The California Assembly Wednesday night voted 66-0 in favor of AB195, a trailer bill containing a slew of measures intended to shore up the state’s ailing cannabis industry, including freezing the state excise tax at 15 percent for 3 years, and suspending the cultivation tax beginning January 1, 2023 – with July 1, 2022 the actual cutoff date after which cultivators will no longer be assessed the tax under certain circumstances. However, the bill effectively shifts that tax burden from the cultivator to the consumer by directing the state’s taxing authority, starting with the 2025–26 fiscal year and every 2 years thereafter, “to adjust the cannabis excise tax rate by a percentage that will generate an amount of revenue that would have been collected pursuant to the cultivation tax imposed prior to its discontinuation under this bill,” not to exceed 19 percent of the gross receipts of retail sales.
AB195 also contains breaks for equity licensees, requires the integration of delivery transactions into the state’s track-and-trace system, includes waivers for retailers under certain circumstances while making them responsible for excise tax collection and remittance, and enhances efforts targeting the illicit market, including “a civil penalty of up to $10,000 per violation against a person who has management or control of a commercial property or a commercial building, room, space, or enclosure and knowingly rents, leases, or makes it available for the unlicensed cultivation, manufacture, storage, sale, or distribution of cannabis.” It remains to be seen if AB195 has the right stuff to fix what’s broken in the California market, but the Assembly in a rare show of bipartisanship touted the bill as a necessary if belated effort to save the legal cannabis industry.
“This industry, especially those who’ve been playing by the rules have been asking for help for years and years,” said bill sponsor Philip Ting (D-San Francisco). “This bill, this year, they get it. This bill suspends the state cultivation tax, it maintains the excise tax at 15 percent, and also moves the collection of that excise tax from distributors to point of sale. It provides additional tax relief in the form of tax credits for high road cannabis employers as well as tax credits for cannabis equity operators. It also strengthens worker protections, provides local jurisdictions with more enforcement tools, including the ability to pursue civil penalties against commercial properties that facilitate unlicensed operators, and civil penalties related to water pollution, unauthorized water diversion due to unlicensed cannabis cultivation.”
Vince Fong (R-Bakersfield) also spoke in favor of the bill. “It is a remarkable day when we can consider a bill that actually decreases taxes, and I commend the Assembly Budget Committee for recognizing this necessary reform,” he said. “The cannabis market has been in limbo between licensing uncertainty to crippling taxation and an irregularly changing regulatory scheme. And this bill will implement incremental and stabilizing changes, changes that are critical to combat the illegal cannabis market. Providing certainty to programs that are funded from Prop 64 is also critical. I urge your aye vote.”
Tom Lackey (R-Palmdale) also rose to speak. “I just want to remind everybody that I’m very thankful for this kind of measure who allows us to take on this illicit market that is raping the land of my district,” he said. “You ought to see the amount of illegal grows that we have that are stealing water, they’re poisoning the land, and this will allow the legal market to take one step closer to defeating those who deserve to be defeated. So, I thank you very much for your support in this measure.”
Following the 66-0 vote, the Speaker ordered the bill’s “immediate transmittal to the governor.”
Below is the Legislative Counsel’s Digest of AB195, with a the full text of the bill available here. The sections in bold were added.
AB 195, as amended, Committee on Budget. Budget Act of 2021. Cannabis.
(1) The Control, Regulate and Tax Adult Use of Marijuana Act (AUMA), an initiative measure approved as Proposition 64 at the November 8, 2016, statewide general election, authorizes a person who obtains a state license under AUMA to engage in commercial adult-use cannabis activity pursuant to that license and applicable local ordinances. Existing law, the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), among other things, consolidates the licensure and regulation of commercial medicinal and adult-use cannabis activities. MAUCRSA establishes the Department of Cannabis Control within the Business, Consumer Services, and Housing Agency to administer the act, and requires the department to be under the supervision and control of a director.
Existing law specifies the annual compensation for various directors of state departments and agencies, including the Director of Transportation and the Director of Fish and Wildlife.
This bill would require the annual compensation for the Director of Cannabis Control to be consistent with the directors described above.
