What You Need to Know About Recreational Marijuana (Calif Prop 64)

Regardless of your personal views on marijuana, the fact remains that tens of thousands of Californians currently smoke marijuana daily, with that number increasing. The Compassionate Use Act (Prop 215) was passed by voters in 1996 and allowed qualified medical patients and caregivers to legally use and distribute marijuana under certain parameters. In 2009, the U.S. Supreme Court decided not to weigh in on the legislation, allowing California to make its own decisions with regards to the legalization of marijuana, regardless of federal law.

The law and subsequent court decisions make access to cannabis for medical patients now fully protected under California law. The law is settled, but pot smoking, even if is for legitimate medical reasons, is still stigmatized by many in law enforcement, local governments, along with many major employers.

While it may be technically legal to smoke marijuana, it’s not as easy as some envisioned when the law was drafted. State law requires that a patient must first visit a medical doctor, pay for and obtain a state-sanctioned identification card, and purchase cannabis only from a dispensary with which they are a member of a collective. This burdensome process has promoted fraud and violations by creating an environment that is inconvenient to the patient, as well as being lucrative for those looking to capitalize from circumvention of state laws.

With the implementation of the new Medical Marijuana Regulation and Safety Act (MMRSA) on January 1, 2016, the California legislature laid down the groundwork for a more efficient oversight and enforcement system over the medical cannabis industry. The MMRSA is made up of three separate bills establishing a comprehensive system for regulating the cultivation, distribution, sale, and quality of medicinal marijuana. Assembly Bill 266 creates a tracking system under the Bureau of Medical Cannabis Regulation to monitor licensing and cannabis distribution in the state. While the other two bills, AB 243 and SB 643, assign existing regulatory agencies the duty of developing standards for the manufacture, testing, labeling, and production of marijuana-related products, namely “edibles.”

Although much of the requirements laid out in these bills will not be fully implemented until after 2018, the cultivation and distribution of marijuana will now be regulated throughout all aspects of the entire supply chain. Why would the Government Issue such a comprehensive and encompassing law you ask? The MMRSA apparently intends to provide a detailed and more transparent system for the state to manage the projected growth in cannabis cultivation and sales. This “robust oversight” not only favors state regulation of a major economic crop, but it also works to keep the Feds off the backs of legal cannabis businesses.

The cannabis market boom

With much of the marijuana industry being conducted via the black market or underground, it is hard to project the exact size of the overall market with exact accuracy. However, market insiders have estimated that the marijuana market in California to be somewhere between $3 to 5 billion, or about 10% of the national market. That would set the size of the domestic market at around $35 to 50 billion. By comparison, the domestic brewed beverage market (yes, this includes beer) to be around $100 billion annually.

Over the next few years, there are very few sectors of the economy projected to grow by triple-digits. Yet, analysts are predicting that the legal marijuana industry will grow by up to 500% over the next five years. These projections do not include the possibility of casual use legalization in California. So one only has to ponder how much money is in play here.

Although marijuana is still illegal at the federal level, there are currently 24 states that have legalized some form of marijuana use. While more states will be considering medical marijuana in November, California residents will be voting on Proposition 64, also known as the Adult Use of Marijuana Act (AUMA).

Many people, both for and against the legislation have questions as to how its passage will affect the industry and economy. As with any new law, there are both positive and negative positions taken by proponents and detractors. This fact is also true for AUMA, so we will attempt to walk you through some of the minutia of the measure passing, as gathered from supporters, opponents, market insiders, government officials, and industry stakeholders.

What a “Yes” vote will mean

Simply put, under Proposition 64, adults 21 years or older may possess and use marijuana for recreational purposes. Smoking will be permitted in a private home, or a business that is licensed for marijuana consumption. However, smoking will remain illegal in public places where tobacco smoking is allowed, or while driving a vehicle.

As for possession, an adult will be allowed to carry up to an ounce of marijuana and eight grams of concentrated marijuana on their person. An individual will also be able to grow up to six plants in their home, in a locked area, and away from public view. It will be legal to “give away” up to the legally permissible amounts to a person 21 years or older. Possession on school grounds, a day care facility, or youth center would remain illegal.

