1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 MARCH 12, 2013 10 11 12 13 14 15 LEGISLATIVE COMMITTEE 16 17 18 19 20 21 22 23 24 REPORTED BY: Kathleen Skidgel 25 CSR NO. 9039 26 Juli Price Jackson 27 CSR NO. 5214 28 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 5 Michelle Steel Member 6 7 Betty T. Yee Member 8 9 George Runner Member 10 11 Marcy Jo Mandel Appearing for John 12 Chiang, State Controller (per Government Code 13 Section 7.9) 14 Joann Richmond 15 Chief Board Proceedings Division 16 17 For the Department: Michele Pielsticker Chief, Legislative and 18 Research Division 19 Sheila Waters Legislative and Research 20 Division 21 Cindy Wilson Legislative and Research 22 Division 23 Randy Ferris Chief Counsel 24 Legal Department 25 Joe Fitz Research and Statistics 26 Bill Benson 27 Acting Chief, Research and Statistics 28 ---oOo--- 2 1 INDEX OF SPEAKERS 2 SPEAKER PAGE 3 Amir Daliri 6 4 Valerie Fenstermaker 57 5 Virginia Handley 60 6 ---oOo--- 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 MARCH 12, 2013 4 ---oOo--- 5 MR. HORTON: Good morning, Members. Let us 6 call today's meeting of the Board of Equalization to 7 order. 8 Ms. Richmond, what is our first item? 9 MS. RICHMOND: Good morning, Chairman and 10 Board Members. 11 The first item on today's agenda is the 12 Legislative Committee. Mr. Horton is the Chair of 13 that committee. 14 Mr. Horton. 15 MR. HORTON: Thank you, Mem -- uh, thank 16 you, Ms. Richmond. 17 I understand we have a speaker today, Miss 18 Valerie Fein -- Fenstermaker, uh, California 19 Veterinarians Medical Association. I would ask that 20 she please come forward. 21 MR. RUNNER: Is that the first issue? 22 MR. HORTON: As she comes, uh, welcome Ms. 23 Pielsticker and her team. Please introduce 24 yourselves for the record and commence with the 25 introducing -- introduction of the issues. 26 MS. PIELSTICKER: Good morning, Mr. Chairman 27 and Members of the Board. My name is Michelle 28 Pielsticker. I'm the Chief of the Legislative and 4 1 Research Division. With me I have Cindy Wilson and 2 Sheila Waters, also from my division. 3 Uh, the first proposal is Suggestion 3-3 4 related to medical marijuana sales tax exemption for 5 hospice patients. The source is Chairman Jerome 6 Horton. 7 Existing law imposes sales tax on retail 8 sales of marijuana, including medical marijuana, to 9 the same extent as any other retail sale of tangible 10 personal property. Existing law also exempts from 11 sales and use tax, retail sales of medicines under 12 specified circumstances. 13 The proposed law would exempt from sales and 14 use tax medical marijuana sales to hospice patients 15 that possess a BOE-issued medical marijuana exemption 16 certificate. Additionally, it would require the BOE 17 to issue an exemption certificate upon satisfactory 18 proof of hospice care, a valid ID card, and a valid 19 medical marijuana identification card issued by the 20 Department of Public Health. 21 Supporters indicate that the proposal would 22 favorably impact those with HIV and AIDS who find 23 medical marijuana vital for medicinal purposes. 24 Supporters include the Los Angeles Black, Gay and 25 Lesbian Alliance, and the LA Gay and Lesbian 26 Center. 27 MR. HORTON: Thank you very much. We have a 28 witness also that I just received. 5 1 Amir Daliri, California Cannabis 2 Association. Would you please come forward, sir. 3 MR. RUNNER: Is this current speaker here on 4 this item? 5 MR. HORTON: No. 6 MR. RUNNER: Okay. Just checking. 7 ---oOo--- 8 AMIR DALIRI 9 ---oOo--- 10 MR. DALIRI: Good morning. My name's Amir 11 Daliri from the California Cannabis Association. 12 Members and Chairman Horton, I appreciate your, uh, 13 request for our participation. 14 Uh, we just wanted to voice support for this 15 proposed legislation. Uh, what this does is you're 16 essentially laying the groundwork for a regulatory 17 framework. Not only are you providing a much needed 18 relief for hospice patients and terminally ill 19 patients that is their right under California law to 20 receive medical marijuana, but you're beginning to 21 lay the framework for the collection of sales tax and 22 the transparency of this birth -- or this -- this 23 baby industry. 24 Um, we feel this is a very important step 25 for a elected body to -- to take. This has been a 26 very contested issue. Medical marijuana is a 27 controlled substance. Uh, we don't see that changing 28 under federal law any time soon. However, we do see 6 1 an exemption for interstate use on the horizon. And 2 we think this is a very courageous step and a very 3 needed step that the State of California must take, 4 and we support that very much. 5 MR. HORTON: Thank you very much. 6 Members? 7 Member Yee. 8 MS. YEE: Uh, thank you, Mr. Chairman. I, 9 uh, first want to just applaud you for bringing this 10 proposal forward. It is a, um, among other things a 11 compassionate proposal, and I want to certainly add 12 my support to the, uh, the proposal and its goal. 13 I do have some, uh, concerns about how it 14 would work because, uh, we have -- we're creating 15 here a new, uh, exemption certificate which works 16 unlike the current exemption certificate. And I just 17 want to be sure that we're clear about roles and 18 responsibilities between the patient, uh, potential 19 caregiver. 20 There is a provision in here that speaks to, 21 uh, some, uh -- sanctions if the, uh, cannabis is not 22 used specifically for the hospice patient, which I 23 think is appropriate. But I also don't want that to 24 have any unintended consequences in terms of 25 establishing, uh -- a level of activity that, uh, may 26 be unintended that obviously we want the product to 27 reach the -- the patient in need. 28 Uh, I think we had some issues also with -- 7 1 my initial impression about this is one about 2 terminally ill patients who are not in hospice. And, 3 uh, I think the goal is also to try to provide some 4 relief and access to the product for those particular 5 persons as well. 6 So I just have a lot of questions and I 7 wanted to hear from the staff in terms of, uh, some 8 thoughts about how to refine this to where it's a 9 more workable proposal from a administrative 10 standpoint. And I think, you know, definitional 11 issues always get us caught up, uh, that I think we 12 can resolve at the outset before actual 13 implementation. 14 So if we could hear from the staff about 15 that. 16 MR. HORTON: Sure. Thank you. 17 MS. PIELSTICKER: Oh. Excuse me. 18 Um, we do acknowledge that there is a need 19 for clarity with respect to the primary caregiver and 20 the patient and the ability of the primary caregiver 21 to obtain the exemption certificate on behalf of the 22 patient. And, uh, we have some language ready to go 23 to offer that clarification. 24 MR. HORTON: Can you give us a general 25 overview of what the language would say? 26 MS. WILSON: Cindy Wilson, Legislative 27 Section. 28 The language would, um -- the language 8 1 that's before you does say the word "person" in there 2 and would be more specific that it would say "hospice 3 patient" or "terminally ill patient" and the 4 designated primary caregiver. 5 MR. HORTON: And it's -- it's your belief 6 that that will include patients that are not within 7 the hospice, uh, environment but are terminally ill? 8 MS. WILSON: No. To include the people that 9 are terminally ill, we would just make it specific to 10 terminally ill patients and then rely on the 11 definition for terminally ill. 12 MR. HORTON: Okay. Um -- 13 MS. YEE: I guess my -- my concern -- 14 MR. HORTON: Ms. Yee. 15 MS. YEE: -- here is, um -- I guess I have a 16 couple of concerns. And I don't know -- we may want 17 to put some more time to think through this. 18 It seems like there's a tremendous amount of 19 responsibility on the caregiver, and I just want to 20 be clear about who it is that we're speaking about, 21 um, if it is a hospice provider or -- or one of the 22 hospice team providers, um, or a family member or -- 23 I mean, I think different situations may arise where, 24 um, a definition may not be broad enough. Um, on the 25 other hand, I also want to be sure that, uh -- and I 26 don't know if there are other standards out there in 27 the health arena that speak to how we define terms 28 like this. 9 1 But, uh, to the extent that there's a 2 standard and that's commonly understood, I guess I 3 would start there to see if it could really, um, make 4 this proposal more workable about specifically, um, 5 relating the roles that are -- responsibilities that 6 are contemplated through this proposal. 