(2) Chapter 70 of the Statutes of 2021 established the Department of Cannabis Control and transferred to this department, except as specified, the powers, duties, purposes, functions, responsibilities, and jurisdiction under MAUCRSA of the former Bureau of Cannabis Control in the Department of Consumer Affairs, the Department of Food and Agriculture, and the State Department of Public Health which are collectively referred to as licensing authorities.
MAUCRSA authorizes the Department of Cannabis Control to issue state licenses only to qualified applicants. MAUCRSA requires, among other things, that each licensee electronically submit to the Department of Justice fingerprint images and related information for the purpose of obtaining information as to the existence and content of a record of state or federal convictions and state and federal arrests. Existing law, until July 1, 2022, authorizes employees of a licensing authority, acting on behalf of the Department of Cannabis Control, to receive criminal history information for these purposes.
This bill would allow employees of a licensing authority, acting on behalf of the Department of Cannabis Control, to receive criminal history information for the purposes described above until July 1, 2023.
MAUCRSA requires an applicant for a state license, with 20 or more employees, to provide a notarized statement that the applicant will enter into, or demonstrate that it has already entered into, and abide by the terms of a labor peace agreement.
This bill, beginning July 1, 2024, would instead require an applicant for a state license with 10 or more employees to provide a notarized statement that the applicant will enter into, or demonstrate that it has already entered into, and abide by the terms of a labor peace agreement.
This bill would specify that compliance with the terms of an applicable labor peace agreement is a condition of licensure and would authorize the Department of Cannabis Control to suspend, revoke, place on probation with terms and conditions, or otherwise discipline the license and fine the licensee, if the department determines the licensee has not complied with these provisions, as provided. The bill would authorize any labor organization, as defined, or any current or former employee of the relevant licensee, to file a complaint with the Agricultural Labor Relations Board that an organization with which a licensee has entered into a labor peace agreement is not a bona fide labor organization and would establish procedures for the board’s review of that complaint.
(3) MAUCRSA authorizes local jurisdictions to enforce its provisions and to regulate cannabis businesses, as specified.
This bill, until January 1, 2025, would establish a task force on state and local regulation of commercial cannabis activity to promote communication between state and local entities engaged in the regulation of commercial cannabis activity and facilitate cooperation to enforce applicable state and local laws, consisting of specified members from state agencies and all local jurisdictions regulating commercial cannabis activity that opt to participate. The bill would exempt meetings of the task force from the Bagley-Keene Open Meeting Act and the Brown Act.
Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.
This bill would make legislative findings to that effect.
(4) MAUCRSA imposes civil penalties on a person who aids and abets unlicensed commercial cannabis activity, as specified.
Existing law makes it a crime for a person who has management or control of a building, room, space, or enclosure, either as an owner, lessee, agent, employee, or mortgagee, to knowingly rent, lease, or make available for use, with or without compensation, the building, room, space, or enclosure, for the purpose of unlawfully manufacturing, storing, or distributing a controlled substance for sale or distribution
This bill would amend AUMA by imposing a civil penalty of up to $10,000 per violation against a person who has management or control of a commercial property or a commercial building, room, space, or enclosure and knowingly rents, leases, or makes it available for the unlicensed cultivation, manufacture, storage, sale, or distribution of cannabis. The bill would make each day the violation continues a separate violation for this purpose. The bill would require an action for these civil penalties to be brought exclusively by the Attorney General on behalf of the people, on behalf of the department, or on behalf of the participating agency, or by a city or county counsel or city prosecutor.
Existing law requires that deliveries, as defined, of cannabis or cannabis products only be made by a licensed retailer or microbusiness or a licensed nonprofit and sets forth the procedure for delivery.
Existing law requires the department to establish a track and trace program for reporting the movement of cannabis and cannabis products throughout the distribution chain and requires the program to capture certain information. Existing law requires the program to include an electronic seed to sale software tracking system with data points for the different stages of commercial activity.
This bill would also require the department to incorporate delivery into the track and trace program by January 1, 2023, and would authorize the department to adopt and readopt emergency regulations to implement that requirement, as specified. The bill, after the department incorporates delivery into the track and trace program, as specified, would require the program to capture the date of retail sale to a customer, whether the sale is on the retail premises or by delivery, and information, as determined by those emergency regulations, relating to cannabis or cannabis products leaving the licensed premises in a delivery vehicle, and would require a licensed retailer, before cannabis or a cannabis product leaves the licensed premises in a delivery vehicle, to enter into the track and trace system all information required by the department.
