Recreational Marijuana: What Prop. 64 Will Actually Mean in California

California voters on November 8 approved Prop. 64, which is an initiative statute that legalizes marijuana and hemp under state law, with specified limitations. The ballot measure designates state agencies to license and regulate the recreational marijuana industry and it imposes a state excise tax on retail sales of marijuana equal to 15 percent of the sales price, as well as state cultivation taxes on marijuana of $9.25 per ounce of flowers and $2.75 per ounce of leaves.

In addition, Prop. 64 exempts medical marijuana from some taxation and establishes packaging, labeling, advertising and marketing standards and restrictions for marijuana products. The ballot measure allows local regulation and taxation of marijuana. Additionally, Prop. 64 prohibits marketing and advertising marijuana to minors and it authorizes resentencing and destruction of records for prior marijuana convictions under specified circumstances.

According to the fiscal estimate prepared by the Legislative Analyst and Director of Finance, the enactment of Prop. 64 will result in “net reduced costs ranging from tens of millions of dollars to potentially exceeding $100 million annually to state and local governments related to enforcing certain marijuana-related offenses, handling the related criminal cases in the court system, and incarcerating and supervising certain marijuana offenders.

“Net additional state and local tax revenues potentially ranging from the high hundreds of millions of dollars to over $1 billion annually related to the production and sale of marijuana. Most of these funds would be required to be spent for specific purposes such as substance use disorder education, prevention and treatment.”

According to the official ballot arguments, a YES vote on this measure meant: “Adults 21 years of age or older could legally grow, possess and use marijuana for nonmedical purposes, with certain restrictions. The state would regulate nonmedical marijuana businesses and tax the growing and selling of medical and nonmedical marijuana. Most of the revenue from such taxes would support youth programs, environmental protection, and law enforcement.

“Prop. 64 creates a safe, legal system for adult use of marijuana. It controls, regulates and taxes marijuana use, and has the nation’s strictest protections for children. It provides billions for afterschool programs, job training, drug treatment, and cracking down on impaired driving. Fix our approach to marijuana.”

A NO vote on this measure meant: “Growing, possessing or using marijuana for nonmedical purposes would remain illegal. It would still be legal to grow, possess or use marijuana for medical purposes.

“Proposition 64 purposely omits a DUI standard to keep marijuana-impaired drivers off our highways. California Association of Highway Patrolmen and Senator Dianne Feinstein strenuously oppose. Legalizes ads promoting smoking marijuana, Gummy candy and brownies on shows watched by millions of children and teens. Shows reckless disregard for child health and safety.”

According to a summary prepared by the independent Legislative Analyst Office, marijuana is generally illegal under existing state law – either to possess it or use it. In 1996, voters approved Proposition 215, which made it legal under state law for individuals of any age to use marijuana in California for certain medical purposes. Individuals must have a recommendation from a doctor to use medical marijuana.

In 2003, the Legislature legalized medical marijuana collectives, which are nonprofit organizations that grow and provide marijuana to their members. As a result of 2015 legislation passed by the Legislature, the state is currently adopting new medical cannabis regulations. Local governments will continue to have the ability to regulate where and how medical marijuana businesses operate in this state.

The LAO notes that, under federal law, it is illegal to possess or use marijuana, including for medical use. The U.S. Supreme Court ruled in 2005 that federal agencies could continue under federal law to prosecute individuals who possess or use marijuana for medical purposes even if legal under a state’s law.

Currently, however, the U.S. Department of Justice chooses not to prosecute most marijuana users and businesses that follow state and local marijuana laws if those laws are consistent with federal priorities. These priorities include preventing minors from using marijuana and preventing marijuana from being taken to other states. More than half a dozen requirements must be met under the DOJ’s “Cole Memo.”

In addition to California, voters in Arizona, Nevada, Maine and Massachusetts also passed ballot measures to legalize recreational use of marijuana. Colorado, Washington, Oregon and Alaska currently allow its limited use. Medical marijuana was also on the ballot in four states this year.

