BREAKING: Newsom Proposes California Cannabis Regulatory Consolidation

10 Jan BREAKING: Newsom Proposes California Cannabis Regulatory Consolidation

On Friday, January 10, 2019, the California Bureau of Cannabis Control (BCC) issued an email press release entitled, “Consolidation of California Cannabis Licensing Authorities” concerning a budget proposal released by Governor Gavin Newsom. Per the press release:

1. Newsom intends to combine all three California cannabis agencies into one single Department of Cannabis Control by July 2021. This new department would have an enforcement branch and would align the current, different sets of regulations. More details will be released this spring.
2. The state intends to change the point of collection for various cannabis taxes. Under this plan, the first distributor in the chain of distributors would be responsible for remitting the cultivation tax, and retailers would be responsible for remitting the excise tax. The state believes that this will simplify tax collection both for the California Department  of Tax and Fee Administration (CDTFA) and for the industry.
3. Governor Newsom will consult with the industry and stakeholders to consider reducing the number and/or rates of taxes.
4. The budget estimates that about $332.8 million will be available for youth education, prevention, early intervention, and treatment; environmental protection; and public safety-related activities in 2020 and 2021.

It’s hard to say just yet how these changes would play out, but here are some of our initial thoughts:

• Combining all three agencies into one would have its upsides and downsides. It will certainly make life simpler for applicants with multiple licenses who would no longer need to worry about complying with multiple sets of often-different regulations. It would harmonize things like fees and enforcement as well. But this harmonization may bring unintended consequences. The reality currently is that the BCC’s rules are much more aggressive on things like ownership disclosures and the ability to contract with third parties. In this specific case, companies that currently contract with licensees of the Department of Public Health and Department of Food and Agriculture may need to reevaluate what this would mean for them (of course, depending on how the ultimate regs shake out).
• A unified enforcement arm probably would mean more enforcement. To date, there has not been much. That will probably change in the near future.
• The transition from three agencies to one will probably be long, drawn-out and complicated.
• The proposed changes to tax collection should be welcome news for distributors, but less welcome news for retailers. The rules for how and when distributors collect and remit taxes to the CDTFA are very complicated, and these changes would stop the complex process of transferring cultivation taxes through multiple license types. They would also alleviate the burden on distributors to remit the excise tax. But this would just be one more thing for retailers to worry about.
• I would not hold my breath when it comes to changes to the number or rate of taxes, at least until we have some hard data from the state. A commitment to talk to industry stakeholders does not mean very much just yet, but let’s hope the state mellows out with taxation.

This is all very new news, so please stay tuned to the Canna Law Blog for further updates and analysis.