Here is a brief summary of what a “yes” vote on Prop 64 will mean:

· Legalizes marijuana under state law, for use by adults 21 and older.

· Designates state agencies to license and regulate marijuana industry.

· Imposes state excise tax of 15% on retails sales of marijuana, and state cultivation taxes on marijuana of $9.25 per ounce of flowers and $2.75 per ounce of leaves.

· Exempts medical marijuana from some taxation

· Establishes packaging, labeling, advertising, and marketing standards and restrictions for marijuana products.

· Prohibits marketing and advertising marijuana directly to minors.

· Allows local regulation and taxation of marijuana.

· Authorizes resentencing and destruction of records for prior marijuana convictions.

Who can sell marijuana

Businesses seeking to sell marijuana and marijuana concentrate products for casual use would need to acquire a state license, as well as whatever local business license is required by the city in which they reside. A retail store would be prohibited from conducting business within 600 feet of a school or other facility where children are present.

The sale of recreational cannabis was a big point of contention when state representatives debated the legislation. The last thing the state wanted was large retail firms, like tobacco or liquor companies, pouring millions into retail space in an attempt to corner the market. Therefore, the legislation restricts sales licensing from “large-scale” businesses for five years. The way the market is growing, five years would give more than adequate time for a small business to reap windfall profits.

How marijuana will be regulated

Oh yeah, did we forget to mention regulations? Well, there will be plenty of new regulatory requirements generated under this bill. The measure would change the Bureau of Cannabis Regulation into the Bureau of Marijuana Control, responsible for oversight and regulation of cannabis businesses. The agency would be empowered to control the sale and distribution of marijuana, determine where it can be grown, and dictate and regulate quality standards and advertising rules.

It is expected that the regulatory costs for recreational marijuana will be in the tens of millions of dollars annually. However, it is considered highly likely that these costs will be entirely offset by a portion of the amount of tax revenue collected.

What penalties would be enforced

Under Prop 64, minors under the age of 18 that are convicted of use or possession of marijuana would be required to attend drug education program and community service. A conviction for the illegal sale of marijuana (selling without a license) would be punishable by up to six months in county jail, a $500 fine, or both. Proponents claim that the lightening of marijuana laws would save the state tens of millions in prosecution and incarceration costs. The office of the Attorney General supports this assertion as well.

Revenue and taxation

As with any new law in California that involves the sale and purchase of a product, the government wants to wet its beak. The Attorney General estimates that state and local tax revenues are expected to be in the hundreds of millions, and as high as $1 billion per year. The numbers vary depending on how local taxes will affect the market, how the federal government approaches legalization, and price fluctuations based on supply and demand.

Prop 64 creates two new state excise tax categories — one on the growing of the product and one for the retail sale. Local governments would also be permitted to place a tax upon the cultivation and sale of cannabis.

The measure would set a cultivation tax on the flowers of $9.25 per ounce, and $2.75 per ounce for leaves of the plant. Retail sales of marijuana and marijuana-based concentrates would be taxed at 15 % across the board. Certain medical marijuana products would be exempt from the tax. An adjustment for inflation would not take place until 2020.

Follow the money

Of course, we can’t have a new tax without a new tax fund with which to park and allocate those monies. So where is all the money going? Well, Prop 64 would create a new California Marijuana Tax Fund to manage the collection and distribution of tax revenue. Expect local governments to get a piece of the action as well with a varying degree of additional taxation. Cities will be given a fair amount of leeway in how they choose to license and administer fees and taxes for marijuana businesses operating in their communities.

The first state tax revenue would be used to cover the expense of regulating and administering marijuana laws. The next amount would be used to pay for enforcement, research, and drug treatment, including:

· $2 million per year to the UC San Diego Center for Medical Cannabis Research to study medical marijuana, and its effects on patients.

· $10 million per year for 11 years for public California universities to research and evaluate the implementation and impact of Proposition 64.

