January 30, 2012
Pursuant to Elections Code Section 9005, we have reviewed the
proposed statutory initiative related to the regulation and taxation of
medical marijuana (A.G. File No. 11‑0098, Amdt. #1S).
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. While some
marijuana crimes are defined in state law as infractions, punishable by
a fine, other marijuana crimes are defined as misdemeanors, punishable
by fines, incarceration in jail for less than a year, probation, or some
combination of these. In addition, certain marijuana crimes are
considered felonies and may result in incarceration in jail or prison,
community supervision, or a combination of both. Some marijuana crimes
are referred to as “wobblers” and can be prosecuted as misdemeanors or
In November 1996, voters approved Proposition 215, which made it
legal under state law to cultivate and possess marijuana in California
for medical purposes only. In 2003, the Legislature authorized the
formation of medical marijuana cooperatives, which are non-profit
organizations of medical marijuana users that cultivate and distribute
marijuana to their members through outlets known as dispensaries. State
law generally gives local cities and counties the discretion to regulate
the location and operations of facilities that distribute, sell, or
cultivate medical marijuana. Currently, local medical marijuana laws
vary widely across the state, with some jurisdictions choosing to
completely ban such facilities and others choosing to enact no
restrictions at all. State and local governments currently collect sales
tax on medicinal marijuana sales. A small number of cities also impose a
supplemental tax on medical marijuana sales.
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 agencies. The U.S. Supreme Court ruled in 2005
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 regardless of state law. Despite having
this authority, the U.S. Department of Justice’s (DOJ’s) current policy
is not to prosecute individual marijuana patients and caregivers who act
in compliance with state medical marijuana laws.
State Regulation of Medical Marijuana. This
measure establishes the Bureau of Medical Marijuana Enforcement (BMME)
within the state’s Department of Consumer Affairs to regulate the
cultivation, distribution, and sales of medical marijuana. For example,
the BMME would have the authority to regulate how medical marijuana
dispensaries advertise, store, and transport medical marijuana. While
regulations established by the bureau would generally preempt local
medical marijuana laws, the measure permits cities and counties to
continue to regulate the location, size, and number of facilities
distributing, selling, or cultivating medical marijuana as long as the
regulations allow for the establishment of at least one medical
marijuana dispensary for every 50,000 residents. Under the measure,
individuals or organizations cultivating, selling, or distributing
medical marijuana would be required to register with BMME and pay a fee,
as discussed below. Individual medical marijuana users and their
caregivers who cultivate marijuana at their primary residences for
personal use would be exempt from the registration requirement.
The measure allows BMME to establish fees for processing the above
applications. The BMME would be required to adjust these fees on a
sliding scale based on the projected revenue of each registrant.
Revenues collected from the fees would be deposited in a new special
fund, the Medical Marijuana Fund, to pay for the administrative and
regulatory costs of the BMME. Monies in this fund would be continuously
appropriated (and, thus, not subject to the annual state budget
appropriation process). The measure also creates a fine of up to $25,000
for individuals or organizations that cultivate or distribute medical
marijuana without registering with BMME. Monies collected from this fine
would also be deposited in the Medical Marijuana Fund.
Medical Marijuana Taxes. The measure
imposes a new supplemental tax of 2.5 percent on medical marijuana
sales. The revenue from this new tax would be deposited in the Marijuana
Medical Fund to help support the administrative costs of the BMME. Under
the terms of the measure, any remaining tax revenue would be transferred
into a new special fund, the Medical Marijuana Trust Fund, and allocated
on a formula basis to fund (1) research on medical uses of marijuana;
(2) the reimbursement of health care providers who provide emergency
medical services to individuals who are unable to pay; (3) programs that
offer medical marijuana education, low-income assistance, and health
services; and (4) research on best environmental protection practices in
marijuana cultivation. In addition, the measure places a limit on any
additional city and county supplemental taxes imposed specifically on
the sale of medical marijuana at 2.5 percent.
