Governor’s Revised Proposed Budget Released; Consolidation of Cannabis Agencies on Hold
May 17, 2020
By Lauren Mendelsohn
On May 14, California Governor Gavin Newsom released the May Revision to the 2020-2021 Governor’s Proposed Budget. A summary of the May Revision of the Governor’s Proposed Budget is available here, and the full details can be seen here.
The Governor’s original Proposed Budget for 2020-2021 mentioned a possible consolidation of the state’s cannabis licensing and regulatory agencies into a unified “Department of Cannabis Control.” However, the May Revision makes it clear that this consolidation is not happening for at least the rest of the year, though the idea will be revisited in the future. As stated in the May Revision Budget Summary (p. 134):
The Governor’s Budget announced the Administration’s intent to consolidate the cannabis-regulatory functions in the Departments of Consumer Affairs, Food and Agriculture, and Public Health into a single Department of Cannabis Control, and stated more details would be submitted to the Legislature in the spring.
The Administration was in the process of developing a more detailed plan, including establishing workgroups tasked with building a foundation and infrastructure for the transition. However, this process was interrupted by the COVID-19 pandemic, requiring a delay in the consolidation as planned. Instead of initiating this change through the May Revision, the Administration will release details of a proposed consolidation in the 2021-22 Governor’s Budget.
In light of the delayed cannabis consolidation effort, the May Revision includes special fund proposals from each of the licensing entities to address expiring limited-term funding and positions. These proposals include $68.2 million for the Department of Consumer Affairs, Bureau of Cannabis Control, $20.8 million for the Department of Public Health, and $54.8 million for the Department of Food and Agriculture to continue cannabis licensing and enforcement activities, as well as make improvements to enforcement including, but not limited to, proposed statutory changes to shift sworn investigators from the Department of Consumer Affairs’ Division of Investigations to its Bureau of Cannabis Control.
In addition, the May Revision of the Governor’s Proposed Budget includes updated allocations from the Cannabis Tax Fund. Specifically, the amounts allocated to youth education, prevention, and early intervention and treatment and school retention [60% – $178.1 million]; environmental protection [20% – $59.4 million]; and public-safety related activities [20% – $59.4 million] have been adjusted downwards proportionally in comparison to the Governor’s original 2020-2021 Proposed Budget “due to lower than expected tax receipts as a result of the COVID-19 pandemic” (p. 130-131).
The May Revision does not attempt to change the way that cannabis taxes are collected, despite how Gov. Newsom laid out a proposal for this in his original 2020-2021 Governor’s Budget. Instead, the Revised Budget Summary says that the Governor’s administration “remains committed to simplifying and improving cannabis tax administration and will work with stakeholders on a proposal for inclusion in the budget next year” (p. 135).
With regards to revenue brought in from the cannabis excise tax, this was revised down from $590 million to $435 million. In explanation, the May Revision Budget Summary states (p. 168):
While similar products like alcohol and tobacco tend to be recession-resistant, the forecast assumes that cannabis businesses will be more negatively impacted by the COVID-19 pandemic. Cannabis businesses have less access to banking services that could provide liquidity, have a younger consumer base likely to be disproportionately affected by the COVID-19 Recession, and still must contend with competition from the black market (See the Statewide Issues and Various Departments chapter for additional discussion).
The state legislature has until mid-June to pass a final version of California’s 2020-2021 Budget. For more information about the state budget, visit the Department of Finance website.
This information is provided as a public educational service and is not intended as legal advice. For specific questions regarding cannabis or hemp laws in California, contact the Law Offices of Omar Figueroa at 707-829-0215 or info@omarfigueroa.com.