· $3 million annually for five years to the Department of the California Highway Patrol for developing protocols to determine whether a vehicle driver is impaired by marijuana.

· $10 million, increasing each year by $10 million until settling at $50 million in 2022, for grants to local health departments and community-based nonprofits supporting job placement, mental health treatment, and legal services to for communities disproportionately affected by past federal and state drug policies.

Any remaining annual tax revenue would be allocated as follows:

· 60 percent for youth programs for drug education, prevention, and treatment.

· 20 percent to prevent environmental damage from illegal marijuana producers.

· 20 percent for programs designed to reduce driving under the influence of marijuana and a grant program designed to reduce negative impacts on health and safety.

Who is supporting and who is opposed

The biggest supporter of Prop 64 is the founder of Napster and Facebook investor Sean Parker, who helped sponsor the initiative and who has personally donated over $2 million to its passage.

Another big supporter is California NORML, a non-profit advocacy group for the reformation of California’s marijuana laws, stating that the measure will reduce crime and provide medicinal users with easier access. The LA Times and San Francisco Chronicle have also endorsed the bill.

Notable Supporters:

Dr. Donald O. Lyman, Former Chief of Chronic Disease and Injury Control

Gretchen Burns, Executive Director Parents for Addiction Treatment and Healing

Steve Downing, Former Deputy Chief Los Angeles Police Department

On the flip side, the California Public Safety Institute has sponsored the “No on 64” initiative. They claim that the law will allow ads promoting marijuana smoking, as well as concentrated marijuana edibles that could entice children, leading to greater addiction and health issues. Nearly every metropolitan police organization has endorsed No on 64 as well. A notable Pennsylvania millionaire, Julie Schauer has contributed $1.4 million to the campaign. The California Republican Party is also on record as being opposed to legalization.

Notable Opposition:

Diane Feinstein, United States Senator for State of California

Doug Villars, President California Association of Highway Patrolmen

C. Duane Dauner, President California Hospital Association

Conclusion

The proponents of Prop 64 claim that the law would reduce costs on state and local government for prosecuting and enforcing marijuana laws. While there are not many people incarcerated for possession or use of marijuana these days, state prison is populated with individuals convicted for the growing and distribution of illegal marijuana. Prop 64 would allow for those people to be eligible for resentencing, as well as to have their sentence commuted or extinguished.

One of the biggest benefits touted by supporters of AUMA is, of course, the amount of tax revenue that will be generated under legalization. Besides the taxes levied against new marijuana businesses, the state believes taxes that are being “lost” through illegal pot sales, will now be captured — or at least more of it. One billion dollars of new taxes for a state that spends money faster than it can collect it is more than enough incentive for many in government to support a yes vote on Prop 64 passage.

While some evidence shows that marijuana legalization has reduced the amount of youth engaging in pot use, it is not yet known how the legal advertising and sale of recreational weed will affect the smoking habits of young people. We do know that the new law will provide for strict labeling, packaging, and advertising requirements in an attempt to prevent marijuana from ending up in children’s hands. As the law stands now, there are no quality standards, no packaging requirements, and no advertising restrictions on illegal marijuana sales. This requirement of the measure leads supporters of legalization to presume the new rules and regulations will help reduce the risk of youth engaging in marijuana use.

Whether you’re for it or against it, hemp has been grown and used recreationally for thousands of years. Besides its proven medicinal uses, many smoke weed to relax, de-stress, or alleviate sleeplessness. This fact does not look to change anytime soon, especially considering these same users can just as likely obtain a medicinal license if they so choose. With the over-abundance of pharmaceutical misuse and abuse by today’s adults and youth, it seems clear that Americans could use a little more homeopathic solutions to some of life’s little discomforts rather than relying on manufactured drugs.

With polling indicating that Prop 64 is currently winning approval among the general population, along with the largest support coalition ever assembled for the legalization of marijuana, it’s starting to look increasingly likely that AUMA will be approved this November 8. How fast it will be implemented, what effect it will have on the local and state economy, and how big an industry it will foster, well, for that we will have to just wait and see.