(5) Existing law makes it unlawful to deposit, permit to pass, or place where it can pass, specified pollutants into the waters of this state, including any substance or material deleterious to fish, plant life, mammals, or bird life. A violation of this provision is a crime under the Fish and Game Code. Existing law also subjects a violation of that provision to a civil penalty of no more than $25,000 for each violation and an additional civil penalty of no more than $10 for each gallon or pound of material discharged and requires the civil action to be brought by the Attorney General upon complaint by the Department of Fish and Wildlife or by the district attorney or city attorney in the name of the people of the State of California. Existing law provides that a specified affirmative defense to a violation of the criminal provision does not apply to an action for civil penalties or injunctive relief pursuant to that civil provision.
This bill would provide that the specified affirmative defense to a violation of the criminal provision also does not apply in any other civil action that alleges a violation resulting from unlicensed cannabis cultivation. The bill would delete the requirement that the Attorney General only bring that civil action upon complaint by the department and would authorize, for a violation resulting from unlicensed cannabis cultivation, the civil action to be brought by a county counsel in the name of the people of the State of California.
Existing law generally requires 1/2 of all fines and forfeitures imposed or collected in any court of this state for violations of the Fish and Game Code or any other law providing for the protection or preservation of birds, mammals, fish, reptiles, or amphibians to be deposited in the county treasury of the county in which the violation was committed. Existing law requires those funds and other specified funds to be deposited in a county fish and wildlife propagation fund and authorizes the county board of supervisors to expend those funds for specified purposes.
This bill would additionally authorize expenditures from the fish and wildlife propagation fund of a county for costs incurred by a county counsel in investigating and prosecuting specified civil actions for violations resulting from unlicensed cannabis cultivation.
(6) Under existing law, the diversion or use of water other than as authorized by specified provisions of law is a trespass, subject to specified civil liability and injunctive relief imposed in the superior court in actions brought by the Attorney General upon request of the State Water Resources Control Board. Existing law requires funds recovered pursuant to that provision to be deposited in the Water Rights Fund, which is available upon appropriation by the Legislature for specified purposes. Existing law imposes fines of $1,000 for each day a trespass occurs and $2,500 for each acre-foot of water diverted or used in excess of the diverter’s water rights.
This bill would authorize, for a violation resulting from unlicensed cannabis cultivation, the civil action to be brought by a county counsel or city attorney, upon approval of the board, in the name of the people of the State of California. The bill would delete the requirement that the Attorney General only bring the civil action upon request of the board. The bill would require funds recovered pursuant to that provision, upon appropriation by the Legislature, to be used to proportionally reimburse the Attorney General, city attorney, county counsel, and the board for costs of bringing the action, including reasonable attorney’s fees, for investigating the violation and supporting the prosecution of the action. The bill would impose a penalty of $3,500 per day for the unauthorized diversion or use for unlicensed cannabis activity in lieu of the current fines.
(7) AUMA, as additionally amended by statute, imposes a weight-based cultivation tax on harvested cannabis that enters the commercial market and a separate excise tax on purchasers of cannabis or cannabis products sold in this state at the rate of 15% of the average market price of any retail sale by a cannabis retailer, as specified. Existing law defines average market price in an arm’s length transaction to mean the average retail price determined by the wholesale cost of the cannabis or cannabis products sold or transferred to a cannabis retailer, plus a mark-up, as determined by the California Department of Tax and Fee Administration (CDTFA) on a biannual basis in 6-month intervals. Existing law requires the distributor to collect the excise tax from the cannabis retailer and to remit the tax to CDTFA. Existing law requires revenues from the cultivation and excise taxes to be deposited into the California Cannabis Tax Fund, and continuously appropriates that tax fund for specified purposes.
