliance actions on specifically that topic. It went from. It followed this actual regulatory progression that was discussed earlier, from education, knowledge building, that to sort of more compliance actions to build Fidelity in that. So it went from 20 compliance actions on attractive to children packaging in 2022 to 293 last year.

We're already at 120 this year. So we're sort of seeing that enforcement grow and expand. We expect judicial decisions to help guide the industry and the Department in that in the future.

And that's just in the legal market. That's, those were the, the, that's compliance in the legal market.

Right. So a priority enforcement area in the illicit market are activities happening near schools or zones where we think children be present. There were some retail operations shut down a couple of weeks ago in La and, and it was reLated to their proximity to school as well as additional factors. All right, thank you.

Thank you. So Member Irwin I'm going to go to Senator Archuleta, then Assembly Members Pellerin, Quirk Silva, Gipson, Bauer Kahan, Senator Choi, Assembly Member Macedo. So, Senator Archuleta, thank you.

Mr. Chair. I think my question is probably to the economist on the panel. Perception versus fact. Perception versus fact. You know, the perception was when this whole thing started that there'd be $1.0 billion industry here in California that would also aid in the youth programs that we have in California, environmental protection efforts, law enforcement monies to our communities. However, from what you had stated on up on the screen earlier, it doesn't look that way.

And going back to Assembly Bill 195 where some adjustments were made for taxes, it seems like we're trying to do whatever we can, but at the same time it seems like we've already backfilled $150 million from the General Fund to keep, I guess the status quo in the perception that it's a good way for California to receive income.

But are we putting more into it than we're getting back? Where are we with that? You haven't mentioned that. Are we supplying so many things that we do need?

And the other thing I just want to finish up with, I think the issue is law enforcement not being able to do their job because of the lack of funding to help those stores that or clinics that are doing the right thing. So those are my two what's it look like for the future?

So I think, I mean I can speak to the data a little bit and I defer to Clint and Christina to weigh in more on some of the other policy considerations.

But I mean, what, you know, what the data does show, and I think the report lays out pretty well, is that there is still a sizable illicit market that competes with the licensed market. Right.

So when we're talking about taxes and fees and cost to operate in the licensed market, there's a trade off there that affects the ability to operate in that market or the decision to operate in the illicit market. And it affects consumers decisions on what market they buy from. And that's not unique to California.

Other states have been grappling with the same issue. And then the question is, I think the related question of that is, you know, how are enforcement dollars being put to use?

The point that the data shows there is that some of that enforcement expenditures are coming through, you know, license fees basically through, through the licensed market, which increases costs there and has an effect on, on the illicit market. But there's that off offsetting effect because you've increased costs for the licensed businesses. So that's.

And you can see those adjustments over time. The other thing that the report does touch on and you can see in the data is the effect of changes in fees and taxes with the suspension of the cultivation tax in 2022 and what that did to prices at different points in the supply chain.

So the short answer in the data is that when we change production costs in the illicit market, we're not only affecting how businesses operate and ultimately what makes it to consumers, but we're also affecting what's going on in the illicit market that operates in parallel.

So let me go back to my question. Hopefully you can finish it up. Is it being productive, is it being profitable for the cities in the State of California and helping schools or youth programs or law enforcement, all these activities that it was supposed to be for, is it coming in that direction or is it not?

If I could jump in, I mean, I think the intention of the voters, I assume in passing Prop 64 is not just fiscal analysis. It's analysis of bringing a market where consumers are using this substance, regardless if the state is involved or not, and making sure they have a safe source of doing so.

And so over time, I think we're at 38%. We want to see that percentage grow. The amount of legal consumption in California and that's really in decriminalizing. This was part of Prop 64.

So it really wasn't just the how big could the total revenues be from the tax Fund at the end of the day, but it was really bringing in consumer safety and Fidelity into a substance use that was fully unregulated and happening regardless of the state's involvement.

Thank you, Mr. Chair. Thank you, Assemblymember Pellerin.

Thank you, Mr. Chair. And thank you for your presentation today. You presented that consolidation as a good thing. And I care about small businesses and I'm troubled by that and particularly troubled by the 18% decrease in the number of businesses in, in the licensed market. So can you tell me how this. How do you see this environment playing out for our small businesses?

I mean, if you want to add. So again, the data does show that there's been some consolidation in the number of licenses and the number of businesses that are out there on the illicit license market comparable to what we've seen in other states.

And I think if I characterized it as a good thing, maybe that's, maybe I misspoke a bit. It's just that it's not unexpected with a new industry and kind of a rush of businesses and money and interest in that industry and then falling prices as there was kind of a glut in supply that squeeze margins.

And what happens obviously, when that, you know, in that environment is that the more efficient, lower cost businesses are the ones that survive. And if we, you know, if we weren't, if we kind of take a step back and just think about how our market's working, like that's. Think of that as a good thing for a consumer.