7 MS. PIELSTICKER: Um, I also would like to 8 speak to the breadth of the proposal. There are a 9 couple of different options, and I think Ms. Wilson 10 alluded to them. 11 MS. YEE: Mm-hmm. 12 MS. PIELSTICKER: One option would be to 13 extend the exemption to all terminally ill people, 14 not just hospice patients, defining terminally ill 15 as, um, those whose life will end within the next 24 16 months. 17 MS. MANDEL: Can you -- can you speak up, 18 please? 19 MS. PIELSTICKER: Oh. 20 MS. MANDEL: Or just pick up the microphone. 21 MS. YEE: Turn your microphone up towards 22 you. 23 MS. MANDEL: Thanks. 24 MS. PIELSTICKER: Okay, thank you. 25 Um, so as I was saying, um, we could extend 26 the exemption to all terminally ill people and define 27 "terminally ill" as those whose life will end within 28 24 months as provided in the United States code. 10 1 MS. YEE: Mm-hmm. Okay. 2 And then can you speak a little bit about 3 how this exemption certificate would work. Because 4 we typically know exemption certificates when we, um, 5 have parties that are a retailer and a wholesaler 6 here, we have a consumer, um, and -- I just want to 7 kind of understand if -- if -- if there's some -- if 8 there's some vagaries there that we also need to 9 address in terms of how that exemption certificate 10 process would work. 11 MS. WILSON: You're -- you're correct, that 12 it is very different from our typical resale 13 certificate because this would be a certificate that 14 would be issued by the Board of Equalization, upon 15 approval, to the qualified patient or the primary 16 caregiver. That would be given to, um -- to a 17 dispensary upon the purchase of the medical 18 marijuana. 19 MS. MANDEL: Is that like the partial 20 exemption certificates that the Board issues in 21 other -- for other things like farm equipment? 22 MS. WILSON: That is exactly how it was 23 patterned after, yes. 24 MS. MANDEL: Okay. 25 MS. YEE: All right. 26 Okay. I think that's all my questions for 27 now, Mr. Chairman. Thank you. 28 MR. HORTON: Mr. Runner. 11 1 MR. RUNNER: Yeah, just a follow-up on a 2 couple of -- of questions. Um, now, is the proposal 3 before us hospice or terminally ill? 4 MS. PIELSTICKER: The proposal before you on 5 the agenda is hospice. 6 MR. RUNNER: Okay. Uh, the reason I ask, a 7 number of years ago I did a legislation dealing with 8 palliative care, end of life issues, and "terminally 9 ill" was a very difficultly defined issue, um, 10 especially when you start trying to figure out how 11 many months you want to go out terminally ill. 12 Quite frankly, I've never heard the thought 13 in regards to any potential. When we did palliative 14 care issues, it was always about six months. 15 Twenty-four months is, um -- I'm -- I'm not sure, you 16 know, at that point I'm not even sure physicians -- I 17 mean, I've never -- that's an unusual number, 24 18 months terminally ill, for a physician to give to 19 somebody. 20 Um, so I'm not sure the definition of 21 "terminally ill" is -- is -- is a very, um -- I think 22 is a very difficult issue. 23 Um, let me just ask the issue of cost. Have 24 we -- what's the cost difference between the 25 terminally ill issue and the -- and hospice? 26 MS. PIELSTICKER: Um, I'd like to bring Joe 27 Fitz, our economist, up to -- 28 MR. RUNNER: Okay. 12 1 MS. PIELSTICKER: -- the table to discuss 2 the revenue estimate and the cost. 3 Um, I also would like to acknowledge that 4 the, uh, number associated with this particular 5 proposal of $214,000, um, was an error. And the, um, 6 actual number was the number that was contained on 7 the original agenda at $1.76 million. And Mr. Fitz 8 can speak to that. 9 MR. RUNNER: Is it -- again, my question is, 10 is that for the terminally ill or is that for the 11 hospice? 12 MS. PIELSTICKER: Uh, for hospice. 13 MR. RUNNER: Okay. So do we have a number 14 for terminally ill? 15 MR. FITZ: Yes. Joe Fitz here. 16 Um, $1.7 million is our estimate for all, 17 um, terminally ill patients, hospice or otherwise. 18 MS. MANDEL: Oh. 19 MS. YEE: Yeah. And it's the -- 20 MR. RUNNER: How -- how did we -- 21 MR. FITZ: We don't -- 22 MR. RUNNER: How did we get that 23 calculation? 24 MR. FITZ: Okay. Um, to get that 25 calculation, we estimate there's approximately 26 $677 million in total medical marijuana sales. And 27 data from Colorado -- they collect this sort of 28 data -- shows that approximately three percent of 13 1 people there using medical marijuana were cancer 2 patients. 3 Now, there's very little -- I should caution 4 us, there's very little data here, as you can 5 imagine, as far as -- I agree with your statement 6 completely regarding terminally ill. There's -- 7 there's very little data on that. 8 So I simply assume that all of these people 9 taking medical marijuana for cancer were terminal. 10 Whether or not that's true, it's hard to say. But 11 that's the assumption I made in coming up with this 12 number, for lack of any other data. 13 At any rate, if we take three percent of the 14 677 million, we get approximately 20 million in 15 medical marijuana sales. And then we apply a sales 16 tax rate average to that, we get approximately $1.7 17 million in revenue. And again, I'm not 18 distinguishing here between hospice -- 19 MR. RUNNER: Who -- 20 MR. FITZ: -- and terminally ill. 21 MR. RUNNER: Okay. 22 MR. FITZ: Because there's no data for that 23 either -- 24 MR. RUNNER: In -- in -- 25 MR. FITZ: -- as far as I can tell. 26 MR. RUNNER: Thanks. I really don't have 27 any other question with the numbers. 28 And who -- who determines the status of 14 1 terminally ill? 2 MS. PIELSTICKER: According to the, um, 3 alternative -- how we would do it with the 4 alternative proposal is that, uh, a doctor would 5 indicate that in a medical record, and the medical 6 record would be provided to the BOE. 7 MR. RUNNER: The a -- the attending doctor? 8 MS. PIELSTICKER: Yes. 9 MR. RUNNER: The attending doctor who's 10 attending the patient would certify that the 11 individual was terminally ill? 12 MS. PIELSTICKER: Yes. 13 MR. RUNNER: Have we had conversations with 14 the CMA and folks like that about procedurally how 15 that does, if they do these kinds of things? 16 MS. PIELSTICKER: Uh, we have not. 17 MR. RUNNER: Because I'd be quite surprised, 18 um, you know, if the CMA actually sanctions or 19 lets -- practices the idea of doctors who sign 20 something that says this person's got 24 months to 21 live or eight months to live. 22 Um, so we don't know if they've actually 23 done that or we haven't corresponded with them to see 24 if that's part of their practice or procedures or 25 that they have -- 26 MR. HORTON: Mr. Runner, if I may. 27 MR. RUNNER: Yes. 28 MR. HORTON: We have -- we have reached out 15 1 to CMA, and they're in the process of reviewing the, 2 uh -- the proposal. Their initial, um, indication is 3 to be supportive of the proposal. Um, and we 4 anticipate a resolution. It's just currently going 5 through their committee. 6 The initial, uh, conversations indicated 7 that they would be supportive. And so hopefully 8 we'll get some resolution. 9 MR. RUNNER: Of -- of "terminally ill" or of 10 "hospice"? 11 MR. HORTON: Their initial support, request 12 was for both. Now, uh, hopefully as it goes through 13 the process -- this is something that is relatively 14 new. 15 MR. RUNNER: Mm-hmm. 16 MR. HORTON: But yet still, it's not new in 17 that medicine that is prescribed to a patient 18 currently, period, is exempt because of the position 19 of not taxing pain and suffering and so forth. 20 And so, um, it's my understanding, based 21 on -- on our research that, first, terminally ill 22 patients can be actually given specitivity (verbatim) 23 as to the length of time in which they are expected 24 to live. Um, and that doctors have, uh -- that 25 that's part of their practice. 26 In fact, that is part of their requirement 27 is to -- in having conversations with the patients, 28 is to give them that advice. And that the notice 16 1 from the doctor, that this -- that you have 2 contracted a disease that, um, has rendered you 3 terminally ill can go up to two to three years 4 actually. 