Due to the voters’ enactment of Prop. 64, California now (1) legalizes adult nonmedical use of marijuana, (2) creates a system for regulating nonmedical marijuana businesses, (3) imposes taxes on marijuana, and (4) changes penalties for marijuana-related crimes.

Specifically, Prop. 64 changes state law to legalize the use of marijuana for nonmedical purposes by adults age 21 and over. As a result, adults age 21 and over will be able to purchase marijuana at state-licensed businesses or through their delivery services (effective January 1, 2018). Businesses can generally not be located within 600 feet of a school, day care center, or youth center, unless allowed by a local government. Proponents claim that marijuana will have limited access and that these are the strongest protections for youth of any other states’ measures.

In addition, Prop. 64 changes the name of the Bureau of Medical Cannabis Regulation to the Bureau of Marijuana Control and makes the Bureau responsible for regulating and licensing nonmedical marijuana businesses (it is obviously already handling the regulation of medical cannabis in this state). In addition, the ballot measure requires other state agencies to regulate and license different parts of the nonmedical marijuana industry (including Department of Food & Agriculture and the Department of Public Health). These state agencies will have responsibilities similar to the ones they currently have for medical marijuana.

Under the ballot measure, cities and counties can regulate nonmedical marijuana businesses. For example, cities and counties can require nonmedical marijuana businesses to obtain local licenses and restrict where they could be located. Cities and counties can also completely ban marijuana-related businesses. However, they cannot ban the transportation of marijuana through their jurisdictions.

The ballot measure imposes new state taxes on growing and selling both medical and nonmedical marijuana. The new tax on growing marijuana will be based on a dollar amount per ounce of marijuana, and the new excise tax will be based on the retail price of marijuana products sold.

The measure will also affect sales tax revenue to the state and local governments.

After initial spending, revenues will be allocated as follows:

  • 60 percent for youth programs — including substance use disorder education, prevention and treatment.
  • 20 percent to clean up and prevent environmental damage resulting from the illegal growing of marijuana.
  • 20 percent for (1) programs designed to reduce driving under the influence of alcohol, marijuana and other drugs and (2) a grant program designed to reduce any potential negative impacts on public health or safety resulting from the measure.

In addition, Prop. 64 imposes packaging and labeling requirements so that all marijuana sales will include a standard warning label. These cannot be targeted towards children and packages must be child-proof. While Prop. 64 allows for the advertisement of marijuana-related products, it cannot be targeted toward children.

Prop. 64 also changes state marijuana penalties. And, under the ballot measure, individuals serving sentences for activities that are made legal or are subject to lesser penalties under the measure will be eligible for resentencing.

According to the proponents, “Proposition 64 finally creates a safe, legal, and comprehensive system for adult use of marijuana while protecting our children. Marijuana is available nearly everywhere in California — but without any protections for children, without assurances of product safety, and without generating tax revenue for the state.

“Prop. 64 controls, regulates and taxes adult use of marijuana, and ends California’s criminalization of responsible adult use. How Prop. 64 Works:

  • “Under this law, adults 21+ will be allowed to possess small amounts of nonmedical marijuana, and to grow small amounts at home for personal use. Sale of nonmedical marijuana will be legal only at highly regulated, licensed marijuana businesses, and only adults 21+ will be permitted to enter. Bars will not sell marijuana, nor will liquor stores or grocery stores.

“Child Protections:

  • Drug dealers don’t ask for proof of age and today can sell marijuana laced with dangerous drugs and chemicals. 64 includes toughest-in-the-nation protections for children, requiring purchasers to be 21, banning advertising directed to children, and requiring clear labeling and independent product testing to ensure safety. 64 prohibits marijuana businesses next to schools.”

