Now that voters have made recreational marijuana legal in California, city and county executives are facing a myriad of questions associated with the local implementation of Prop 64 [the Adult Use of Marijuana Act (AUMA)]. What are the regulatory implications? How does the new law reconcile with existing medical marijuana guidelines? How will recreational marijuana be taxed at the local level? This article breaks down the fundamentals of Prop 64 for municipal managers as they face the wave of challenges accompanying this emerging new industry.
What does Prop 64 do?
Of course, the primary impact of Prop 64 is the legalization of nonmedical marijuana for adults 21 and over. It also creates a regulatory system for recreational marijuana businesses – including cultivation, manufacturing, testing and retail operations. It also changes the penalties for marijuana related crime. Municipal executives are typically most interested in provisions of the law related to taxation and local regulation. Prop 64 explicitly empowers local governments to prohibit or regulate and license commercial non-medical marijuana.
What is allowed under Prop 64?
The law makes it legal to smoke marijuana in a private home or a business licensed for on-site consumption. Which, of course, introduces one of the core challenges for city and county governments: establishing a system for licensing businesses that have an interest in allowing on-site consumption.
Prop 64 also makes it legal to process, transport, purchase, obtain, or give away without compensation to persons 21 or older up to 28.5 grams (roughly one ounce) of marijuana and 8 grams of marijuana concentrate. And it allows people to grow up to 6 plants at home. However, local governments are given the authority to regulate – but not ban – growing marijuana in their homes. For example, local governments may select to only allow indoor growing. Or they may choose to require a permit for home growing operations.
What isn’t allowed under Prop 64?
One of the first questions asked by those unfamiliar with Prop 64 is whether or not we will soon be seeing people smoking marijuana in public places in California. The answer is … yes, but with limitations. Marijuana smokers will be prohibited from smoking in any public place where smoking tobacco is prohibited. Moreover, smoking while driving continues to be illegal.
There are also clear restrictions on possessing, smoking or ingesting marijuana or marijuana products in or upon the grounds of a school, day care center, or youth center while children are present. In addition, it is illegal to provide marijuana to minors for non-medical purposes.
Finally, it is not legal to grow marijuana in an area that is unlocked or visible from a public place.
What are the difference between Medical Marijuana and Recreational Marijuana laws?
While recreational marijuana regulations were outlined under Prop 64, Medical Marijuana is regulated under the Medical Cannabis Regulation and Safety Act (MCRSA).
MCRSA authorizes local agencies to impose excise taxes on medical marijuana businesses. Prop 64 exempts medical marijuana from state and local sales taxes, but permits local governments to impose their own tax rates on recreational marijuana – giving municipalities a great deal of flexibility on how they choose to regulate and tax the product.
Prop 64 directly imposes state taxes on the purchase and cultivation of recreational marijuana.
Under the new law, local governments may allow, regulate, or prohibit commercial marijuana businesses within their jurisdictions. But local governments that prohibit cannabis businesses from operating will be prohibited from accessing Prop 64 grant funds which are likely to be significant. Local governments are also barred from prohibiting use of public roads for deliveries in other jurisdictions.
MCRSA allows local governments to prohibit all personal cultivation. Prop 64 allows local governments to reasonably regulate personal cultivation but prohibits local bans on private indoor personal cultivation
How will the revenue from recreational marijuana be distributed?
A percentage of tax revenue collected under Prop 64 will be allocated for administrative and research funding. First, it will be used to pay back state agencies for administrative costs not covered by licensing fees. Some of the specific allocations include:
- $10 million will be allocated to job placement assistance and substance abuse treatment, which will increase by $10 million a year for 5 years until the annual allocation reaches $50 million.
- $10 million annually to research and evaluate the effects of Proposition 64.
- $3 million to the California Highway Patrol to develop protocols and best practices to determine when someone is driving impaired.
- $2 million to the University of California, San Diego Center for Medical Cannabis Research, to study the risks and benefits of medical marijuana.
All remaining funds, which will make up the majority of revenue, will be distributed as follows:
- 60 percent for youth programs, including substance abuse education, prevention and treatment.
- 20 percent to clean up environmental damage caused by illegal marijuana grows.
- 20 percent to fund DUI and traffic safety programs and help state and local governments enforce the new law.
Reconciling MCRSA and Prop 64 – AB 64
There are some key differences between Medical Marijuana laws and Prop 64. AB 64, was introduced by Assembly members Bonta, Cooley, Jones-Sawyer, Lackey and Wood in December 2016, in order to protect public safety, communities, patients, consumers and the environment. AB 64 addresses the following key issues and provisions:
- Advance $3 Million in CHP Funding – Prop 64 funding for this purpose does not begin until fiscal year 2018-19, this would advance those funds to the 2017-18 fiscal year.
- Recognize Non-Storefront Dispensaries – provides a pathway to license and guide local governments in allowing delivery services as non-storefront dispensaries.
- Facilitate Corporate Restructuring – allows medical cannabis collectives to operate on a “for profit” basis and engage in necessary corporate restructuring, prior to applying for state license.
- Protect Cannabis Advertising Standards – applies the advertising restrictions and marketing by licensees to all entities in the medical and adult use cannabis industry.
- Preserve Intellectual Property – allows the Secretary of State to issue state trademarks for medical and adult use cannabis and cannabis products, facilitating protections of intellectual property and trademarks.
While the emerging recreational and medical marijuana industry provides challenges to municipal executives, the opportunities are equally significant. Some sources estimate that legalized cannabis in California could generate over $1 billion in annual tax revenue to cash-strapped government agencies.
Ultimately, government executives are navigating the emerging landscape to regulate legal marijuana by working together through organizations such as the League of California Cities and the California Society of Municipal Finance Officers (CSMFO). Peer-to-peer collaboration allows state and local regulators to tap into emerging best practices and solutions across dozens of government agencies.