Does Prop 64 Threaten, Diminish, or End Medical Cannabis?
Examining the impact of the Adult Use of Marijuana Act on medical cannabis in California — from the death of cooperatives and collectives to the tipping point of high taxes and black market competition.
Proposition 64, the Adult Use of Marijuana Act, is the 2016 California ballot initiative that legalized recreational cannabis for adults 21 and older while restructuring the regulatory framework for medical cannabis. The purpose of this article is to examine from a legal perspective the impact of the Adult Use of Marijuana Act ("AUMA"), California Proposition 64 ("Prop 64"), on medical cannabis in California. Prop 64 was approved by California voters on November 8, 2016.
First, a brief history of Prop 215 and its progeny is necessary for context.
What Is Proposition 64 and How Did It Change California Cannabis Law?
Prop 215, the Compassionate Use Act of 1996, was the first law in the United States to allow the use of cannabis for medical purposes. It was approved by California voters on November 5, 1996. Prop 215 provided that seriously ill Californians have the right to obtain and use cannabis for medical purposes where that medical use is deemed appropriate and has been recommended by a physician who has determined that the person's health would benefit from the use of cannabis.
In 2003, the California legislature passed Senate Bill 420 (SB 420), the Medical Marijuana Program Act ("MMPA"). SB 420 was designed to clarify the scope of Prop 215 and to facilitate the prompt identification of qualified patients and their designated caregivers. SB 420 established an identification card system for qualified patients and created guidelines for the formation and operation of medical cannabis cooperatives and collectives.
In 2015, the California legislature passed the Medical Cannabis Regulation and Safety Act ("MCRSA"), a comprehensive regulatory framework for the cultivation, manufacture, transportation, testing, distribution, and sale of medical cannabis. MCRSA was the first comprehensive attempt to regulate the medical cannabis industry in California at the state level.
What Happened to Medical Cannabis Cooperatives After Prop 64?
One of the most significant impacts of Prop 64 on medical cannabis is the elimination of the cooperative and collective model that had been the foundation of medical cannabis distribution in California since SB 420.
Under SB 420, qualified patients and their primary caregivers could associate collectively or cooperatively to cultivate cannabis for medical purposes. This model allowed patients to pool their resources and collectively cultivate cannabis for the benefit of its members.
MCRSA initially preserved the cooperative and collective model while creating a new licensing framework. However, Prop 64 effectively eliminated the cooperative and collective model by requiring all cannabis businesses, including medical cannabis businesses, to obtain a license under the new regulatory framework.
The transition from the cooperative/collective model to the licensing model represented a fundamental shift in the legal framework for medical cannabis in California. Many cooperatives and collectives that had been operating under SB 420 were unable to obtain licenses under the new framework, either because of the cost of compliance, the complexity of the licensing process, or local restrictions on cannabis businesses.
Prop 64: The End of Medical Cannabis?
While Prop 64 did not explicitly eliminate medical cannabis, it fundamentally changed the legal landscape for medical cannabis in California. Under Prop 64, the distinction between medical and adult-use (recreational) cannabis became largely a matter of taxation and regulatory oversight.
Medical cannabis patients with a valid physician's recommendation and a county-issued identification card are exempt from certain taxes that apply to adult-use cannabis. However, the practical benefits of maintaining a medical cannabis recommendation have diminished significantly under Prop 64.
Prior to Prop 64, a medical cannabis recommendation was the only legal pathway to obtain cannabis in California. Under Prop 64, any adult 21 years of age or older can legally purchase cannabis without a medical recommendation. This has significantly reduced the incentive for patients to obtain and maintain a medical cannabis recommendation.
Prop 64 Ratifies MCRSA
Prop 64 incorporated many of the provisions of MCRSA into its regulatory framework. The Medicinal and Adult-Use Cannabis Regulation and Safety Act ("MAUCRSA"), which was enacted in 2017, consolidated the regulatory frameworks of MCRSA and Prop 64 into a single regulatory structure.
MAUCRSA created a unified licensing framework for both medical and adult-use cannabis businesses. While the law maintained some distinctions between medical and adult-use cannabis (such as different tax rates and possession limits for medical patients), the practical effect was to create a single regulatory framework for the entire cannabis industry.
How Do High Taxes Under Prop 64 Fuel the Black Market?
One of the stated goals of Prop 64 was to eliminate the illegal cannabis market by creating a legal, regulated marketplace for cannabis. However, the high tax rates and regulatory costs associated with the legal market have made it difficult for legal businesses to compete with the illegal market on price.
The combined state and local tax rates on cannabis in California can exceed 40% in some jurisdictions. These high tax rates, combined with the cost of regulatory compliance, have resulted in legal cannabis prices that are significantly higher than prices in the illegal market.
As a result, the illegal cannabis market has continued to thrive in California despite the legalization of adult-use cannabis under Prop 64. This has had a negative impact on both the legal cannabis industry and on medical cannabis patients, who may be tempted to turn to the illegal market to avoid the high cost of legal cannabis.