On the other hand, opponents of Prop. 64 argued the following: “Flaw #1: Doubling of highway fatalities. Flaw #2: Allows marijuana growing near schools and parks. Flaw #3: Will increase, not decrease black market and drug cartel activity. Flaw #4: Could roll back the total prohibition of smoking ads on TV. Flaw #5: Proposition 64 is an all-out assault on underprivileged neighborhoods already reeling from alcohol and drug addiction problems.”

Prop. 64 as a practical matter allows adults aged 21 or older to buy, possess or transport small amounts of marijuana for personal use. They can also cultivate up to six plants as long as it is not visible to the public. They cannot sell it. The ballot measure also provides extensive state licensing schemes based upon the work currently being done by a number of state agencies that are charged with implementing the medical cannabis laws. The ballot measure establishes standards for marijuana products and it allows local government to regulate and tax marijuana.

Major concerns from opponents of marijuana legalization have focused on the advertising restrictions and whether enough will be done to protect children; the failure to include a DUI standard (Prop. 64 provides funding to the California Highway Patrol to undertake the determination of this standard); and whether so called “on-demand delivery” will be permitted (which the proponents claim is prohibited).

As a result of the enactment of Prop. 64, state agencies will be tasked with creating a regulatory program for both medical and recreational cannabis usage in this state. Local jurisdictions will have to decide whether they want marijuana-related activities to be sanctioned within their jurisdictions considering the societal and revenue impacts of the products. And the state may be looking at $1 billion annually in new state revenues as a result of Prop. 64.

Chris Micheli is an attorney and legislative advocate with the Sacramento governmental relations firm of Aprea & Micheli. He can be reached at (916) 448-3075.

What Will the California Propositions Cost You?

MoneyAll statewide ballot measures receive an analysis from the Department of Finance and the Legislative Analyst’s Office as to the fiscal effects of the initiatives. That got me wondering what it would cost Californians if in the unlikely event an unrestrained electorate decided to vote Yes on all 17 measures.

Truth be told, it is more likely that the voters reject a larger share of the ballot measures. In fact, throughout the state’s history, two out of three initiatives that make the ballot fail. Still it is interesting to know what we could be facing if the unusual happens. After all, the Cubs won the World Series, so you never know if something unexpected happens. Maybe voters will vote yes on all. It wouldn’t be unprecedented. On the 1911 special election ballot, 22 out of 23 measures passed.

In trying to calculate the cost of ballot measures, even the experts at Finance and LAO have trouble. You’ll find the words “uncertain” and “unknown” and “depends” scattered about the fiscal effect sections attached to many of the propositions.

Some measures are easy to tabulate. The Proposition 51 school bond will cost $17.6 billion to pay the principal and interest, or $500 million a year for 35 years. The legislative transparency initiative, Proposition 54 will require a couple of million start up money for recording equipment and an on-going additional million for staff and storage of videos.

The tax measures can also be tagged with numbers, although Proposition 55’s take calculated between $4 and $9 billion depends on the economy. Proposition 56’s tobacco tax is expected to bring in $1.3 to $1.6 billion at first. However, a drop off is predicted when consumers react negatively to the additional tax on smoking products.

The marijuana legalization measure, Proposition 64, comes with a tax and the fiscal effect could be a billion dollars to the state and more to local governments that apply a local tax to cannabis. There are also regulatory and health service costs associated with legalizing marijuana along with the potential for cost savings with fewer incarcerations.

Proposition 61 dedicated to placing a spending cap on drug costs is specifically designed to save the state money. But hold on a second, say the fiscal watchdogs. Uncertainty is a watchword here. According to the fiscal analysis, “drug manufacturers would likely take actions that mitigate the impact of the measure.” The fiscal effects of this measure were officially summed up as “unknown.”

Also, pretty much unknown is the fiscal effect of Propositions 52 and 53. Prop. 52, the hospital fees for Medi-Cal matched by Federal money received its “uncertain” designation because there was no telling if the legislature would continue this fee on its own. Prop. 53, requiring a vote on revenue bonds, also was labeled “unknown” because not many projects would qualify as needing $2 billion in revenue bonds. If that were the case, the analysis suggested there would be ways around the $2 billion standard by breaking projects into smaller parts.