5 And then there's an entire process that they 6 advise the patient of, where they're constantly 7 testing the patient to ensure that there has -- there 8 has been a change or has not been a change. And at 9 the earliest point possible, when there is a positive 10 change, that they're no longer -- that they're -- 11 then they move them into a category that they 12 describe as remission, uh, which is not considered 13 terminally ill. Uh, and then from there they go into 14 another category. 15 So they do, uh, describe the various phases 16 that an individual will go through currently, uh, in 17 their -- in their record. So -- so they do, uh -- 18 MR. RUNNER: Okay. I appreciate that. 19 That's just totally different than my experience in 20 running some legislation with palliative care, in 21 trying to deal with the CMA. 22 So I'd be really interested to see how 23 they -- if they've adjusted somehow how they deal 24 with terminally ill issues -- 25 MR. HORTON: I think you -- 26 MR. RUNNER: -- in that regard. 27 MR. HORTON: I remember your legislation and 28 I think you're absolutely correct. The challenge 17 1 that they had was just defining, uh, terminally -- 2 MR. RUNNER: Right. 3 MR. HORTON: -- ill. 4 MR. RUNNER: Right. 5 MR. HORTON: Um, and so, um, it's more of a 6 legislative challenge in trying to define terminally 7 ill. As -- as a member of the legislature -- 8 MR. RUNNER: Right. 9 MR. HORTON: -- you know they may very well 10 come back to say it could be 20 years or 10 years or 11 five years -- 12 MR. RUNNER: We're all terminal. 13 MR. HORTON: -- or three years. 14 We are all terminal -- terminally ill to 15 some degree. Uh, or they could tie it into some 16 specific language as Member Yee recommended -- 17 MR. RUNNER: Yeah. 18 MR. HORTON: -- that currently exists. Or 19 they could very well leave it up to the discretion of 20 the physician, which is something that I would 21 support, uh, where the physician could make that 22 call. 23 MR. RUNNER: Again, let me -- 24 MR. HORTON: That is a very difficult thing 25 to tell someone, that you're terminally ill. 26 MR. RUNNER: And that, kind of, was part of 27 my question in regards to who's making that decision. 28 If it's the -- you know, is it the -- is it a -- is 18 1 it the doctor who the patient's under the care of, 2 you know, in terms of a regular doctor care, you 3 know, and that's an ongoing -- ongoing relationship? 4 Or is it potentially somebody who we sometimes read 5 about in the newspapers now saying, "Come see me, 6 I'll go ahead and give you your -- your -- your note 7 so that you can go ahead and get your medical 8 marijuana." 9 So, that's -- there seems to be -- you know, 10 to me, that's a pretty important distinction at that 11 point in regards to who's -- who's -- what doctor are 12 we talking about in regards to that? 13 Let me just follow up in regards to cost 14 again, too. 15 MR. HORTON: Why don't we, um, close that 16 circle, because I agree and support your, uh -- 17 your -- your -- 18 MR. RUNNER: The concept of the -- 19 MR. HORTON: -- concept, and that the 20 legislation should probably specifically say, uh, 21 that, uh, the determining process at least is to 22 require that the physician that is -- that you're 23 under care with, uh, be the one that determines, uh, 24 whether or not you're terminally ill. 25 MR. RUNNER: And -- and I think the problem 26 I have with even that language is, I'm not sure 27 there's such a definition of an individual who's 28 under the care of only one doctor. Um, so I think -- 19 1 I think the door would open up even no matter what 2 language you tried to fix it with, that any doctor 3 could say -- or any patient could say, "I'm under the 4 care of that doctor," and have multiple doctors. 5 Um, so I'm not sure you actually avoid the 6 problem of doctors who participate specifically to 7 the idea of providing access to -- to -- to the, 8 uh -- to the medical marijuana. 9 Um, but again, narrowing it would probably 10 be good. I just don't know how -- how -- how, uh, 11 feasible that is in terms of actually, um, creating 12 some clear direction. 13 Uh, let me -- 14 MR. HORTON: If I may? 15 MR. RUNNER: Yeah. 16 MR. HORTON: I think there's a -- there's a 17 term that may be helpful here and that's called 18 "medical malpractice." 19 When -- when they get to the point of seeing 20 someone who's terminally ill, they have stepped into 21 an area that requires enormous amount of expertise 22 and exposure as it relates to their particular 23 medical license and so forth. And so I, too, have, 24 uh, concerns about the existing system of acquiring, 25 uh, whatever they are to obtain medical marijuana, 26 um, and it's very challenging. 27 But just in -- just in dealing with 28 terminally ill patients, there are very few doctors 20 1 who are going to step out that far. As you indicated 2 earlier, just getting a doctor to say that is going 3 to be challenging in and of itself. 4 MR. RUNNER: Right. Let me -- 5 MR. HORTON: Which -- which gives us some 6 relief when you speak of cannabis -- I mean, when you 7 speak of, um -- uh, hospice. Because that's another 8 way in which you can now qualify because it's 9 presumed hospice has a direct connection to you being 10 terminally ill. Which makes -- may make it a little 11 easier for the doctors to participate in the process. 12 MR. RUNNER: Well, I think hospice is 13 actually -- is -- is a defined, uh, statute in regard 14 to -- to that. 15 MR. HORTON: Right. 16 MR. RUNNER: So I think there is -- there is 17 clear -- a greater definition to -- to -- to hospice 18 than terminally ill. 19 But let me just ask in regards to the 20 issue of -- of -- let's go to the issue of just 21 hospice. Clearly if you're in hospice you're not 22 able to go ahead and -- and -- and, uh -- and, uh, 23 acquire personally, um, the -- the medical marijuana. 24 You'll be needing somebody else to acquire it for 25 you. 26 Um, what do we anticipate to be that 27 process? Um, you know, the idea of being -- I would 28 think at that point is there -- what's the 21 1 identification required, for instance, if I -- if I 2 have a -- if I'm that person, do I get a -- if I'm 3 the terminally ill, do I designate somebody who will 4 be my, uh, purchaser? And then if I do that, 5 what's -- what's the requirement on the retailer at 6 that point to know that's who that person is, um, you 7 know, uh, in order to make clear that that individual 8 is indeed the right person buying it? Uh, how do we 9 anticipate how all that would work? 10 MS. WILSON: Well, under the Medical 11 Marijuana Act a qualified patient can designate a 12 primary caregiver. 13 MR. RUNNER: Uh-huh. 14 MS. WILSON: And the primary caregiver is, 15 under this proposal, would be -- would be given the 16 exemption certificate and obtain the medical 17 marijuana for the qualified patient. 18 MR. RUNNER: And how do we -- and -- when 19 you go to purchase that, is that all you show, you 20 just show the exempt -- show the exemption and then 21 you can go ahead and purchase? 22 MS. WILSON: And your medical marijuana 23 identification card that's issued by each county 24 under the purview of the California Department of 25 Public Health. So a primary caregiver's also given 26 an identification card. 27 MR. RUNNER: And that's what they go in and 28 purchase with -- 22 1 MS. WILSON: Mm-hmm. 2 MR. RUNNER: -- you know, at that point? 3 MS. WILSON: Correct. 4 MR. RUNNER: And -- and what's the penalty 5 for fraudulent use? Because I think somebody said -- 6 I think Betty said there were some sanctions? 7 MS. YEE: Yeah. 8 MR. RUNNER: The only sanction I could see 9 is you got to pay the tax. 10 MS. YEE: Yeah, the tax and -- yeah. Any 11 other expense, right. 12 MR. RUNNER: I mean that doesn't -- all's 13 you got to do is pay the -- 14 MS. YEE: Right. 15 MR. RUNNER: If you use it fraudulently, the 16 only thing that you get in trouble is you got to pay 17 the sales tax? 18 MS. WILSON: That's correct, under the 19 current write-up. 20 MS. YEE: Mm-hmm. 21 MR. RUNNER: Okay. 22 Um, let me just ask -- step back. And I -- 23 I -- I -- I'm trying to figure out, um, you know, 24 the -- the original law that was voted on by the 25 voters, um, you know, prescribe -- or assumed then 26 that the use of this -- of -- of -- of marijuana, 27 medical marijuana was going to be for those who have 28 medical need, right? 