California Cannabis Regulation Blunders
California Cannabis Regulation Blunders – we decided to do something a little different in this article. We decided to ask our readers to help us rank the blunders made by California in the regulation of its cannabis industry in terms of significance. Significance is subjective so we expect a wide range of opinions. Of course, we undoubtedly have missed some blunders so our readers should feel free to add to our list with whatever they want to say about ranking blunders.
First, we offer some disclaimers. We are not casting any blame. Indeed, most of the items we describe as blunders are simply a product of a marginally functional political system; the inherent weaknesses of governmental bureaucracies; a robust California cannabis industry; and an ill-conceived and poorly-written amendment to the California Constitution – Proposition 64. It should have surprised no one that California’s roll-out of cannabis regulation has been so fraught with problems.
California could and should have done better. California no doubt could have done worse. We would give California a “D-“ but its roll-out does not deserve a failing grade. In view of the handicaps, California faced in establishing a regulatory scheme for cannabis – politics, an inadequate body of law, and entrenched and resilient cannabis industry – a “C” was likely as good a grade as California could have achieved.
We feel compelled to pose some general questions for our readers before we present our list of blunders. The general questions are actually a statement in different forms of a single question, “Do we need all of these regulations?” In what ways and for what reasons does California need regulations relating to the growing, processing, distribution and sale of cannabis that are different from regulations relating to the growing, processing into wine, and the distribution and sale of alcohol?
Please think about the differences between wine grape regulation and cannabis regulation in connection with the next set of questions. Why do we need a “Track & Trace” system? What are we Tracking? What are we Tracing? When or why does a consumer need to be able to determine the plant that produced the flower? Cannabis, saffron, tobacco and grapes are different agricultural commodities? Each must be regulated. Each requires a different set of regulations because each of these commodities are different. In every instance, the regulations must be rational regulations that are justified by a reasonable regulatory purpose supported by law. California’s cannabis regulators got carried away by the power the legislature gave them.
Now our list of blunders –
California has attempted to impose a bureaucratically designed regulatory scheme on a mature and well-established industry with entrenched practices it did not understand.
The legislature failed to adequately describe the mission of its newly minted cannabis bureaucracy.
The legislature failed to direct its newly established bureaucracy to guide and assist the existing cannabis industry in the transition into a regulated commercial industry.
The legislature failed to prohibit empire building by any part of its new bureaucracy.
Both the California legislature and the newly minted bureaucracy failed to heed some of the cautionary principles of the Blue Ribbon Commission Report.
California’s new bureaucracy failed to instinctively grasp the conversion of an established underground industry into a regulated commercial industry requires both incentives and disincentives.
California’s new bureaucracy failed to understand the incentives and the disincentives required to bring an underground industry above ground must be somewhat equivalent.
California’s cannabis regulators allowed regulations to be developed without fully understanding that cannabis is nothing more than a very valuable agricultural commodity that anyone can grow in a backyard or a garage.
California’s cannabis regulators failed to fully understand that the forces that drive commercial markets will always prevail.
In regulatory areas where deference to local jurisdictions is appropriate, California’s cannabis regulators failed to limit state-wide regulations to policy statements and general guidance.
California’s cannabis regulators failed to limit the scope and specifics of state-wide regulations to matters on which identical regulations throughout California were required.
California’s cannabis regulators failed to defer to local jurisdictions to the maximum extent possible in connection with issues relating to land use and to public health and safety.
The California Department of Tax and Fee Administration (“CDTFA”) requires some separate comment. CDTFA appears to have failed to draw upon the extensive experience within the agency in its developments of the regulations, and supporting forms and instructions, that are required for the efficient and effective collection of Cannabis Cultivation Tax (“CCT”) and Cannabis Excise Tax (“CET”). Both CCT and CET were new California taxes established in Proposition 64. Each has unique aspects that make these taxes different from all other taxes imposed by California. In addition, there are distinct differences between CCT and CET that CDTFA appears to have failed to recognize. For inexplicable reasons, CDTFA failed to devote adequate time and attention to the development of a system for the efficient and effective collection of these two taxes. A significant portion of the shortfall in cannabis tax collections is no doubt attributable to CDTFA.
The inadequacies in the systems established by CDTFA for the administration of CCT and CET include:
(1) a failure to require unique identifiers for all transactions between licensees involving CCT and CET;
(2) a failure to require licensees to treat all collections of CCT and CET as trust funds;
(3) a failure to develop a comprehensive and easily examined combined CCT and CET reporting form that treats these two taxes as two separate tax liabilities that are collected, reported and remitted by a single taxpayer; and
(4) a failure to develop and disseminate clear and comprehensive guidelines relating to the collection, reporting, and remittance of CCT and CET on which California’s cannabis industry could rely.
We find this last point quite irksome. CDTFA has regularly published notices that provide general, and sometimes ambiguous, guidelines which include a disclaimer that in effect states each case depends on the facts so the published guidance cannot be wholly relied upon.
The problems that California’s cannabis regulators have created could be easily corrected in large measure with some administrative scrambling and a couple of mea culpa. Unfortunately, administrative scrambling and mea culpa are not features generally found in administrative agencies. We remain optimistic that California’s newly minted cannabis bureaucracy will be capable of quickly implementing changes that a long-established bureaucracy would not be able to implement.
California Cannabis Regulation Blunders