Increased court and law enforcement costs could run into the tens of millions of dollars under the new gun and ammo regulations offered by Proposition 63.

Elimination of the death penalty could reduce costs to the state about $150 million. However, one of those “depends” is applied to Proposition 62 — the dollars could be higher or lower depending on a number of factors such as whether the change in law would affect the murder rate and the need for prison construction.

Meanwhile, the counter measure to allow death penalty cases to limit appeals, Prop. 66, also got an “uncertain” price tag depending on how the state dealt with issues such as availability of attorneys, complexity of legal challenges and more.

Gov. Brown’s Proposition 57 parole changes could see net state savings by reducing the state’s prison population. However, county costs are projected to increase because more former prisoners will be supervised on parole and other factors, an estimated few million dollars increase annually.

The condom regulations of Proposition 60 would likely reduce tax revenue according to analysts because the adult film industry might pack up and leave the state. If not, new fees required of film producers would likely cover enforcement costs.

The referendum on banning plastic bags would have little effect on revenues, while its companion measure, Proposition 65 would increase state revenues by diverting the cost of carry out backs from grocers to a state fund.

The last two measures to discuss were not initiatives but put on the ballot by legislators. Proposition 58 would make changes to the English immersion education laws and Proposition 59 would advise elected officials to work to overturn the Citizens United court case. Here the legislators earn kudos for having little the fiscal effects. The English-only reform fiscal effect is considered minor. The prize goes to Prop 59 in which the fiscal effect summary reads in full: “This measure would have no direct fiscal effect on state and local governments.” No uncertainties here.

My intention was to go through the fiscal effect calculations and come up with a number after additions and subtractions if all the measures passed to see what taxpayers could be on the hook for or what state and local governments would take in. However, given all the “uncertainties,” “unknowns” and “it depends,” it is impossible to calculate.

Knowing the fiscal effects of the ballot measures seem to fall in line with Congresswoman Nancy Pelosi’s oft quoted line about the Affordable Care Act: “We have to pass the bill so you can find out what is in it.”

Or in this instance—what it costs.

This piece was originally published by Fox and Hounds Daily

Prop. 13 Report from Legislative Analyst Elicits Mixed Reactions

property taxTwo weeks ago, the California Legislative Analyst released a report entitled “Common Claims About Proposition 13.” On balance, the report was a (mostly) objective view about California’s landmark property tax reduction measure.

As the title of the report implies, there are many claims about Prop. 13, what it does and what it doesn’t do. In fact, we at Howard Jarvis Taxpayers Association have collected a lengthy list of “myths” about Prop. 13 that are deeply ensconced in urban legend. For example, the monolithic education bureaucracy repeatedly claims that Prop. 13 starved public education in California. But the fact is that we now spend 30 percent more on a per student, inflation adjusted basis than we did just prior to Prop. 13’s passage – a time in which there is broad consensus that education in California was the best in the nation. Whatever it is that caused the decline in the quality of public education, it certainly hasn’t been the lack of revenue.

The release of the LAO report instigated a great deal of reaction, ranging from cheers to jeers depending on one’s pre-conceived opinions about Prop. 13. Every interest group, it seems, has cherry picked the report to confirm what they already believe. But objectively, for Prop. 13 defenders, we see much in the report that supports what we’ve been saying for decades.

Abraham Lincoln is quoted as saying, “We can complain because rose bushes have thorns, or rejoice because thorn bushes have roses.” Here are the “roses” we see in the report:

First, the report says that residential and commercial properties turn over at about the same rate, and that Prop. 13 is not the cause of this. It also says that residential property tax growth is only slightly more than that from business properties, but this is due to greater residential development. This runs directly counter to those who desire to strip Prop. 13 protections from business properties.