23 1 MS. WILSON: Right. 2 MR. RUNNER: And so I'm trying to figure out 3 the -- the concept of saying, now we're going to, uh, 4 segment people with medical need. And this group 5 over here with medical need, which we're still trying 6 to define because we don't know if it's just 7 terminally ill or if it's just, you know, those in 8 hospice, versus these people over here. Versus -- I 9 mean, these people over here could be, for instance, 10 people with pain, eating issues, lots of other 11 reasons to which medical marijuana may -- may be 12 used. 13 Um, I'm trying to get through the 14 philosophical issue as to what the voters did versus 15 what we're about ready to do. And that is say, this 16 side over here is sales tax -- has sales tax applied. 17 This side over here doesn't. 18 What is the -- I -- I -- I'm not sure who 19 I'm asking the question to. But what is the 20 rationale for drawing that line? 21 MR. HORTON: The, um -- 22 Member Yee. 23 MS. YEE: Let me take a shot. Um, all the 24 voters authorized was marijuana for medicinal -- 25 MR. RUNNER: Right. 26 MS. YEE: -- purposes. 27 MR. RUNNER: Mm-hmm. 28 MS. YEE: Um, and it's taken the better part 24 1 of almost the last two decades to really put the 2 system in place that we have now. And the, um, issue 3 of application of tax really originated from this 4 body. 5 And I do think your point is well taken with 6 respect to, you know, how do we make those 7 distinctions in terms of, uh, when tax applies and 8 when it doesn't? And we know that a good, uh, 9 portion of the medical cannabis, uh, consumer 10 population are facing, um, either chronic conditions 11 or, um, terminal illnesses. And I think the numbers 12 aren't, um -- it's very difficult to nail down 13 specific numbers around that. 14 But from a practical standpoint, I think it 15 is an issue in terms of how do we distinguish those 16 populations. And that's something I think we do need 17 to do a lot more work on. 18 I also think, Mr. Chair, if I may, to the 19 extent that the California Medical Association maybe 20 coming on board with this proposal, and I hope that 21 they do, and they're already a public support of 22 medical cannabis, I think, uh, some of these 23 questions probably could be best answered by that 24 community. 25 MR. HORTON: Hmm. 26 MS. YEE: And in terms of defining from a 27 medical practice standpoint, uh, how these 28 definitions may work, uh, whether there are standards 25 1 within the medical profession that can be relied 2 upon. 3 Um, I don't think any of us are medical 4 experts here on this Board but, uh -- nor even with 5 the staff. But I would really rely on the CMA to 6 help us, to guide us in terms of how we avoid some of 7 the, uh, potential unintended consequences that I 8 think we're all trying to be sure we don't get into. 9 But I do think there is a focus for us here 10 with respect to the whole, um, tax liability issue. 11 And I am concerned about the, um, potential misuse, 12 uh, issue here, not to suggest there will be a lot of 13 misuse, but it does really put, I think, the patient 14 and/or the caregiver in a little bit of an odd 15 situation of, uh, potentially, uh, assuming some 16 liability. And it will be a new area for many of 17 them, I mean certainly the patient. That's the last 18 thing they're going to be thinking about is a tax 19 liability. For the caregiver it's an added 20 responsibility in terms of perhaps the person who's 21 going to be the entity that interacts with this 22 Board, with this agency. 23 So I just want to be sure that this whole 24 issue of roles and responsibilities really is a -- is 25 a big one for me. Because I don't want anyone to be, 26 one, overly burdened with unclear guidance or, worse 27 yet, uh, we create a situation where either the 28 process is so vague or definitions are so vague that, 26 1 uh, we do have, um, unintended consequences. And the 2 end result being we're not accomplishing our goal; 3 and that is to get this product to those patients in 4 need without, you know, the tax being applied. 5 MR. HORTON: I may be helpful as well, 6 Mr. Runner, is that currently -- I mean the gates are 7 very broad. I mean, this is where we are now. 8 Um, in the passing of the medical marijuana 9 initiative, voters voted on that for various 10 different reasons. I, for one, um -- and so -- and 11 currently under existing law, the sale of medical 12 marijuana is considered taxable -- 13 MR. RUNNER: Mm-hmm. 14 MR. HORTON: -- under existing law. 15 So irrespective of the abuse, the worst 16 thing that could happen is, is that they're going to 17 end up being subject to existing law which says that 18 it's taxable. Arguably, this effort actually 19 narrows, uh, the, uh, the opportunity to -- to 20 utilize marijuana as it relates to taxation. It sets 21 forth a structure that one might argue exists in 22 existing law. 23 The distinction between medicine -- I think, 24 it's Regulation 1502, wherein we have a wide category 25 of medicine, some of which is taxable, some of which 26 is not. And we go forth and limit the taxation of 27 medicine by simply saying that it has to be 28 prescribed by a doctor, which is consistent in this 27 1 particular case, and dispensed by a pharmacy. And in 2 this case, for the most part, the hospice 3 organization which is certified in a number of 4 different ways is the dispensing organization by 5 virtue that the caregiver, uh, who works for the 6 hospice organization is the one that's obtaining the 7 medical marijuana for the patient. 8 So, medicine that you can buy 9 over-the-counter's currently subject to tax. 10 Medicine that you buy through the process of 11 prescription, dispensing -- dispensary by a 12 pharmacist is exempt from taxation. 13 So in this case, we're arguably embarking 14 upon a whole new area of trying to structure and 15 identify what should be, uh -- uh, how to, um -- how 16 to sort of define when, uh, the State of California 17 is not taxing someone's pain and suffering. And 18 seeking to exempt, uh, persons who are terminally ill 19 from taxation. 20 And so -- so not to sort of mix the two in 21 determining whether or not medical marijuana should 22 be used or available to the public or should be used 23 if you have back pains or you have a headache and all 24 of that is -- we're actually segregating and 25 isolating a group that is terminally ill and seeking 26 to define what terminally ill is and making a 27 decision conceptually whether or not a terminally ill 28 patient should be taxed to death or in the process of 28 1 death. And -- and I concur with Member Yee, the -- 2 the medical terminology is just -- unfortunately 3 escapes me. 4 My background is taxation. And so, I'm 5 going to limit it to that in saying -- just say that 6 conceptually my thoughts behind it is, is that a 7 person who is defined by law as terminally ill, the 8 question conceptually is, Should we be taxing that 9 individual, uh, for their medicine? 10 And I'll share a story, I guess, is that I 11 wasn't exactly a champion for medical marijuana or 12 marijuana in general. And so I sought to put 13 together a structure that actually allows us to go 14 after the criminals who are abusing, uh, and selling 15 this product illegally. Be that an individual who 16 happens to have a prescription for the wrong reasons 17 or a doctor who happens to prescribe this for the 18 purpose of obtaining profit. 19 And then a dear friend of mine died of AIDS. 20 And as a result of that, when I started to 21 contemplate the access to the product, happened not 22 to be one of the most wealthiest individuals. And so 23 to obtain -- this happened to be the only product 24 that would provide them medical -- medicine that 25 would provide them some relief. And, unfortunately, 26 they didn't have the access that everyone else has to 27 their medicine. 28 And so when we look at one of the greatest 29 1 countries in the world, the United States, we find 2 when we look beyond the surface we find that a number 3 of senior citizens are having to make decisions 4 between buying their medicine and feeding themselves. 