By Jason Liu, second-year student at the University of Washington School of Law.
This week in California, a ballot measure legalizing recreational cannabis met the signature requirement to get on the Nov. 8th ballot. As California qualifies as the 8th largest economy in the world, there would be tremendous effects if recreational cannabis was legalized. This blog post looks at the regulatory structure of the initiative.
This is potentially quick way for California to legalize recreational cannabis. Spearheaded by a diverse coalition, the Adult Use of Marijuana Act (“AUMA”) collected 600,000 signatures in order to qualify for the ballot initiative. The ballot initiative process is a direct way for voters to enact laws. Following the meeting of signature requirements and some procedural elements, initiatives in California go straight to the voters. As such, this initiative could be California’s next law on recreational cannabis.
From a review of the initiative’s text, the key points are:
(1) allow adults 21 years and older to possess up to one ounce of marijuana and cultivate up to six plants for personal use;
(2) regulate and tax the production, manufacture, and sale of marijuana for adult use; and
(3) rewrite criminal penalties so as to reduce the most common marijuana felonies to misdemeanors and allow prior offenders to petition for reduced charges.
From a regulatory perspective, licenses for medical and adult-use would be distinct from recreational use, but managed by the same agency in the Department of Consumer Affairs. The Bureau of Medical Marijuana Regulation in the Department of Consumer Affairs would be renamed the Bureau of Marijuana Control and given chief authority to regulate the industry.
Under the proposed law, the Bureau/DCA is charged with licensing transport, distribution and sale. The Bureau is to convene an advisory committee of knowledgeable stakeholders to help develop regulations and issue reports. Furthermore, The Governor is to appoint an independent, three-member Appeals Board to adjudicate appeals subject to standard procedures. The Department of Food and Agriculture approves licensing cultivation, and the Department of Public Health with licensing, manufacturing, and testing.
In terms of integration of producing, processing, and retailing, AUMA does not prohibit vertical integration of licenses. In general, a licensee may hold any combination of licenses: cultivator, manufacturer, retailer, distributor and tester. The one exception is type 5 large cultivators, who may not hold distribution or testing licenses.
On cannabis taxes, there will be many taxes similar to Washington State’s taxing scheme. The state’s excise tax on marijuana will be set at 15%, which is cumulative with the state’s 7.5% sales tax. A cultivation tax, in the amount of $9.75 per ounce of flowers and $2.75 per ounce of leaves, to be paid by the state’s growers, and any local taxes which may be levied in addition to the state-level taxes.
Overall, the AUMA appears flexible for state agencies and local governments to manage recreational cannabis. A big difference between AUMA and Washington State is that AUMA allows license holders to produce, process, and distribute cannabis. A reason why Washington did not allow integration is the fear that the industry would become dominated by solo players. Since California is such a large market, they may not have the same fears. Also, it is more economically efficient to integrate all processes into one business.
Also, the tax scheme appears lower than the 37 percent excise tax on cannabis products. Although this number may change, these tax levels will mean that start-up businesses will have less overhead. However, there does not appear to be any fiscal analysis as to whether the AUMA tax rate is sufficient to sustain the associated administrative processes.
In general, the AUMA is a major step towards to legalization of recreational cannabis in California. As California is a significant economic and social force, any changes in California will be closely watched.