Legislative Affairs

It was a very busy year in the state legislature. Our efforts focused on distribution, water, licenses, taxes and reducing barriers to entry. Our accomplishments include:

  • Removal of the March 1 deadline
  • Clarification of distribution, ensuring balanced implementation
  • Establishment of cannabis specific water regulations, allowing for streamlined permitting for small irrigation
  • Passage of AB 2516 to establish a cottage cultivation license
  • Amendments to establish a tiered tax rate, to provide incentives for specialty and small businesses
  • Removal of the “leaf” tax

A license for every business type

One of our primary goals in 2016 was the establishment of a license for every business type. Prior to the start of the legislative year we identified two priority license types that were high priority: cottage cultivation and delivery.

AB 2526: Cottage Cultivation

Establishing a license for cottage cultivators was the highest priority for Cal Growers in the 2016 legislative year. Assembly Member Wood introduced our first sponsored bill, AB 2516 to achieve this goal. We proposed the idea to Assembly member Wood in October. Our campaign focused on both grassroots direct advocacy as well as

The legislation attracted support from 1,661 individuals throughout the state. It also attracted support from the Counties of Sonoma, Mendocino and Humboldt as well as Americans for Safe Access. On the Assembly side the bill passed out of Agriculture 7-1, B&P 13-1, Appropriations 15-1, the floor 63-9; on the Senate side the bill passed out of Agriculture 5-0, B&P 7-0, Appropriations 5-2, and the floor 29-9.

Delivery License

Efforts to establish a license option for delivery began prior to the passage of the MCRSA. AB 1575 included an option for non-storefront dispensary under the Type 10 license. When AB 1575 was shelved at the end of session, this license option was shelved with it. The California Cannabis Delivery Alliance is shifting focus to work with regulators to explore options in the rule making process and to local governments to ensure local permitting options are available.

Taxes

There were two tax bills introduced this year, SB 987 and AB 2243. We focused our efforts on implementing our strategy: choose the best tax and improve it as much as possible. We communicated our basic principles, detailed below.

2016 Tax priorities:
  • New state taxes should be limited to no more than 5% in 2016
  • New state taxes should be collected from the distributor
  • New state taxes should be focused on public safety and watershed protection

Cumulative tax Liability.

It is a basic principle of our membership that all tax proposals must be considered cumulatively. Tax proposal should not be analyzed in a vacuum, rather analysis should consider existing sales tax and special local taxes when considering the impact to the business community and patients.

Avoid disrupting implementation. 

Given the nature of the transition that the cannabis business community is facing in California, we would prefer to set the tax rate lower and increase over time as the regulated marketplace becomes more stable.

Take A streamlined approach.

The distributor model that the MMRSA is a built on provides an ideal structure for efficient and streamlined collection of taxes. We strongly encourage policy makers to build on this foundation of accountability and transparency. Building on the regulatory framework established will streamline business operations and allow our members to focus on their business. 

Based on these conversations we took positions of:

-       SB 987: Oppose

-       AB 2243: Support if amended; the bill was amended and we finished the year in a strong support position on this legislation.

2017 Tax Principles

Our principles have expanded to include:

Tiered Tax rate on the distribution of agricultural products

Tiered tax rate for cultivators: lower rate for Type 1 and 2 licenses; provides an incentive to small growers. This is a benchmark provision for our members.  We will not be able to support a tax that does not include these provisions.

Weight based tax on agricultural products

“A weight-based excise tax has the advantage of creating a kind of price floor” 

We like the certainty provided by the weight tax. We support a 7-year sunset to ensure that the tax rate will be updated to reflect changing market conditions. 

“A challenge of a weight-based tax is that it could incentivize producers to make extremely high- potency products”

This can be mitigated by applying the weight tax on flower products only and subjecting higher potency concentrates and manufactured products to a “value” tax. We would also consider a potency tax, thought this gets very complex given the diversity of manufactured products.

Avoid double taxation

We are generally not favorable to a double taxation scheme.

Point of tax

“Cannabis taxes can be assessed during at least two different stages of commerce: cultivation or retail sales. If a separate distribution or processing stage is required, taxes can be assessed there as well.”

Of the three options, we rank them the following:

  1. Distribution: highest compliance rates; reduced accounting burden on cultivators and retailers 
  2. Retail: neutral; creates challenges imposing a “tiered weight based tax,” but ultimately is something we could support
  3. Cultivation: opposed; overly burdensome; creates barriers to entry for Type 1 and 2 specialty and small cultivators and will discourage participation

A potential solution is to impose the tax at different points in the supply chain for agricultural and manufactured products.

2017 Tax Strategy

Our strategy on taxes will depend on the outcome of Proposition 64. If the initiative is successful we will seek to improve the tax included; if the initiative is unsuccessful we will support legislation that is consistent with our principles.

Reducing Barriers to Entry

Fee Payment

AB 2149, which would have allowed counties and the Board of Equalization to collect cash payments for state fees failed in committee. However, we continue to advance the idea as an interim solution to the banking challenge.

Measure D and Los Angeles

Our committee voted to opposed AB 2385, though staff refused to prioritize this opposition. Efforts to ensure that state licenses were available to all Los Angeles businesses was identified as a local priority. Accordingly, we pivoted our focus to efforts at the local level, which a re described in brief in the “regional affairs” update.

Felony Convictions

Efforts to reduce barriers for individuals with cannabis convictions fell short this year, with the conversation dominated by divisive efforts to include out of state convictions. Thankfully this effort was shelved and we look forward to working on more equitable solutions next year.

Tax Penalty Amnesty

Legislation passed this year provides amnesty for retailers who have back tax liabilities.

Distribution

Our priority cleanup to the distribution model passed as part of the budget trailer bill. SB 837 clearly indicates that distribution is one touch point in the supply chain. This will minimize added cost and supply distribution while still ensuring the public policy benefits of distribution are realized. This was a top priority for us in 2016.

Track and Trace

Our campaign to remove plant tags and replace it with batch and lot tracking was unsuccessful in 2016, though we made significant progress. We continue to work with law enforcement and local governments and expect we will revisit this topic in 2020, after the state has had time to collect data related to track and trace and the effectiveness of various pilot programs being implemented. 


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