5 One in every six Americans is starving in the United 6 States. 7 And so we have some real challenges as it 8 relates to poverty and access to medicine. But in -- 9 so, that's the motivating factor here in saying 10 should we be taxing a person that is terminally ill 11 and should we increase access to this medicine that 12 has been clearly defined as a medicine, used as a 13 medicine, and when used properly, serves the purpose 14 of a medicine. When used improperly, of course, you 15 know, I'm supportive of all the regulation 16 enforcement and penalties that we can have in order 17 to arrest that particular segment of our 18 population. 19 MR. RUNNER: Just a couple of other 20 follow-up questions. 21 Um, in regards to the, uh, other folks that 22 would have a concern -- for instance, law 23 enforcement -- have we reached out to law 24 enforcement? I've had some conversations. I just 25 wonder if have we in general have -- if we've reached 26 out to CMA? Have we reached out to law enforcement 27 on this particular issue in regards to their 28 concerns, in regard to enforcement, potential fraud, 30 1 those kind of issues? 2 MS. WILSON: We have not. 3 MR. RUNNER: Um -- 4 MR. HORTON: Our, uh -- I've reached out to 5 our local, my -- Sheriff Lee Baca, who has indicated 6 support of the -- of the legislation. In fact, he 7 believes it shouldn't be taxed at all. But -- and 8 there are a number of folks in law enforcement who 9 have taken the position that the product shouldn't be 10 taxed and the taxation itself adds to the criminal 11 element for some reason. 12 MR. RUNNER: Yeah. That's a little 13 different story. I've reached out to some of the 14 associations and they've got concerns, uh, in regard 15 to -- to -- 16 MR. HORTON: How to enforce. 17 MR. RUNNER: -- how -- how it would be 18 enforced and potential liabilities, uh, in regards to 19 that. 20 Um, you know, it's an interesting discussion 21 in regards to taxation of marijuana. I guess I want 22 to make it clear, um, if indeed currently if somebody 23 had a doctor's prescription for medical marijuana, it 24 would not be taxed, correct? 25 MR. HORTON: No, it would be. 26 MS. MANDEL: It would be. 27 MS. YEE: No, it's subject to tax. 28 MR. RUNNER: Not a recommendation. A 31 1 prescription. 2 MR. HORTON: Doesn't matter. 3 MS. YEE: It's still -- it's still taxed. 4 MS. MANDEL: The -- the -- 5 MR. HORTON: Well, maybe we should let -- 6 maybe we should let staff, uh, respond to that. 7 MR. RUNNER: I thought there were two 8 issues. I guess the issue was prescription and/or 9 licensed, pharm -- distributed by a licensed 10 pharmacy -- a pharmacy. 11 MS. WILSON: Right. That's the key, 12 distributed by a pharmacist. 13 MR. HORTON: Right. 14 MR. RUNNER: So -- so our only provision 15 right now that keeps it taxable isn't the fact that 16 it doesn't come with a prescription, because I always 17 thought there was a difference between a prescription 18 and a -- and what's in, I believe, in the law. 19 MS. YEE: Recommendation. 20 MR. RUNNER: What's it called? A 21 recommendation. 22 I thought there was a difference between 23 those two. 24 MS. WILSON: And I understand there to be a 25 difference between the two. 26 MR. RUNNER: Okay. So if a doctor actually 27 prescribed -- 28 MS. WILSON: Mm-hmm. 32 1 MR. RUNNER: -- would it be taxable? 2 MS. WILSON: It -- if it's not dispensed by 3 a pharmacy. 4 MR. RUNNER: It takes both. 5 MS. WILSON: Right. 6 MR. RUNNER: It takes both. 7 MS. WILSON: Yes. 8 MR. RUNNER: It takes both. It takes the 9 doctor's prescription and a dispensed by -- and 10 dispensed by a licensed pharmacy -- 11 MS. WILSON: Correct. 12 MR. RUNNER: -- in order then to -- to not 13 be taxed at that point? 14 MS. WILSON: Correct. 15 MR. RUNNER: Um, let me -- are doctor's 16 writing prescriptions? 17 MS. WILSON: I'm -- I'm not aware if they're 18 writing prescriptions. 19 MR. RUNNER: Okay. I don't think they are. 20 MS. WILSON: Recommendations. 21 MR. RUNNER: I don't think they are. I 22 think there -- I think there are some docs who are 23 doing recommendations. 24 MS. WILSON: Recommendations. 25 MR. RUNNER: But I don't think anybody's 26 writing a prescription. 27 MS. MANDEL: I thought there was -- I 28 thought that on medical marijuana -- because we've 33 1 had the cases. 2 MR. RUNNER: Uh-huh. 3 MS. MANDEL: That there was -- maybe Randy 4 can help on this. I thought there was something 5 about why they're -- that why it came down to just 6 being the pharmacy. I thought that the 7 recommendations were treated like prescriptions for 8 this purpose. Or am I just not remembering it? 9 Before we spend five minutes discussing it. 10 MR. FERRIS: I think that the, uh, the issue 11 has also been the definition of a, uh, I think it's a 12 licensed health care facility. 13 MR. RUNNER: Uh-huh. 14 MR. FERRIS: That's usually been, that and 15 food versus medicine issues are the two types of fact 16 patterns the Board has heard. And to date we've 17 never seen a taxpayer come forward that could 18 establish that they were a licensed health facility 19 that was furnishing the medical marijuana pursuant to 20 their license. And so that's why -- there are like 21 six different ways under Regulation 1591 -- 22 MS. MANDEL: So we haven't -- we haven't 23 gotten into the prescription versus recommendation? 24 MR. FERRIS: Right. To my -- to our 25 knowledge, there is not -- there are not any 26 pharmacies that are filling prescriptions of, uh, 27 marijuana because of federal law. 28 MS. MANDEL: Right. 34 1 MR. FERRIS: So that -- there are six 2 different avenues under subdivision (d) of Regulation 3 1591 for a exempt distribution of -- of the medicine, 4 uh, and one of those is a prescription by a doctor 5 filled by a pharmacy. That's one of the six ways. 6 Uh, licensed health care facility -- 7 MR. HORTON: Can do it as well, yeah. 8 MR. FERRIS: -- furnishing in the -- 9 MR. RUNNER: That'd be like a hospital? 10 MR. FERRIS: In their services -- yeah, in 11 their services. 12 MR. RUNNER: If it came from a hospital. 13 MR. FERRIS: That's another pathway. The 14 doctor himself furnishing while providing medical 15 services, that's another -- another one of the six 16 ways. 17 But there are six ways identified in 18 subdivision (d). We've never had a taxpayer come 19 forward that could establish that -- that the, uh -- 20 that the distribution fell under one of those 21 pathways to exemption. 22 MR. RUNNER: Okay. So -- so the doctor can 23 do it. They actually have to distribute it then. 24 They can't just write the prescription? 25 MR. FERRIS: Right. Which, again, because 26 of federal law issues we -- to date, we have not seen 27 a doctor that is, uh, possessing an inventory of 28 marijuana that they're furnishing. 35 1 MR. RUNNER: Okay. Uh, just procedure-wise, 2 as we move down the process of -- of the BOE, um, 3 sponsoring a bill, which is what this discussion is. 4 Um, I guess let me liken this to if I was a 5 legislator writing a bill. 6 Uh, if I was a legislator writing a bill, I 7 would have had lots of conversations with all of 8 these people, um, and before I actually introduced 9 the bill. You know, I would know exactly what -- 10 where CMA -- I wouldn't say know where they would be 11 on a bill because they do take a process. But I'd 12 get an idea in terms of some of this. I'd ask their 13 definition of terminally ill that they've dealt with. 14 I'd ask -- you know, I'd ask law enforcement to weigh 15 in on these kind of issues. And I'd do that because 16 when I'm introducing a bill, I kind of want to know 17 kind of what the field is out there, um, in regards 18 to that. 19 And so I just feel like right now we've got 20 a lot of unanswered questions here for us to actually 21 then say, "Okay, we're sponsoring a bill; go and take 22 it down to the legislature." 23 Um, you know, as an individual member, I 24 know I might do a spot bill like this. But I'd never 25 take it to hearing. Uh -- and, uh, you know, I'd -- 26 I'd -- I'd work with all those entities at that 27 point. 28 So I guess that's my concern with this 36 1 particular issue. Again, right now I'm hearing we're 2 not sure whether it's terminally ill, whether it's 3 hospice. We're not sure, you know, where we are 4 with -- with, um, some of those definitions. Not 5 sure where we are with law enforcement. Not sure -- 6 it seems to me there's a lot of unanswered issues for 7 us to actually then say let's sponsor this bill and 8 take it down -- down the street. 