2022 California Cannabis Legislative Update (Part 2)

In our second installment of the legislative installment we bring you the remaining bills in both houses. The following summary contains the rest of the significant bills introduced for the 2022 legislative sessions, and industry participants are encouraged to keep an eye out for the outcome of these bills in the coming months. See our first installment here.

AB 2728: Unlawful cannabis activity; penalties.

Assembly Member Thurston Smith (R) of the 33^rd District introduced this bill on February 18, 2022.

This proposed bill imposes additional penalties upon unlicensed commercial cannabis activity. In effect, this language creates a greater range and severity for civil fines upon illegal commercial cannabis activity, that drastically scales based upon the amount of product and history of violations. As previously written, daily fines had no ability to increase or scale outside of limited court discretion.

Under AB 2728, for a party possessing between six (6) and two hundred (200) plants, the amended civil penalty provides a scaling fee for each violation from $1,000 to $3,000 dollars. Parties with more than two hundred (200) plants can be fined a scaling fee from $3,000 to $10,000 for each violation, plus a per unit civil fine for cannabis product, concentrate, or flower.

AB 2792: Cannabis; excise tax; cultivation tax.

Assembly Members Blanca Rubio (D) of the 48^th District and Christina Garcia (D) of the 56^th District introduced this bill on February 18^th, 2022.

Existing law requires the California Department of Tax and Fee Administration to adjust tax rates on a bi-annual basis in reflection of both inflation and the wholesale cost of cannabis. AB-2792 proposes a new standard for tax treatment from July 2022 onwards, by proposing time-limited tax breaks to the currently enacted excise tax and cultivation tax. First, the amendments limit any bi-annual increase to the definition of the “average market price” between July 1, 2022, and July 1, 2025. During this initial period, the excise tax imposed upon consumers would be implemented as follows:

• In an arm’s length transaction, at a rate of 15 percent of the average market price of any retail sale by a cannabis retailer.
• In a nonarm’s length transaction, at a rate of 8 percent of the average market price of any retail sale by a cannabis retailer.

For cannabis sold by a licensee under a fee waiver or deferral, the excise tax is eliminated during the prescribed three-year period. On July 1, 2025, the cannabis excise tax will be fifteen percent (15%) of the average market price for all any retail sales by a cannabis retailer. Thus, the proposed amendments carve out a three-year window for nonarm’s length transactions to receive the lower tax rates, and certain licensees to avoid the tax entirely. The definition of an arm’s length transactions reads:

. . . a sale entered into in good faith and for valuable consideration that reflects the fair market value in the open market between two informed and willing parties, neither under any compulsion to participate in the transaction.

Second, the proposed amendments eliminate the cannabis cultivation tax, imposed upon cultivators, during the same three-year window. After July 1, 2025, the cultivation tax would resume with biannual adjustments for inflation. Other proposed changes under AB 2792 reflect small adjustments to when the law requires the cannabis excise tax to be collected.

AB 2824: Cannabis; curbside pickup.

Assembly Member Mia Bonita (D) of the 18^th District introduced this bill on February 18, 2022.

The proposed language allows a licensed cannabis retailer to conduct sales by curbside pickup at their permitted property during regular hours of operation. Currently enacted language allows a licensee to either sell in a retail premises or via delivery, leaving treatment of curbside pickup ambiguous. AB 2824 directly allows curbside pickup, so long as the area for curbside pickup is monitored and recorded by a video surveillance system.

AB 2844: Cannabis catering.

Assembly Ash Kalra (D) of the 27^th District introduced this bill on February 18, 2022.

This bill proposes adding “acting as a cannabis caterer for a private event” to the definition of commercial cannabis activity. This creates a cannabis caterer license, which allows a caterer to serve cannabis at events authorized by their local jurisdiction. This application does not need to provide evidence of a physical location in their license application, unlike the other categories of  commercial licensee. In comparison with previously enacted language, this would allow a cannabis caterer to operate under a license that better represents the realities of their business, and how that differs from other cannabis entrepreneurs.

AB 2925: Cannabis Control Appeals Panel; membership.

Assembly Member Jim Cooper (D) of the 9^th District introduced this bill on February 18, 2022.

This bill proposes increases to the number of members on the Cannabis Control Appeals Panel from five (5) to seven (7). The additional two members are allocated by the Senate Committee on Rules and Speaker of the Assembly. In sum, the board now consists of two (2) members appointed by the Senate Committee on Rules, two (2) members appointed by the Speaker of the Assembly, and three (3) members appointed by the Governor.

SB 824: California Department of Tax and Fee Administration.

Assembly Member Phillip Chen (D) of the 55^th Assembly District introduced this bill on January 13, 2022.

SB 824 outlines an extensive sales and use tax regime in the state of California. The law provides several exemptions to these taxes, including “gross receipts from the sale of, and the storage, use, or other consumption in this state of, food products for human consumption.” The amended language specifies that cannabis is not included in the definition of a food product, thus denying cannabis business access to the tax exemption.

SB 988: Compassionate Access to Medical Cannabis Act or Ryan’s Law.

Senator Ben Hueso (D) of the 40^th District introduced this bill on February 14, 2022.

