Medical Cannabis Licensing Initiative
The Cannabis Licensing Act would require the licensing of medical marijuana manufacturers, distributors, and dispensaries, similar to the way manufacturers and wholesale and retail distributors of tobacco are licensed. This would enable better enforcement of state sales and use tax laws applicable to this industry.
Currently, California use tax is imposed on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer. The obligation to pay the use tax rests with the consumer. Medical marijuana is tangible personal property; however, much of the marketplace operates without visibility or oversight by government authority and thus escapes taxation.
The current controversies surrounding California's medical marijuana dispensaries authorized to facilitate use of medical marijuana under the Compassionate Use Act, enacted by the voters in 1996, have created problems for the patients, the dispensaries, law enforcement, and local governments. Many legal and practical issues about the sale and distribution of medical marijuana remain unaddressed.
The combined effect of (1) an absence of state-level leadership, (2) aggressive promotion of the marijuana trade by some municipalities, (3) burgeoning use of marijuana for medical and non-medical purposes, and (4) rapid growth of large-scale commercial enterprises seeking legitimatization under municipal authority and the Compassionate Use Act, have left the Board of Equalization (BOE) caught uncomfortably in the middle: The BOE has a responsibility to collect sales and use tax, but the current legal structure and our limited enforcement capabilities, make collection efforts extremely difficult.
While many dispensaries intend to operate within the law, there is a clear indication that many other dispensaries are intentionally evading their taxes and may be laundering illegally acquired money and illegally distributing marijuana for other than medical purposes.
Medical marijuana dispensaries with the best intentions do not have a clearly defined legal framework for acquiring and distributing medical marijuana.
This initiative would license medical marijuana distribution in much the same way tobacco distribution is licensed. This will enable the board to apply sales and use taxes much more efficiently.
In 2003, the Legislature enacted the California Cigarette and Tobacco Products Licensing Act to provide for the licensure by the BOE of manufacturers, distributors, and retailers of cigarette and other tobacco products in the state. For the first time in California, the law prohibited the distribution and sale of cigarette and tobacco products unless those in every aspect of the trade were licensed.
The law authorized the state, through the BOE, to suspend or revoke the license of any licensee in violation of the strict regulations governing the legal distribution of tobacco products. It established criminal penalties for selling counterfeit cigarette and tobacco products and imposed fines or imprisonment for possessing, selling, or buying fraudulent cigarette tax stamps.
The primary reason for this law was the increase in unlawful distribution of cigarettes and the loss of state tax revenue. It had been declining by hundreds of millions of dollars, due in part, to unlawful distributors and untaxed sales by well-organized criminals.
The California Cigarette and Tobacco Products Licensing Act has been a success. According to a June 2006 report by the California Attorney General, cigarette tax compliance has improved and there was a positive effect on tax revenues from cigarette and tobacco products.
If similar legislation to license and control the distribution of medical marijuana were enacted, the state would accrue the following benefits:
- It would enable state and local governments to control sales and distribution of marijuana in the same way the tobacco licensing act has stemmed the flow of illegal tobacco products into the market place.
- It would increase sales and use tax revenue for the state and local governments.
- The dispensaries who are now paying their sales tax will know that the state has an effective mechanism to collect tax from their illegal competitors and the ability to shut them down, if necessary.
- The state will control the current legal distribution of medical marijuana from the cultivator to the consumer and help law enforcement authorities stop illegal sales inside medical marijuana dispensaries and elsewhere, to minors and other individuals.
5901 Green Valley Circle
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