9 So I have some challenges there. 10 MR. HORTON: Okay. 11 MR. RUNNER: Thank you. 12 MR. HORTON: Um, the -- the, uh -- the 13 legislative process, often going through the process, 14 uh, often times I agree you're in just beyond the 15 spot bill process of introducing the legislation 16 where you have a particular concept. And part of 17 that process is to speak to or to go through the 18 process of seeking the input from the various 19 different agencies. 20 One of those agencies happens to be the 21 Board of Equalization that you seek to input the 22 Board of Equalization's perspective -- 23 MR. RUNNER: Mm-hmm. 24 MR. HORTON: -- as it relates to taxation on 25 a particular product. 26 That process is before you introduce a bill 27 as well. And so unfor -- I mean, fortunately, we are 28 now Members of the Board of Equalization and not the 37 1 senate or the legislature. And so the thought here 2 is to -- what is the Board of Equalization's 3 perspective on taxation? And in that process, you 4 have the time before you're actually introducing the 5 legislation to determine what the support that you're 6 receiving from the various different associations. 7 A number of individuals have indicated 8 support of the legislation, but they too are going 9 through the process. And, as you can attest, 10 Mr. Runner, I'm sure, is that when you introduce 11 legislation and you -- the first time that you're in 12 committee is when all hell breaks loose. It's where 13 supporters come, opposition comes, and so forth. 14 You actually introduce legislation that is 15 often the genesis of your own brain thought, uh, or 16 someone else's that have brought it to you and said, 17 this is an item, I'm supportive of this item, let's 18 move it through the process. And in that process, 19 the finality of that process is the enactment of the 20 legislation. 21 As we go through that process, people often 22 liken it to developing a sausage, and that's because 23 you have input coming from everywhere and your ending 24 legislation may not look like the legislation you 25 started out with. 26 So my experience has been a tad bit 27 different, um, in building that coalition. But I 28 would share with the Members that the effort here is 38 1 to get the input of the Members as it relates to the 2 taxation of medical marijuana for terminally ill 3 patients. It's pretty much the answer to the 4 question that we're answering is whether or not we're 5 supportive of that or not. 6 The regulatory process arguably -- I mean I, 7 too, am in the process of trying to develop a 8 regulatory scheme that seeks to provide a process 9 tied into the DMV for identifying individuals who 10 actually -- for the -- working with the police 11 association and the sheriff association so that when 12 they pull over an individual, they can actually 13 identify whether or not this individual is registered 14 and gone through the process of being able to use 15 medical marijuana in the State of California, as well 16 as a regulatory scheme that seeks to shift the tax 17 burden, uh, to the grower because that's where the 18 real abuse is and we can begin to identify the 19 growers who are illegally growing the product and 20 misusing this product and inappropriately 21 distributing the product. At the same time a 22 product -- a process similar to the tobacco licensing 23 process where you actually label the product as it's 24 been transported through the system. 25 It is a very complicated regulatory scheme. 26 And so, will we get there? Someday we just might get 27 there. Um -- uh, but those are not the matters 28 before us today. 39 1 MR. RUNNER: If -- just to follow up on 2 though that -- that idea, because I -- I'm 3 interested -- kind of an interesting issue go to the 4 grower. 5 Help me -- how would -- how would the 6 enforcement work then if -- if we did move to the 7 issue of a -- of a grower-based tax? How would that 8 affect -- how does then that deal with then an 9 exemption that's focused at the retail level? 10 MR. HORTON: They're, um -- there's existing 11 law that, uh, shifts the taxation of diesel fuel from 12 the retailer to the rack, as they call it. 13 MR. RUNNER: Mm-hmm. Mm-hmm. 14 MR. HORTON: And the purpose of that was 15 because we were having fraudulent activity -- 16 MR. RUNNER: Right. 17 MR. HORTON: -- at the retail level and -- 18 and to audit and control, from a taxation 19 perspective, all of the retailers that were out 20 there -- 21 MR. RUNNER: Right. 22 MR. HORTON: -- relatively difficult to 23 control the fraud that was existing. And so we 24 sought legislation to shift the burden to the rack. 25 MR. RUNNER: Right. 26 MR. HORTON: And in doing so, uh, the -- it 27 gave us a greater element of control, but didn't 28 change any of the exemptions that was in the process. 40 1 Because those individuals who actually qualify for an 2 exemption still would be entitled to it. 3 MR. RUNNER: How -- how -- okay. I guess 4 I'm trying to figure out how you -- how do you tax at 5 the rack, if you will, and then create then -- and 6 then the exemption happens at the retail? 7 MS. YEE: Yeah. 8 MR. HORTON: Although that's not the -- let 9 me be clear. That's not the legislation before us. 10 MR. RUNNER: No, I'm just talking about the 11 bigger idea. 12 MR. HORTON: I -- I -- I think it's a valued 13 discussion, so -- 14 MR. RUNNER: Yeah. 15 MR. HORTON: Member Yee. 16 MS. YEE: I mean, you -- you could have, uh, 17 essentially two different taxes where, uh, the, uh -- 18 you could have an excise tax that would be assessed 19 between the grower and -- I mean, in terms of the 20 grower, you know, providing the product to the 21 retailer, in this instance. And then the sales tax 22 would be the point at which we would entertain 23 exemptions, you know, to -- 24 MR. RUNNER: Right. Yeah, it would take a 25 different kind of tax scheme at that point. 26 MS. YEE: Right, exactly. Exactly. 27 MR. RUNNER: Right? Okay. 28 MS. YEE: Right. 41 1 MR. RUNNER: Okay. Thank you. 2 MS. YEE: Uh -- 3 MR. HORTON: And -- and, I mean the, uh -- 4 the upside of taxation, uh, is the same that has 5 existed in our history, whether you talk about, um -- 6 uh, prohibition, uh, or you talk about other illegal 7 activities where taxation has been the basis of 8 actually arresting the criminal activity. 9 And so it has been beneficial to law 10 enforcement in, not only the arresting, but also the 11 prosecution, but also the people of the State of 12 California. Because irrespective of whether or not 13 the product is sold legally or illegally, it is still 14 subject to tax in the State of California. And tax 15 may be the very -- one of the most powerful means in 16 which to take the criminal activity off the street. 17 My mother once told me if you suck the air 18 out of a room, more often people will leave because 19 they can't breathe. And that's what taxation seems 20 to do to people. 21 But in this case we're -- we're -- we're 22 trying to eliminate taxation as it relates to 23 terminally ill patients that we don't -- we want them 24 to breathe. We want them to have as much latitude 25 and freedom of life as we possibly can have. And 26 that's the question before us today, Members. 27 Member Yee. 28 MS. YEE: Uh, thank you, Mr. Chairman. 42 1 Uh, I am very supportive of this proposal. 2 I do have a suggestion. And -- and part of this, I 3 think, speaks to Senator Runner's concern. And that 4 is, I -- I -- I do think, uh, it would be beneficial 5 to reach out to the CMA or those in the medical 6 establishment. 7 Ultimately, the Board is going to be, uh, 8 the issuer of the certificate. We're going to need 9 to gain some knowledge about, uh, what these terms 10 mean. Uh, I -- I -- I think that specific aspect of 11 it, of this proposal, we need to get a better grasp 12 of before we actually take the proposal up the 13 street. We need to be able to defend that. We need 14 to get a clear understanding about, uh, the situation 15 in which this proposal will place the Board. And 16 that is, uh, you know, really in the position of 17 issuing these certificates. Which means, um, 18 certainly not only implementing the exemption, but 19 having a broader knowledge of when that exemption 20 should apply. 