This bill would repeal the requirement that health facilities permitting the use of medical cannabis would need to comply with a broad scope of drug and medication requirements. Under current law, health facilities are restricted in their ability use, store, and recommend medicinal cannabis. Further, the bill seeks to eliminate enforcement actions by the State Department of Public Health.

SB 1074: Cannabis; excise tax; cultivation tax.

Senator Mike McGuire (D) of the 2^nd District introduced this bill on February 15, 2022.

Existing law requires the California Department of Tax and Fee Administration to adjust excise tax rates on a bi-annual basis in reflection of both inflation and the wholesale cost of cannabis. SB 1074 proposes a new framework for increases to the excise tax after July 1, 2025. The proposed language includes two separate windows, reading. . .

• Effective July 1, 2025, and until July 1, 2026, the cannabis excise tax . . . shall be increased by an additional percentage of the average market price of any retail sale by a cannabis retailer that the Department of Finance estimates will generate an amount of revenue equivalent to half the amount that would have been collected pursuant to the weight-based cultivation tax. . .
• Effective July 1, 2026, the cannabis excise tax . . . shall be increased by an additional percentage of the average market price of any retail sale by a cannabis retailer that the Department of Finance estimates will generate an amount of revenue equivalent to the amount that would have been collected pursuant to the weight-based cultivation tax. . .

While this language targets an increase in the excise tax, the proposed amendment completely eliminates the cultivation tax on July 1, 2022. This date is one-year before the proposed elimination under SB 1281.

SB 1097: Cannabis and cannabis products; labeling and advertisement.

Senator Richard Pan (D) of the 6^th District introduced this bill on February 16, 2022.

SB 1097 proposes to add new language to Section 26121 that provides a warning label requirement for non-topical cannabis or cannabis products. These standards add additional requirements onto the currently enacted Section 26120. The proposed warning label must be a certain size, shape, color, and provide several messages, including:

• WARNING: Buy Legal! Illegally sold cannabis is more likely to contain unsafe additives or harmful contaminants such as mold or pesticides.
• WARNING: Cannabis use may contribute to mental health problems, including psychotic disorders such as schizophrenia. Risk is greatest for frequent users and when using products with high THC levels.
• WARNING: The higher the THC content, the more likely you are to experience adverse effects and impairment. THC may cause severe anxiety and disrupt memory and concentration.

Products manufactured before July 1, 2024, and sold prior to July 1, 2025, don’t need to comply with these labeling standards. The bill adds additional warning label requirements for inhalants and edibles. In addition, SB 1097 extends some of the warning label requirements to print, radio, and video advertisements.

SB 1148: Cannabis industry.

Senator Jon Laird (D) of the 17^th District introduced this bill on February 16, 2022.

SB 1148 simply states that the legislature intends, “to enact legislation that would promote the responsible and legitimate cannabis industry.”

SB 1281: Cannabis taxes.

Senator Bradford (D) of the 35^th District introduced this bill on February 17, 2022.

Existing law requires the California Department of Tax and Fee Administration to adjust tax rates on a bi-annual basis in reflection of both inflation and the wholesale cost of cannabis. SB 1281 would, starting indefinitely on January 1, 2023, set the excise tax at 5 percent of the average market price of any retail sale by a cannabis retailer. In other words, the state couldn’t impose a mark-up once the 5 percent standard comes into effect.

Further, the proposed bill eliminates the cultivation tax on January 1, 2023. This date is one-year after the proposed elimination under SB 1074.

SB 1293: Cannabis; taxation.

Senator Bradford (D) of the 35^th District introduced this bill on February 18, 2022.

SB 1293 proposes several broad declarations. The text states several well-accepted conclusions: the war on drugs has harmed communities of color, many cannabis businesses owned by equity licenses are struggling, and the implications of Section 280E play a large role in these difficulties. As such the legislature states an intent “to help equity licensees obtain a personal income or corporate tax credit that would be equal, or in some proportion, to the normal business expenses that they would otherwise have been able to write off on their federal taxes, but for federal law.”

SB 1326: Cannabis; interstate agreements.

Senator Ana Caballero (D) of the 12^th District introduced this bill on February 18, 2022.

The proposed bill adds Section 26300 to the Business and Professions Code, which provides a framework for the interstate and international transportation of cannabis. Section 26300 allows the Governor to enter into agreements with other states, allowing licensed entities in their respective jurisdictions to engage in cross-border economic activity. Given the federal classification of cannabis, and ability for the federal government to regulate interstate-commerce; the language is at best optimistic, and at worst opens significant application of the dormant commerce clause over state-wide regimes.

Section 26300 proposes a loose framework for any interstate agreements made by the Governor, reflecting nuances in application of jurisdiction-specific cannabis regulation. While this language provides a window into how future legislative sessions may deal with these problems, the fundamental legislative issues with Section 26300 leaves application ambiguous.

SB 1426: Cannabis; water pollution crimes.

Senator Ana Caballero (D) of the 12^th District introduced this bill on February 18, 2022.

This amended language proposed by SB 1426 better defines punishments for cannabis producers and producers that break environmental regulations. Previously, the language broadly covered intentionally or grossly negligent harm to public lands and “other public resources.” The amended language clarifies application to groundwater, stating specific impermissible activities such as unpermitted wells, pollution with pesticides, and unauthorized digging.