This bill, beginning on January 1, 2023, would discontinue the imposition of the cultivation tax. The bill, beginning on January 1, 2023, would impose the cannabis excise tax on purchasers of cannabis or cannabis products sold in this state at the rate of 15% of the gross receipts of any retail sale by a cannabis retailer. The bill, for the 2025–26 fiscal year and every 2 years thereafter, would require CDTFA, in consultation with the Department of Finance, on or before May 1 of the fiscal year immediately preceding the applicable fiscal year, to adjust the cannabis excise tax rate by a percentage that will generate an amount of revenue that would have been collected pursuant to the cultivation tax imposed prior to its discontinuation under this bill, as specified, except that the bill would prohibit the cannabis tax rate from exceeding 19% of the gross receipts of retail sale.
(8) AUMA, as additionally amended by statute, establishes the California Cannabis Tax Fund as a continuously appropriated fund consisting of specified taxes, interest, penalties, and other amounts related to commercial cannabis activity. Each fiscal year, AUMA requires the Controller to make, as specified, disbursements from the fund for various purposes, including, among others, administering programs related to community reinvestment, youth education, prevention, early intervention, and treatment, environmental restoration and protection, and public health and safety. AUMA prohibits the Legislature, prior to July 1, 2028, from changing the allocations to those programs. Before making those disbursements, AUMA requires the Controller to disburse funds to various state entities, including, among others, the CDTFA, the Department of Cannabis Control, and the Controller, for reasonable costs in carrying out their duties under AUMA.
This bill would prohibit the Controller from making specified disbursements to certain state entities for the 2022–23 and 2023–24 fiscal years. The bill, for the 2021–22, 2022–23, 2023–24, and 2024–25 fiscal years, would require the Controller, after making specified disbursements, to disburse funds in an amount not to exceed the 2020-21 fiscal year baseline, as defined, into sub-trust accounts for administering those programs related to community reinvestment, youth education, prevention, early intervention, and treatment, environmental restoration and protection, and public health and safety. The bill would require any amount of funds that exceeds the 2020-21 fiscal year baseline to remain in the tax fund and to be disbursed according to a specified schedule to enable funds disbursed to the sub-trust accounts for the 2022–23, 2023–24, and 2024–25 fiscal years to be equal to the 2020–21 fiscal year baseline. The bill would require, on or before January 1, 2026, any remaining moneys in the tax fund retained pursuant to these provisions and any interest derived to be disbursed to the sub-trust accounts, as specified. The bill would appropriate $10,000 in the 2022–23 fiscal year, and $150,000,000 in the 2023–24 fiscal year, from the General Fund, and require the Controller, pursuant to a specified schedule, to transfer amounts of those moneys that would enable funds disbursed to the sub-trust accounts for the 2022–23 and 2023–24 fiscal years to be equal to the 2020–21 fiscal year baseline.
(9) MAUCRSA requires the Department of Cannabis Control to administer a grant program to assist with the development of a local jurisdiction’s local equity program or to assist applicants and licensees in a local jurisdiction’s equity program and authorizes the department to provide technical assistance to the local equity program. MAUCRSA defines local equity program for these purposes to mean a program adopted or operated by a local jurisdiction that focuses on inclusion and support of individuals and communities in California’s cannabis industry who are linked to populations or neighborhoods that were negatively or disproportionately impacted by cannabis criminalization. MAUCRSA required the department, on or before January 1, 2022, to develop and implement a program to provide a waiver for an application fee, a licensing fee, or a renewal fee for a needs-based applicant or needs-based licensee, as specified. Existing law made the operation of those provisions contingent upon an appropriation in the annual Budget Act or another statute for purposes of those provisions.
This bill, until December 31, 2025, would authorize a licensed cannabis retailer that has received approval from the department for a fee waiver for an application fee, a licensing fee, or a renewal fee, as specified, to retain a vender compensation in an amount equal to 20 percent of the cannabis excise tax the licensee would otherwise be required to remit, if certain conditions are met.
(10) Existing law requires the distributor to collect the cannabis excise tax from the cannabis retailer and to remit the tax to CDTFA. Under existing law, the cultivation tax and the cannabis excise tax collected by a distributor or a manufacturer and any amount unreturned to the cultivator or retailer that is not tax but was collected under the representation by the distributor or manufacturer that it was tax, constitute debts owed by the distributor or manufacturer to this state. Existing law deems any tax collected from a cultivator or retailer that has not been remitted to CDTFA a debt owed to this state by the person required to collect and remit the tax. Existing law requires a distributor to obtain a permit from CDTFA and provides that any person required to obtain a permit and who engages in business as a distributor without a valid permit is guilty of a misdemeanor.