The Tipping Point
The combination of high taxes, complex regulations, and competition from the illegal market has created a tipping point for the legal cannabis industry in California. Many legal cannabis businesses are struggling to remain viable, and the number of licensed dispensaries and cultivation facilities has not kept pace with the size of the market.
For medical cannabis patients, the situation is particularly challenging. The reduction in the number of legal dispensaries, combined with the high cost of legal cannabis, has made it more difficult for patients to access the medicine they need. Some patients have been forced to travel long distances to find a licensed dispensary, while others have turned to the illegal market out of necessity.
The future of medical cannabis in California depends on the willingness of lawmakers and regulators to address these challenges. Potential solutions include reducing tax rates on medical cannabis, simplifying the licensing process for medical cannabis businesses, and providing greater support for patients who rely on cannabis for medical purposes.
Vote No on Prop 64!
While this article was written after the passage of Prop 64, the author's position was and remains that Prop 64 was not in the best interest of medical cannabis patients in California. The law has fundamentally altered the legal landscape for medical cannabis in ways that have made it more difficult and more expensive for patients to access the medicine they need.
The author believes that a better approach would have been to legalize adult-use cannabis while preserving the unique legal protections and benefits that had been established for medical cannabis patients under Prop 215 and its progeny.
Frequently Asked Questions
How does Proposition 64 affect medical cannabis patients in California?
Proposition 64, the Adult Use of Marijuana Act passed by California voters in November 2016, significantly changed the landscape for medical cannabis patients by legalizing recreational cannabis use for adults 21 and older while simultaneously restructuring the regulatory framework that had governed medical cannabis since the Compassionate Use Act of 1996. For medical cannabis patients, the most significant impacts include changes to the tax structure — medical cannabis patients with a valid county-issued Medical Marijuana Identification Card are exempt from the state sales tax and use tax on cannabis purchases, providing a meaningful cost savings compared to recreational buyers who pay both excise tax and sales tax. However, Proposition 64 effectively eliminated the cooperative and collective model that had been the backbone of the medical cannabis system under Senate Bill 420, replacing it with a commercial licensing framework that imposed significant barriers to entry including high fees, security requirements, and local permitting processes. Many small-scale medical cannabis cooperatives that served patient communities were unable to transition to the new commercial licensing system, reducing patient access in some areas.
What tax benefits do medical cannabis cardholders have in California?
Medical cannabis cardholders in California who possess a valid county-issued Medical Marijuana Identification Card receive meaningful tax benefits compared to recreational cannabis consumers. Under Revenue and Taxation Code Section 6414, MMIC holders are exempt from the state sales tax on medical cannabis purchases, which is currently 7.25 percent as a base rate with additional local taxes that can bring the total sales tax to over 10 percent in some jurisdictions. This exemption can represent significant savings for patients who use cannabis regularly for chronic conditions. However, medical cannabis patients are still subject to the 15 percent state cannabis excise tax imposed by Proposition 64, and they must also pay any local cannabis taxes imposed by their city or county. To claim the sales tax exemption, patients must present a valid MMIC at the point of purchase — a physician's recommendation alone is not sufficient for the tax exemption, though it is sufficient for legal access to medical cannabis products. The cost and process of obtaining an MMIC varies by county, and some patients find that the tax savings justify the effort and expense of obtaining and renewing the card annually.
What happened to medical cannabis cooperatives after Proposition 64?
Medical cannabis cooperatives experienced a dramatic decline following the passage of Proposition 64 and the implementation of California's commercial cannabis licensing framework. Prior to Proposition 64, Senate Bill 420 and California Health and Safety Code Section 11362.775 allowed qualified patients and primary caregivers to collectively or cooperatively cultivate cannabis for medical purposes. These cooperatives operated as patient-run organizations where members pooled resources to grow and distribute cannabis among themselves, often providing affordable access to patients with limited financial means. The Medicinal and Adult-Use Cannabis Regulation and Safety Act, which implemented the licensing framework required by Proposition 64, created a Type 12 micro-business license that theoretically allows small operators to cultivate, manufacture, distribute, and sell cannabis, but the compliance costs including state and local licensing fees, security requirements, testing mandates, track-and-trace systems, and facility standards have proven prohibitive for many former cooperatives. Some jurisdictions have attempted to preserve cooperative models through local ordinances, and the state has created equity programs to assist small operators in transitioning to the licensed market. Nevertheless, the shift from a cooperative model to a commercial licensing model has fundamentally altered how medical cannabis is produced and distributed in California.
References
California Proposition 215, the Compassionate Use Act (1996). California Legislature
Senate Bill 420, the Medical Marijuana Program Act (2003). California Legislature
Medical Cannabis Regulation and Safety Act (2015). California Legislature
California Proposition 64, the Adult Use of Marijuana Act (2016). Full Text (PDF)
Medicinal and Adult-Use Cannabis Regulation and Safety Act (2017). California Department of Cannabis Control