October 3, 2011
		
		Pursuant to Elections Code Section 9005, 
		we have reviewed the proposed statutory initiative related to the use, 
		possession, and sale of marijuana (A.G. File No. 11‑0034). 
		
		Background 
		
		
		
		Federal Law. Federal laws 
		classify marijuana as an illegal substance and provide criminal 
		penalties for various activities relating to its use. These laws are 
		enforced by federal agencies that may act independently or in 
		cooperation with state and local law enforcement agencies.
		
		
		
		State Law and Proposition 215. 
		Under current state law, the possession, 
		cultivation, or distribution of marijuana generally is illegal in 
		California. Penalties for marijuana-related activities vary depending on 
		the offense. For example, possession of less than one ounce of marijuana 
		is an infraction punishable by a fine, while selling marijuana is a 
		felony and may result in a jail or prison sentence.
		
		In November 1996, voters approved 
		Proposition 215, which legalized the cultivation and possession of 
		marijuana in California for medical purposes under state law. The U.S. 
		Supreme Court ruled in 2005, however, that federal authorities could 
		continue under federal law to prosecute California patients and 
		providers engaged in the cultivation and use of marijuana for medical 
		purposes. Despite having this authority, the U.S. Department of 
		Justice’s (DOJ’s) current policy (announced in a June 29, 2011 memo from 
		the department to its attorneys) is to not prosecute individual 
		marijuana patients and caregivers who act in compliance with state 
		medical marijuana laws. However, the department stated that it would 
		continue to prosecute “commercial” medical marijuana activities. 
		Moreover, in an earlier October 13, 2010 letter to the U.S. Drug 
		Enforcement Agency, the U.S. Attorney General stated that DOJ would 
		continue to enforce federal laws prohibiting marijuana activities 
		related to recreational use, even if such activities are permitted under 
		state law.
		Proposal
		
		
		This measure changes state law to legalize various marijuana-related 
		activities and regulate the commercial production and sale of marijuana. 
		Despite these changes to state law, activities related to the use of 
		marijuana would continue to be prohibited under federal law. These 
		federal prohibitions could still be enforced by federal agencies. 
		
		
		State Legalization of Marijuana-Related 
		Activities. The measure 
		states that it repeals various state statutes that prohibit marijuana 
		possession, sales to adults or minors, transportation, production, 
		processing, or cultivation, as well as removes references to marijuana 
		from all statutes that regulate controlled substances. However, the 
		measure states that it does not repeal existing statutes that prohibit 
		driving under the influence of alcohol or drugs. The measure also 
		specifies that adults may legally possess, share, transport, use, 
		distribute, sell, cultivate, or process marijuana. Although the measure 
		states that its purpose is not to condone the diversion of cannabis to 
		minors, it effectively legalizes marijuana-related activities by minors 
		by repealing various state statutes which prohibit these activities. 
		
		
		State Regulation of Commercial 
		Production and Sale. The 
		measure allows adults to cultivate and possess less than three pounds of 
		processed marijuana and 100 square feet of marijuana plants for personal 
		use without being subject to regulation. However, production of 
		marijuana in excess of the amounts specified for personal use or for 
		commercial purposes would be subject to regulations adopted by the 
		California Department of Public Health (DPH). These regulations would 
		apply to the cultivation, production, processing, testing, distribution, 
		or sale of marijuana. For example, the measure requires the department 
		to license businesses that manufacture and sell marijuana and establish 
		regulations that limit their size, location, and hours of operation. 
		
		Fiscal Effects
		
		The U.S. DOJ’s announcement that it 
		would continue to enforce federal prohibitions on non-medical marijuana 
		activities could have the effect of impeding the activities permitted by 
		this measure under state law. Also, the level of these activities could 
		depend upon how, and to what extent, the state chooses to regulate the 
		commercial production and sale of marijuana. Thus, the potential revenue 
		and expenditure impacts of this measure described below are subject to 
		significant uncertainty.
		
		
		Reduction in State and Local 
		Correctional Costs. The 
		measure could result in savings to the state and local governments by 
		reducing the number of marijuana offenders incarcerated in state prisons 
		and county jails, as well as the number placed under county probation or 
		state parole supervision. These savings could reach several tens of 
		millions of dollars annually. The county jail savings would be offset to 
		the extent that jail beds no longer needed for marijuana offenders were 
		used for other criminals who are now being released early because of a 
		lack of jail space.
		
		
		Reduction in Court and Law Enforcement 
		Costs. The measure would 
		result in a reduction in state and local costs for enforcement of 
		marijuana-related offenses and the handling of related criminal cases in 
		the court system. However, it is likely that the state and local 
		governments would redirect their resources to other law enforcement and 
		court activities.
		
		
		Other Fiscal Effects on State and Local 
		Programs.
		The measure could also have 
		fiscal effects on various other state and local programs. For example, 
		the measure could result in an increase in the consumption of marijuana, 
		potentially resulting in an unknown increase in the number of 
		individuals seeking publicly funded substance abuse treatment and other 
		medical services. This measure could also potentially reduce both the 
		costs and offsetting revenues of the state’s Medical Marijuana Program, 
		a patient registry that identifies those individuals eligible under 
		state law to legally purchase and consume marijuana for medical 
		purposes. In addition, the measure would result in costs for DPH to 
		regulate the commercial production and sale of marijuana. Depending on 
		how, and to what extent, the department chose to implement such 
		regulations, these costs could potentially be up to the low tens of 
		millions of dollars annually.
		
		
		
		Effects on State and Local Revenues. 
		The state and local governments would 
		receive additional revenues from taxes and fees from marijuana-related 
		activities allowed under this measure. For instance, state and local 
		governments would receive increased sales tax revenues from the sale of 
		marijuana. In addition, businesses and individuals producing and selling 
		marijuana would pay individual and business taxes. To the extent that 
		this business activity pulled in spending from persons in other states, 
		the measure also would result in a net increase in taxable economic 
		activity in the state. However, the potential new revenues from 
		marijuana-related economic activity could partially be offset by 
		declines in other economic activity as consumers spend less on other 
		consumer products and/or invest less. The magnitude of the net increase 
		in economic activity is unknown and would depend considerably on the 
		extent to which the federal government enforces its laws against 
		marijuana in California. To the extent that a commercial marijuana 
		industry further develops in the state as a result of this measure, 
		however, our best estimate is that the state and local governments could 
		eventually collect hundreds of millions of dollars annually in net 
		additional revenues. 
		Summary of Fiscal Effects
		
		We estimate that this measure would have 
		the following major fiscal effects: 
		
		
		
		·        
		The 
		fiscal effects of this measure are subject to considerable uncertainty 
		depending on the extent to which the federal government continues to 
		enforce federal marijuana laws and depending upon how, and to what 
		extent, the state chooses to regulate the commercial production and sale 
		of marijuana. 
		
		
		
		·        
		Savings 
		of potentially several tens of millions of dollars annually to state and 
		local governments on the costs of incarcerating and supervising certain 
		marijuana offenders.
		
		
		
		·        
		Costs 
		potentially up to the low tens of millions of dollars annually to the 
		state to regulate the commercial production and sale of marijuana.
		
		
		
		·        
		
		Potentially hundreds of millions of dollars in net additional tax 
		revenues related to the production and sale of marijuana products.
		
		
		
 
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