This bill, beginning on January 1, 2023, would revise and recast the provisions relating to the administration of the cannabis cultivation and cannabis excise taxes. The bill, among other things, would remove the requirement that the distributor collect the cannabis excise tax from the cannabis retailer, and would instead require the cannabis retailer to collect the cannabis excise tax from the purchaser and to remit the cannabis excise tax to CDTFA quarterly. The bill would deem any tax collected by the cannabis retailer, and any amount unreturned to the purchaser that is not tax, to constitute a debt owed to this state by the cannabis retailer, as provided. The bill would authorize CDTFA to require a cannabis retailer to file specified reports with CDTFA with respect to the person’s inventory, purchases, and sales for purpose of administration of the cannabis excise tax and would authorize CDTFA to examine books and records for these purposes. The bill would require a cannabis retailer to obtain a permit from CDTFA and would provide that any person required to obtain a permit and who engages in business as a cannabis retailer without a valid permit is guilty of a misdemeanor. By creating a new crime, the bill would impose a state-mandated local program.
This bill would provide that an unlicensed person who is required to be licensed under MAUCRSA and who possesses, keeps, stores, or retains for the purpose of sale, or sells or offers to sell any cannabis or cannabis products, is liable for the cannabis cultivation and cannabis excise taxes as if they were the cultivator or purchaser, as specified. The bill would impose an additional penalty in an amount equal to 25% of the amount of tax or $500, whichever is greater. The bill would establish a procedure for relief from the penalty, including a signed statement from the person, and would provide that any person who asserts the truth of any material matter that they know to be false in relation to these provisions is guilty of a misdemeanor. By creating a new crime, the bill would impose a state-mandated local program.
(11) The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.
Existing federal law imposes an income tax upon every corporation, except as specified, and prohibits the allowance of a deduction or credit for any amount paid or incurred during the taxable year in carrying on any trade or business consisting of trafficking in controlled substances, including cannabis.
This bill would allow a credit against those taxes for each taxable year beginning on or after January 1, 2023, until January 1, 2028, to a qualified taxpayer, defined to mean a licensed commercial cannabis business that meets specified criteria, in an amount equal to 25% of the total amount of the qualified taxpayer’s qualified expenditures, as defined, in the taxable year not to exceed $250,000 per taxable year, as specified. The bill would cap the aggregate amount of the credit allowed, over all taxable years, at $20,000,000.
This bill would allow an additional credit against those taxes for each taxable year beginning on or after January 1, 2023, and before January 1, 2028, to a cannabis equity licensee that received approval for a specified fee waiver and deferral program administered by the Department of Cannabis Control, in an amount equal to $10,000. The bill would cap the aggregate amount of the credit allowed, over all taxable years, at $20,000,000.
Existing law requires any bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve, detailed performance indicators, and data collection requirements.
This bill would include additional information required for any bill authorizing a new tax expenditure.
(12) Under the Sales and Use Tax Law, a person whose estimated tax liability under the law averages $10,000 or more per month is required to remit amounts due by an electronic funds transfer, as specified. That law imposes a penalty on a person who remits those taxes by means other than appropriate electronic funds transfer. That law authorizes, until January 1, 2022, a person licensed to engage in commercial cannabis activity to remit amounts due by a means other than electronic funds transfer, if the CDTFA deems it necessary to facilitate collection of amounts due.
This bill would extend that authorization indefinitely and would provide that a person licensed to engage in commercial cannabis activity who failed to remit amounts due by means of electronic funds transfer on and after January 1, 2022, and before January 1, 2023, is not subject to or is relieved of any penalties imposed for failure to pay by electronic funds transfer.
(13) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
(14) AUMA authorizes legislative amendment of its provisions with a 2/3 vote of both houses, without submission to the voters, to further its purposes and intent.
This bill would declare that its provisions further the purposes and intent of AUMA.
(15) This bill would declare that it is to take effect immediately as a bill providing for appropriations related to the Budget Bill.
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