At the end of the day, forget about cannabis, but think about any other good, because it's a lower price. Right? You don't want price inflation at retail. You want, you want healthy, safe fruit and vegetables at a reasonable price.

But underlying those changes are economies of scale and consolidation and things that help drive unit costs down in production. So that's what we've been seeing in the data.

One more question then. So I'm very concerned about our small farmers and the wholesale prices as well below are now below the cost of production. And hundreds of small farmers are dropping out of the regulated market annually. And what, what can we do to help our small equity farmers?

I know I had a Bill last year that was provided a path for them to provide some revenue and that Bill was vetoed. So I'm just wondering what we can do to help our small equity farmers.

So you could go ahead, Clint.

Yeah, I think as it relates to what would benefit the overall market, the report lays out that there's many things that we need to do, not just one thing. And so it's all of the things we discussed.

Enhancing, increasing enforcement, having a Low cost environment for our licensed businesses, having a place where consumers know that they can access legal cannabis, making it more broadly available, addressing other intoxicating cannabinoids that are entering the system.

So it doesn't appear that there is just this silver bullet, but there's sort of all these activities that we have to keep progressing on to sort of, you know, go through and win this sort of stiff competition that there is with the illicit market.

Thank you. Assemblymember Quirk Silva.

Thank you for the questions. I want to go directly back to enforcement. As I started, we see this, in essence, competition between the licit market and our legal market. And this obviously has a lot to do with how we're doing in the industry as a whole.

I've been told more than a few times we don't have enough enforcement agents across the State of California to really get into the places we need to. I've been told that this is a very dangerous job. We don't have comparative salaries to recruit the enforcement officers.

But what I want to know is, has your office asked for additional funding? What is the pathway to get? Because unless we do something enforcement, we're going to be talking about this a year from now, two years from now, five years.

We know the market is increasingly dangerous with cartels, others, and it just seems like if we really want to be in the business of cannabis at the State of California, then we need not only the governor's office, but we need your office to give the direction of what are we, what's our plan for enforcement?

So, good question. We agree with you. Definitely. Enhanced and more enforcement on the illicit market is incredibly important, as the report points out. I think some context is useful to start that legal production in California is 1.4 million pounds a year. The overall production in the state is 12.5 million pounds.

And to the extent other states have prohibitions or there's a federal prohibition, we, we should expect that there will always be an incentive for people to produce cannabis in California.

I think the reality is we should really start to focus on the 2.4 million pounds that are being consumed within our state, and those are going to our consumers in California. I think one of the important pieces as it relates to illicit enforcement was pointed out in the report too is the paradox that's presented today.

Most all the departments illicit enforcement costs are paid through licensing fees. As we increase those, that increases costs on the licensed businesses, which makes it more difficult to compete.

So until we get to a point where we can fundamentally fix that problem, the question about whether more is appropriate is probably still something we have to discuss in the future. I think we're looking at opportunities for enhancement. Where are we seeing the biggest effect?

You know, redirecting efforts to those types of activities, working with feds, working with our other partners. But it is a complicated space. Part of the initiative was decriminalizing the activity. Right. And so local law enforcement's interest or ability or willingness to do that has diminished quite a bit since then. So, no, no, no. Again, no silver bullet. But you know, we stand ready to work with you all on how we can further this effort.

Well, I know we will be hearing from you again through our Committee of Budget sub 5. I really want to drill down into the details that if what we're doing now is not working, as we clearly can see, if we do not have enough partners out there on the enforcement, it's going to be like treading water and the consumers are going to do what's easiest, what's convenient and, and by the way, what's cheaper.

Right. Consumers are consumers. So if this is where we are, we have to have a plan going forward because I really feel that we're leaving a lot of dollars on, on the table for California.

And if we don't address the, the people who are in the role of enforcing there, we're not going to be able to recruit and we've already heard this, we're not going to be able to recruit in the market for somebody to go out and do a job that can be seen as very dangerous. So we have to address this and I'm really hoping that we'll have something concrete that we can look forward as an action item. Thank you.

If I could just add one additional component that there's the enforcement activity. But we see also the other side of that being important is consumer education and retail access. 42% of jurisdictions in the state don't have retail access. In the absence of that, illicit markets will sort of survive and thrive.

We have information that consumers know it's legal in the state, but don't know whether it's legal in their jurisdiction. You know, there's information to suggest that in jurisdictions where it's illegal, 62% of consumers, consumers think that they can purchase it there legally, 23% don't know, but 80% value purchasing from the legal market. So there's a lot to do on consumer education and access, which is the other side of enforcement, to really sort of help address this issue as well.

Thank you. Assembly Member Gipson,

Thank you very much. Thank you for your presentation. Just want to drill down and focus on the matter that my colleague Ms. Quirk Silva just shared about enforcement.