21 So I would like to suggest, um, if we could 22 put it over until the next Board meeting just to at 23 least have that outreach with CMA? 24 MR. HORTON: Yeah, I would -- I would concur 25 and agree. And I think, uh, the value here, at least 26 the value for me in bringing it forth to the Members 27 is that, um -- is to have this be the first leg, if 28 you will, of a marathon. Uh, and that, um, you take 43 1 a concept, as Mr. Runner has indicated in the 2 legislative process, and you pass the baton. And in 3 this case passing the baton to the Board of 4 Equalization if the Members are so directing staff to 5 now participate. Uh, because as you know, Members, 6 staff cannot participate in the advocation, 7 advocating or seeking support or analysis without the 8 consensus of the Board to at least flush it out and 9 then bring -- bring their results back to the Members 10 for their discussions. 11 So I certainly appreciate that and welcome 12 that, uh, as the direction of the Board. 13 MS. YEE: Can I raise one, a secondary 14 issue? And that is, while Mr. Daliri is sitting 15 here, I think the issue about, um, misuse of the 16 certificate, I'm also concerned about. And to the 17 extent we can certainly, uh, be in consultation with 18 our, uh, representatives in the cannabis community 19 about how we can, perhaps make that a little bit more 20 airtight, would be appreciated. 21 MS. MANDEL: Mr. Chairman. 22 MR. HORTON: Member Mandel. 23 MS. MANDEL: Um, as you do the outreach, um, 24 if what you start looking at is "terminally ill" and 25 doctors giving us letters, um, to support a 26 certificate, uh, as you talk to the medical 27 community, um, they should be aware of how you're 28 thinking the thing would work. Um, and, um, I -- I'm 44 1 concerned just a little bit about -- well, I 2 shouldn't say "a little bit" after that. It's maybe 3 a small issue in the context of the larger. Um, but 4 I would be concerned about the patient's privacy and 5 their health privacy and all the rules that are 6 attended to that. And then if someone does give us 7 this letter and we give a certificate, um, you know, 8 how are we going to handle that internally to protect 9 those issues? 10 MR. HORTON: Excellent -- excellent point, 11 Member Mandel. 12 And I believe staff did participate in that 13 discussion and may have some insight? No? 14 Okay. Let me do it then. 15 Um, I share the same concern relative to the 16 Fifth Amendment, whether or not a person will 17 self-incriminate themself, although they're not doing 18 that in this particular case because you're simply 19 talking about -- 20 MS. MANDEL: Oh, yeah, that -- that -- 21 that -- I was talking about their health -- 22 MR. RUNNER: HIPAA clause. 23 MS. MANDEL: -- HIPAA and their privacy. 24 MR. HORTON: No, I'm there. Going there. 25 MS. MANDEL: Oh, okay. 26 MR. HORTON: And so but that was the 27 catalyst of it and in going back and looking at, 28 well, how did the Board of Equalization deal with, 45 1 uh, the, uh, the confidentiality issue, period? And 2 so of all -- many of the taxing agencies, one thing 3 that we are is confidential when it comes to 4 taxpayer's information. And then, um, I too would 5 agree that the HIPAA law would apply and -- in this 6 particular case and we should take that under 7 consideration as we go through the process. 8 The witness -- our witness here in support 9 had a comment. I'm going to ask that Mr. Da -- 10 MR. DALIRI: Daliri. 11 MS. YEE: Daliri. 12 MR. HORTON: -- Daliri share his thoughts; 13 limit it to one minute. And then I think we can kind 14 of wrap this up possibly, Members. 15 Sir. 16 MR. DALIRI: Thank you. We've heard a lot 17 of different discussion here. I kind of just want to 18 take you back into actually what -- how that 19 transaction actually happens for a hospice or 20 terminally ill patient. 21 Basically the entire cannabis industry in 22 California is fabricated on, um, a broad -- it's 23 fabricated on very, very broad language that's not 24 precise, it's not clearly, clearly defined. 25 I think the Board has a very unique 26 opportunity to give specific definitions. For 27 example, Mr. Runner brought up a very good point of, 28 you know, terminally ill versus hospice. I think if 46 1 you get into the terminally ill patients, you're 2 going to open up a giant can of worms. Okay. 3 If you -- take a step back, and what is your 4 objective? You guys are trying to exempt sales tax 5 at the retail level for the sick and needy. I think 6 it's very important that you specifically designate 7 exactly what that is. So, for example, if you said 8 hospice patients are exempt from sales tax, you now 9 place the burden on the retailer to be that 10 compliance. 11 And from an enforcement standpoint, from 12 your side of things, that is going to be your key 13 point because the retail level's your really only key 14 enforcement point in this entire industry. That's 15 where all the transparency is happening. 16 And the -- the dispensaries, that side of 17 the industry, the retail part are dying for specific 18 language. They want to know exactly what to do 19 line-by-line and I think if you guys give the 20 guidance for them in that fashion, that I think 21 you'll accomplish the goal of what you're trying to 22 do. 23 24 ---oOo--- 25 26 27 28 47 1 ---oOo--- 2 MR. HORTON: Members, that brings to another 3 point that I would like some guidance from the 4 Members on, and that is, should staff begin to look 5 at developing a regulatory scheme as it relates to 6 this particular product in that we have a legal 7 responsibility in that the product is taxable to 8 identify, control and so forth as it relates to 9 taxation. And if given that, that direction would be 10 of help to myself, in that I believe that we -- there 11 needs to be a regulatory scheme, that there needs to 12 be a bright line to distinguish legal versus illegal, 13 medical versus non-medical, when an individual is 14 abusing the law and the product should be used for -- 15 should it be available for individuals who have 16 headaches and where those violations are. 17 And we should begin to enforce the law in 18 order to bring some relief to the citizens of the 19 State of California from the illegal activity that is 20 occurring and the criminal element that evolves from 21 that illegal activity. 22 We are in position to -- to provide clear 23 direction in that we are the agency that oversees the 24 sales tax, in partnership with the Franchise Tax 25 Board on the income tax side. 26 Member Yee. 27 MS. YEE: There is really not a robust 28 regulatory framework for this particular activity. 48 1 And, frankly, I think the most robust piece of it at 2 the State level is what we're doing here at the 3 Board. 4 I want to just tag onto something that 5 Mr. Daliri stated, and that is -- and I don't know 6 with respect to this proposal whether we did just 7 contemplate having the dispensaries actually 8 implement the exemption rather than putting the Board 9 in that position. And it may actually minimize some 10 of the concerns that have been raised by privacy. We 11 have a relationship with the dispensaries. They are 12 permitized through us. 13 But I do think -- to your question, 14 Mr. Chairman -- there is a larger issue about what 15 should that State regulatory framework look like? 16 And I think that's what we've all been struggling 17 with over the last -- the last several years. 18 I would just note that our piece of it here 19 at Board with respect to application tax is a -- only 20 a small piece of that regulatory framework that we 21 have. 22 I think the need for some -- some need for 23 establishing a State oversight system of 24 dispensaries. You've been reading about those who 25 are being shut down by the federal government, 26 frankly, I believe are operating legitimately in the 27 State, but the State has not been able to assert that 28 we have a regulatory framework that supports the work 49 1 that I think legitimate dispensaries are doing in the 2 State. 