July 7, 2011
Pursuant to Elections Code Section 9005, we have reviewed
the proposed statutory initiative related to the use, possession, and sale of
marijuana (A.G. File No. 11‑0011, Amdt. #1-S).
Federal Law. Federal laws classify
marijuana as an illegal substance and provide criminal penalties for various
activities relating to its use. These laws are enforced by federal agencies that
may act independently or in cooperation with state and local law enforcement
State Law and Proposition 215. Under
current state law, the possession, cultivation, or distribution of marijuana
generally is illegal in California. Penalties for marijuana-related activities
vary depending on the offense. For example, possession of less than one ounce of
marijuana is an infraction punishable by a fine, while selling marijuana is a
felony and may result in a prison sentence.
In November 1996, voters approved Proposition 215, which
legalized the cultivation and possession of marijuana in California for medical
purposes under state law. The U.S. Supreme Court ruled in 2005, however, that
federal authorities could continue under federal law to prosecute California
patients and providers engaged in the cultivation and use of marijuana for
medical purposes. Despite having this authority, the U.S. Department of
Justice's (DOJ's) current policy (announced in a June 29, 2011 memo from the
department to its attorneys) is to not prosecute individual marijuana patients
and caregivers who act in compliance with state medical marijuana laws. However,
the department stated that it would continue to prosecute "commercial" medical
marijuana activities. Moreover, in an earlier October 13, 2010 letter to the
U.S. Drug Enforcement Agency, the U.S. Attorney General stated that DOJ would
continue to enforce federal laws prohibiting marijuana activities related to
recreational use, even if such activities are permitted under state law.
This measure changes state law to (1) legalize the
possession, cultivation, and sale of marijuana by individuals age 21 or older,
and (2) apply certain existing taxes and regulations regarding the production
and sale of wine to marijuana. Despite these changes to state law, activities
related to the use of marijuana would continue to be prohibited under federal
law. These federal prohibitions could still be enforced by federal agencies.
State Legalization of Marijuana-Related Activities.
Under the measure, persons age 21 or older could legally possess, sell,
transport, and cultivate marijuana under state law. However, as discussed
further below, the production and cultivation of specified amounts of marijuana
for commercial purposes would be subject to regulation by the state or local
governments. Although the measure would generally legalize marijuana, it would
remain unlawful under this measure for individuals to (1) operate a motor
vehicle while under the impairment of marijuana, (2) smoke marijuana in public
non-smoking areas or in the workplace, and (3) provide or sell marijuana to
individuals under the age of 21. The measure also states that it does not repeal
or modify any existing medical marijuana provisions authorized by
The measure directs state and local officials and
employees not to cooperate with the federal government in the eradication of
marijuana or the seizure or forfeiture of property as part of marijuana
enforcement efforts. In addition, it directs the state Attorney General and the
state Department of Public Health to petition the Congress, the U.S. Department
of Health and Human Services, and other federal agencies within 30 days of its
enactment to remove marijuana from its current classification as a Schedule I
drug under the federal Controlled Substances Act. If the Congress were to grant
this petition, marijuana would no longer be a controlled substance under federal
Regulation and Taxation of Commercial Marijuana
Activities. The measure would allow commercial marijuana production and
sales subject to certain limitations. Specifically, under the measure,
the cultivation and production of more than 25 marijuana plants or 12 pounds of
processed marijuana per adult per year would be subject to regulation. The
measure states that existing taxes and regulations for the farming,
distribution, retail sale, and wholesale transactions of agricultural crops and
products would apply to marijuana and would be modeled after those imposed on
the wine industry. The measure also states that no regulations, taxes, or fees
could be imposed for marijuana which were more severe or restrictive than those
for the wine industry.
It is not entirely clear how these provisions would be
implemented, if the measure were adopted. This is because the specific taxes and
regulations on marijuana would have to be determined by the Legislature pursuant
to the provisions of the measure. The most likely outcome is that various
existing state and local taxes now applied to the wine industry in California
would be applied to commercial marijuana activities. For example, companies that
grew and sold marijuana would likely have to pay taxes on their business
profits, and sales of marijuana would probably be subject to state and local
sales and use taxes. It is less clear whether an excise tax—such as the 20 cents
per gallon levy now imposed on wine paid by manufacturers, wine growers, and
importers—would apply to marijuana, and, if so, at what rate.
As noted above, it is unclear how some of the provisions
in the measure regarding marijuana regulation and taxation would be implemented.
In addition, the U.S. DOJ's announcement that it would continue to enforce
federal prohibitions on non-medical marijuana-related activities could have the
effect of impeding the activities permitted by this measure under state law.
Thus, the potential revenue and expenditure impacts of this measure described
below are subject to significant uncertainty.
Reduction in State and Local Correctional Costs.
The measure could result in savings to the state and local governments
by reducing the number of marijuana offenders incarcerated in state prisons and
county jails, as well as the number placed under county probation or state
parole supervision. These savings could collectively reach several tens of
millions of dollars annually. The county jail savings would be offset to the
extent that jail beds no longer needed for marijuana offenders were used for
other criminals who are now being released early because of a lack of jail
Reduction in Court and Law Enforcement Costs.
The measure would result in a reduction in state and local costs for enforcement
of marijuana-related offenses and the handling of related criminal cases in the
court system. However, it is likely that the state and local governments would
redirect their resources to other law enforcement and court activities.
Other Fiscal Effects on State and Local Programs.
The measure could also have fiscal effects on various other state and local
programs. For example, the measure could result in an increase in the
consumption of marijuana, potentially resulting in an unknown increase in the
number of individuals seeking publicly funded substance abuse treatment and
other medical services. This measure could also have fiscal effects on state-
and locally funded drug treatment programs for criminal offenders, such as drug
courts. Moreover, the measure could potentially reduce both the costs and
offsetting revenues of the state's Medical Marijuana Program, a patient registry
that identifies those individuals eligible under state law to legally purchase
and consume marijuana for medical purposes.
Effects on State and Local Revenues. The
state and local governments would receive additional revenues from taxes and
fees from marijuana-related activities allowed under this measure. For instance,
state and local governments would receive increased sales tax revenues from the
sale of marijuana. In addition, businesses and individuals producing and selling
marijuana would pay individual and business taxes. To the extent that this
business activity pulled in spending from persons in other states, the measure
also would result in a net increase in taxable economic activity in the state.
However, the potential new revenues from marijuana-related economic activity
could partially be offset by declines in other economic activity as consumers
spend less on other consumer products and/or invest less. The magnitude of the
net increase in economic activity is unknown and would depend considerably on
the extent to which the federal government enforces its laws against marijuana
in California. To the extent that a commercial marijuana industry further
develops in the state as a result of this measure, however, our best estimate is
that the state and local governments would eventually collect hundreds of
millions of dollars annually in net additional revenues.
Summary of Fiscal Effects
We estimate that this measure would have the following
major fiscal effects:
The fiscal effects of this
measure could vary substantially depending on: (1) the extent to which the
federal government continues to enforce federal marijuana laws and (2) the
specific taxes and regulations applied to marijuana.
Savings of potentially
several tens of millions of dollars annually to state and local governments
on the costs of incarcerating and supervising certain marijuana offenders.
Potentially hundreds of
millions of dollars in net additional tax revenues related to the production
and sale of marijuana products.
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