Second, the report states that small businesses pay less in property tax because of Proposition 13, and that Prop. 13 does not serve as a disincentive to create small businesses. This busts another bubble floated by Prop. 13’s detractors.

Third, and most importantly for the Jarvis faithful comprised of senior homeowners, the report shows that assessed valuation limits provide greater security to retirees.

About the only item in the report that Prop. 13 haters can point to is the LAO’s conclusion that wealthy Californians, who own higher value properties, have benefited more than those with modest homes. But to this we respond with a resounding “Duh.” Obviously, given that Prop. 13’s rate limits and limits on increases in taxable value apply equally to all property, those with more expensive properties will benefit more. Prop. 13’s protections were never designed to be means tested. It provides the same rules to every property owner in California, from the owners of modest bungalows to mansions and from small mom and pop businesses to corporations. It doesn’t pick winners and losers. Only winners.

As California’s leading defender of Proposition 13, we have only a few of quibbles with the LAO report. Here, we will discuss only one. Specifically, the report makes much of the fact that local governments had the power to reduce tax rates prior to Prop. 13’s enactment in 1978 and that this – it is implied – offset the rapid increases in taxable value that homeowners were experiencing. This is true, but in theory only. In reality, while local governments had that power, they didn’t use it. Reductions in tax rates in no way even closely offset increases in taxable values. How do we know this? Simple. Against every special interest and editorial in California, voters – by a 66 percent margin – launched the modern tax revolt known as Prop. 13. All that was missing were the torches and pitchforks. If tax rates had indeed been reduced, this revolt would never have happened.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

This piece was originally published by HJTA.org

Cap-and-Trade Revenue Drastically Lower Than Expected

carbon-tax-1In yet another blow to California’s besieged bullet train, revenues from this year’s cap-and-trade carbon credit auction fell drastically below the state’s goals, triggering a selloff that left analysts unsure of the system’s long-term viability.

“The results of last week’s quarterly auction were posted and revealed that instead of the $500-plus million expected from the sale of state-owned allowances, the state will get only about $10 million, less than 2 percent,” the Sacramento Bee reported.

“The poor results confirmed reports circulating in financial circles that the cap-and-trade program has begun to stumble. February’s auction resulted in some allowances being left unsold — the first time that had happened. Afterward, there was a brisk trade in the secondary market as speculators began dumping their holdings due to uncertainty about the future of the program, which may expire in 2020.”

Officials and activists swiftly sought to downplay the damage. “Over the long-term allowances will be needed, and so the allowances that will be offered through the auction will need to be purchased,” said Ross Brown of the Legislative Analyst’s Office. “But in the short-term it’s hard to know and it depends on the underlying supply and demand.” From an environmentalist standpoint, meanwhile, “it’s important to remember that […] it’s the declining cap — not the price or number of allowances sold at auction — that drives emissions reductions,” wrote Alex Jackson at the National Resources Defense Council. “That is the purpose of the program, not raising revenue.” But with 2020 looming, Jackson allowed, the one-two punch against high-speed rail and cap-and-trade have cast doubt on California’s strategy of fusing infrastructure and environmentalism into a single economic policy.

Case and controversy

Adding to the upheaval, the carbon credit regime itself has wound up in court, as the state Chamber of Commerce pushes to prove that the legislation authorizing its creation — AB32 — has run afoul of the state constitution. “Propositions 13 and 26 require a two-thirds majority for the Legislature to approve new or higher taxes and fees,” as Hoover Institution fellow Carson Bruno wrote at the Bee. “Whether or not AB32, which barely passed in 2006, is unconstitutional depends on whether the cap-and-trade revenues constitute either a tax or a fee. These auction revenues fit the definition of both a tax and fee. They are imposed by a government entity, spent on government activities and are collected in exchange for a transaction — in this case a permit to emit greenhouse gases.”

Officials have countered that argument in court. “The state contends the fees are not taxes, but a consequence of regulations,” as the Times noted. But a judge hearing arguments “recently asked a series of questions that perhaps fueled speculation that he might rule in favor of the suit,” according to the paper.

