The 2020-21 Budget: The Governor’s cannabis-related proposals

The Legislative Analyst’s Office has just published the following report:

The 2020-21 Budget: The Governor’s Cannabis-Related Proposals

In this report, we (1) provide some background on cannabis regulation and taxation in California; (2) describe the Governor’s proposals; and (3) provide recommendations on these proposals for legislative consideration.

Governor’s Proposals. The Governor’s 2020-21 budget includes various cannabis-related proposals, including both budget trailer legislation and budget change proposals from multiple departments, as summarized below.

  • Proposes Change to Point of Collection of Cannabis Taxes, and Interest in Additional Changes. The Governor proposes moving the responsibility for remitting (1) the cultivation tax from the last distributor to the first distributor and (2) the retail excise tax from the last distributor to the retailer. The Governor has also expressed interest in other changes to cannabis taxes, but has not provided any additional details on these potential changes.
  • Proposes Consolidation of Licensing Functions Into New Department. The Governor proposes consolidating the cannabis-related licensing functions in the Bureau of Cannabis Control (BCC), California Department of Food and Agriculture (CDF), and Department of Public Health (DPH) into a new Department of Cannabis Control (DCC). The administration has not provided any details on the proposal but indicates that further information will be available in the spring.
  • Proposes Various Cannabis-Related Expenditures. The Governor’s budget proposes $70.2 million to support 291 positions across eight departments. Funding for these proposals would come from a variety of sources, such as the Cannabis Tax Fund and various fees. The administration has also provided its plan for expending the Cannabis Tax Fund revenues in 2020-21 directed by Proposition 64 to certain types of activities.

Proposed Changes to Point of Collection Will Improve Tax Administration, but Other Tax Changes Also Merited. We find that changing the point of collection for the retail excise and cultivation tax should improve tax administration and compliance by creating a closer nexus between the taxed activity and the responsibility for remitting taxes. We also find that additional changes to the structure and rates for cannabis taxes are warranted, consistent with our December 2019 report, How High? Adjusting California’s Cannabis Taxes. Accordingly, we recommend that, if the Legislature retains the retail excise and cultivation taxes, it approve the Governor’s proposal to change their point of collection. However, we also recommend that the Legislature consider other changes to the state’s cannabis tax structure and rates.

Concept of Consolidating Licensing Functions Makes Sense, but Details Are Important. We find that the concept of consolidating the cannabis licensing functions into a single entity focused on cannabis makes sense, and could improve the accountability and effectiveness of the state’s cannabis activities. However, we also find that the Legislature will want to closely evaluate the details of the proposal to ensure it is well planned and aligns with legislative priorities. Accordingly, we recommend that the Legislature request the administration to provide additional details on the plan—and the associated budget proposal and trailer bill legislation—as soon as possible.

Take Holistic, Incremental Approach to Funding Proposals, Focusing on Oversight. We find that the Legislature’s decisions regarding changes to the cannabis regulatory structure and taxes could affect departments’ resource needs. As a result, we recommend that the Legislature withhold action on cannabis-related proposals until all the budget proposals and budget trailer language are available this spring. We also find that there is significant uncertainty regarding some departments’ resource needs due to the immaturity of the cannabis industry and therefore recommend that the Legislature be cautious about ongoing funding commitments for such departments. Finally, we recommend that the Legislature use its oversight role to ensure that departments are implementing programs effectively and programs are achieving desired outcomes.

This report is available using the following link: https://lao.ca.gov/Publications/Report/4162?utm_source=laowww&utm_medium=email&utm_campaign=4162

This article was released by the Legislative Analyst’s Office.