Penalties for Marijuana-Related Crimes. The
measure changes the criminal penalties for certain crimes related to the
possession and distribution of marijuana for non-medicinal purposes. For
example, the measure changes the punishment for possession of
concentrated marijuana, or hash, from a wobbler to a misdemeanor. In
addition, this measure would change the punishment for cultivating,
selling, or possessing for sale, any amount of marijuana from a felony
to a wobbler.
Implementation of some of the provisions of this proposed California
measure could be limited by future legal challenges and federal
government actions. For example, requiring the establishment of a
registration system for medical marijuana dispensaries and imposition of
a registration fee may conflict with federal laws prohibiting the sale
of marijuana. If the federal courts prevent these provisions from being
fully implemented, that could impede the development of the medical
marijuana industry and, thus, reduce the amount of tax revenues from
medical marijuana sales. In addition, if federal policy changes and the
U.S. DOJ begins enforcing federal marijuana laws on medical marijuana
users and caregivers in California, that too would further reduce tax
revenues. Thus, the potential revenue impacts of this measure described
below are subject to considerable uncertainty.
Reduction in Various Criminal Justice Costs.
This 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 of offenders placed
under community supervision. In addition, the measure could result in a
reduction in state and local costs for the enforcement of
marijuana-related offenses and the handling of related criminal cases in
the state court system. This is because processing and prosecuting
arrests for misdemeanor crimes is generally less expensive than for
felony crimes. In total, the measure could result in savings to the
state and local governments on various criminal justice costs of up to
several tens of millions of dollars annually.
Increase in State Regulatory Costs. This
measure would result in additional state costs for BMME to regulate the
cultivation, distribution, and sales of medical marijuana. Depending on
how, and to what extent, the bureau chooses to implement such
regulations, these costs could be in the tens of millions of dollars
annually. However, these additional costs would be entirely funded by
the fees and taxes authorized in the measure.
Increase in State Revenues From Supplemental Tax on
Medical Marijuana Sales. Under this measure, the state
would receive additional revenues in the low tens of millions of dollars
annually from the 2.5 percent supplemental tax on medical marijuana
sales authorized in the measure. These revenues would support the
regulation of medical marijuana and various research and programs
generally related to medical marijuana.
Potential Increase in State and Local Sales Tax Revenues.
This measure could result in an increase in sales tax
compliance. This is because state tax agencies would have access to the
list of medical marijuana dispensaries registered with the BMME, which
they could use to more effectively identify and monitor taxable sales of
medical marijuana. To the extent this results in greater sales tax
compliance, the amount of sales tax revenue collected would increase.
The magnitude of the potential revenue increase would depend on such
factors as how dispensary operators respond to this new regulatory
structure and future tax enforcement actions.
Reduction on Existing Local Medical Marijuana Taxes.
Cities that currently impose a supplemental tax on the
sale of medical marijuana of greater than 2.5 percent would see a
reduction in tax revenues because of this measure’s cap on such taxes.
We estimate that there are currently less than ten cities and counties
with such taxes. The impact on local revenue is unknown and would depend
on the number of local taxes exceeding the cap and the level of medical
marijuana sales in those communities.
Increase in Fine Revenue. The measure could
result in an increase in revenues from the collection of the $25,000
fine levied on individuals and organizations engaging in commercial
medical marijuana activities without a valid registration with the BMME.
Under the terms of this measure, these revenues would support the
regulation of medical marijuana and various research and programs
generally related to medical marijuana.
Summary of Fiscal Effects. We estimate
that this measure would have the following major fiscal effects:
- Savings potentially up to several tens of millions of dollars
annually to state and local governments from reductions in various
criminal justice costs related to enforcing marijuana crimes.
- Additional state tax revenues in the low tens of millions of
dollars annually from a new supplemental tax on medical marijuana
sales, used for various regulatory, research, education, and health
care purposes generally related to medical marijuana.
- Increased costs to regulate medical marijuana potentially in the
tens of millions of dollars annually, offset by fees and/or taxes
authorized by the measure.
Return to Propositions
Return to Legislative Analyst's Office Home Page