The governor’s gambit

Flexing his considerable political skill and discipline to balance competing interests to his ideological left, Gov. Jerry Brown had labored to ensure that cap-and-trade funds could be leveraged to make the train a viable public and private sector investment. That presumed a degree of stability in revenues that now can’t be relied on. “The rail authority had been expecting about $150 million,” the Los Angeles Times observed; now, it will receive just $2.5 million. “Whatever prompted the lack of buyers, the auction is a stark example of the uncertainty and risk of relying on actively-traded carbon credits to build the bullet train, a problem highlighted in recent legislative testimony by the Legislative Analyst’s Office and a peer-review panel for the $64-billion high-speed rail.”

Brown had hedged against just such an eventuality, however. State finance spokesman H.D. Palmer “noted that there is a $500-million reserve set up in anticipation of volatility that could help close the gap,” the Times added. But Brown will have to clear the emergency expenditure in Sacramento, where some liberal lawmakers, hoping to channel more money to environmental policy, could try to nix the scheme by aligning with Republicans long bent on scrapping the train.

This piece was originally published by CalWatchdog.com

Hurting Business Owners Is No Way To Help The Poor

PovertyWhen George Washington was on his deathbed, his doctors tried to save his life by bleeding him, which was considered good medicine at the time.

California businesses must feel like the father of our country did when he tried to stop the bleeding but the well-intentioned practitioners wouldn’t be stopped.

With California’s income taxes, sales taxes, energy prices and other costs at or near the highest in the nation, plus a regulatory and legal climate that escalates costs and creates high-risk uncertainties, many businesses have left the state, reduced hiring or cut hours and wages.

California’s poverty rate is 23 percent — 27 percent for children. There are now 12 million Californians enrolled in Medi-Cal, the safety-net health insurance program for low-income people.

This is a crisis, and California has to take action to address it. But we shouldn’t take actions that are inspired by the medical beliefs of George Washington’s doctors.

A proposed ballot initiative called the “Lifting Children and Families Out of Poverty Act” is exactly that kind of action. The measure would open a hole in Proposition 13 and start to draw money out of California real estate valued at more than $3 million.

The proposed mechanism is a property tax surcharge. It would begin at 0.3 percent on assessed property values over $3 million and rise to 0.8 percent on values greater than $10 million. Although it would apply to both residential and commercial property, its greatest impact would be on California businesses.

Property taxes bring in about $55 billion to the state treasury annually, and the state Legislative Analyst’s Office estimates that the surcharge would collect between $6 billion and $7 billion in its first year. But the money would not go into the general fund. None of the cash would be available to pay for Medi-Cal and none of it would be allocated toward Proposition 98’s minimum funding requirement for education.

Instead, the billions would go into a new special fund called the Lifting Children and Families Out of Poverty Fund, which would be used to fund programs and make grants to organizations that provide services.

Which programs? What organizations? Where? These decisions would be made by the California Department of Education. The measure would put the CDE in charge of reviewing plans and annual reports submitted by communities that apply to become “California Promise Zones” eligible to receive money from the fund.

The ballot measure would increase funding for cash grants to the poor and for subsidized tax-refund checks to low-income workers. It would spend billions on subsidized child care, loans for child care providers, grants for students studying to be child care providers, and loan forgiveness for child development professionals. It would also pay for preschool in designated areas, and for home nursing visits to check on families with young children.

About 10 percent of the money raised would be spent on job training, including tax credits for businesses that participate in the training programs.

But education, training and child care, while important, are not going to lift people out of poverty unless they can find good jobs.

A true anti-poverty agenda would be focused on improving the conditions for business expansion and job creation throughout California. It would include tax cuts, an end to lawsuit abuse, and an effort to prune unnecessary regulations, as well as funding for education, job training and child care.

We’ll never cure poverty by bleeding job creators. That’s the medically proven path to the tomb.

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