3 So, it's a larger issue. I think we can 4 build from what the Board has done. But it does 5 suggest to me, as I'm thinking about this proposal, 6 one of the ways in which we might be able to help in 7 that discussion is to continue this relationship that 8 we've established with the dispensaries, and that is, 9 they're permitized with the Board. Exemptions 10 generally are not implemented by the Board in this 11 kind of a fashion when we're issuing resale 12 certificates. 13 I think that the dispensaries have much more 14 contact with those patients who are in need. It puts 15 us in a position of having to be a little bit of a 16 medical board as well, which is what we were trying 17 to get away from when we first started this whole 18 discussion several years ago. 19 So, I'm -- I'm -- I think this body has a 20 responsibility in terms of participating in the 21 larger discussions, but I also think it can be built 22 from what we already have established here at the 23 Board, vis-a-vis our relationship with the cannabis 24 community. 25 MR. HORTON: Yeah, I couldn't agree with you 26 more, Member Yee. I mean, we have in place the 27 regulatory system in place as it relates to tobacco, 28 as it relates to alcohol and other products of this 50 1 nature. Even as it relates to medicine, we have a 2 regulatory scheme in place. 3 And in the alcohol industry, there is the 4 three tier system where you have the manufacturers, 5 the retailers and the distributors, all tied into 6 taxation. 7 In the tobacco we have a number of 8 regulatory process and schemes that are in place, 9 including the investigation element recently passed 10 that seeks to control the illegal sales of tobacco 11 and other products, already in place. 12 And, so, all of those schemes are tied into 13 taxation. And it serves to -- as well for the -- the 14 enforcement community, it serves as a tool for them 15 in enforcing the law for illegal distributions of 16 that particular product -- be it alcohol, be it 17 tobacco or be it other medicines that are distributed 18 illegally. 19 And, so, I'll take that as a -- as a yes 20 that staff can work on that. 21 MS. YEE: I guess, Mr. Chairman, I'm also 22 thinking -- I mean I really think ultimately what 23 needs to happen at the State level is a regulatory 24 framework in which certainly this Board has a very, 25 very significant presence and participation. 26 But it really goes beyond kind of just the 27 activity where the product is being dispensed to 28 those patients in need. This is a new industry the 51 1 State really hasn't touched with respect to all of 2 the aspects of coming under State regulation. 3 And I think there's room to -- I mean, when 4 we talk about the growers, I mean the first thing I 5 think about is, you know, we should be talking to 6 Food & Ag and we should be talking to the Water 7 Board. I mean, it's -- I don't think this is a neat, 8 tidy industry where this Board is going to be able to 9 regulate it its own. 10 What I do think can happen is we start from 11 what's already in place relative to the area of 12 taxation and kind of, essentially, uhm, have the 13 discussions about the larger regulatory structure 14 grow from that -- no pun intended. 15 But -- and to -- and to bring in, you know, 16 some of the other affected State agencies -- 17 MR. HORTON: Yes. 18 MS. YEE: -- because I -- it is something 19 that's bigger than us and -- but I do think that 20 until we grapple with that, the only thing that we 21 can really rely on is the existing relationship that 22 we already have with the cannabis dispensary 23 community. 24 So -- and I guess I want to ask the 25 question, should we try to rework this proposal while 26 we're entering -- entertaining the larger discussion 27 to just have this be an exemption that's implemented 28 by the dispensaries? 52 1 I mean, it just seems logical that that's 2 kind of where the exemption should -- should be 3 applied and examined and -- 4 MR. HORTON: Members, I think it should be 5 something that should be part of the discussion as we 6 go forward to seek advice from those in the industry 7 who deal with this issue, specifically from a medical 8 perspective, from a law enforcement perspective, and 9 so forth. They have the -- the expertise that would 10 be of value to us in making the final decision on 11 supporting the -- moving legislation forward. 12 And I got to say, Members, I'm really 13 excited about this process because the process by 14 which the Board of Equalization is taking leadership 15 and seeking to -- to work with the ABC, the DMV, the 16 Department of Health and all of the rest and bring 17 about some solutions to a very serious problem that 18 exists in our society. So, it has -- such solutions 19 have evolved from the area of taxation 20 unintentionally in the times of Elliott Ness and Al 21 Capone. And so, for us to be moving forward and 22 providing leadership in this area, I think, is -- is 23 exciting for me. 24 Further discussion, Members? 25 Staff, does -- do you need -- do you need 26 specific directions or you understand -- you are 27 nodding your head, okay. 28 I believe it's the consensus of the Members 53 1 to take the existing legislation and -- and begin to 2 work with the various different industries that are 3 engaged, particularly CMA, the law enforcement and 4 the -- and begin to deal with the issues of privacy, 5 the regulatory scheme and the issuance of a 6 certificate, when and when not to, the distinction 7 between terminally ill versus -- or the definition of 8 terminally ill and determining if there is existing 9 basis for determining when is terminally ill and that 10 staff should flesh out the issues articulated by Mr. 11 Runner as well as Member Mandel. And Mandel relative 12 to the privacy issue, Mr. Runner just the overall 13 enforcement and other issues that he articulated. 14 And -- and -- and then come back next -- 15 next Board hearing, if, in fact, we're prepared. 16 And, Members, I would share that, on a 17 personal note, will seek an author to begin to see if 18 there -- if we can structure legislation to 19 accomplish the objective of freeing up patients who 20 are terminally ill from taxation. And, at the same 21 time, let's take a look at seeing if we can work with 22 developing the whole regulatory scheme. 23 So, I got a couple of staff members that 24 will be extremely happy. 25 MS. PIELSTICKER: So, point of 26 clarification, is staff directed to take up the 27 regulatory scheme as you described? 28 MR. FERRIS: And -- 54 1 MR. HORTON: Well, let me -- no. To be 2 specific, it is to begin to -- 3 MS. YEE: May I make a suggestion? 4 MR. HORTON: -- sure. Member Yee. 5 MS. YEE: I think -- well, it's not 6 appropriate before us today, but, uhm, in terms of 7 the regulatory discussion, uhm, but perhaps what 8 might be helpful is a series of issues and 9 considerations for the Board in terms of thinking 10 through a regulatory framework. 11 There are a lot of issues embedded in this 12 and they aren't all necessarily pertinent to the 13 jurisdiction of this body. And I know I tried to 14 convene some working groups in the past to try to get 15 a handle on it and it is -- it's pretty cross 16 cutting. 17 So, I think maybe that's the first step 18 while we continue to flesh out this legislative 19 proposal -- 20 MR. HORTON: And Members -- 21 MS. YEE: -- and bring it back. 22 MR. HORTON: -- just for the record, let me 23 tie this entire discussion to the -- to the item 24 before us and on our agenda. 25 The only reason I said specifically no was 26 because that issue is not before the Board. 27 The issue is before the Board is the issue 28 of exemption for the sale of medical marijuana to 55 1 terminally ill patients. And in that we are 2 directing staff to also consider the overall 3 regulatory and taxing scheme. 4 MR. FITZ: Okay. 5 MR. HORTON: Our -- thank you very much for 6 your testimony before the Board today. 7 And Miss Fenstermaker, thank you as well for 8 sitting through this. 9 We will take your your testimony once the 10 matter has been introduced by staff. 11 ---o0o--- 12 MS. PIELSTICKER: Thank you, Mr. Chair. 13 Suggestion 3-4 is the next item on the 14 agenda and it relates to an exemption for pet 15 medicine. The source is Chairman Jerome Horton. 16 Existing law imposes sales and use tax on 17 all retailers for the privilege of selling tangible 18 personal property. It permits licensed veterinarians 19 to report and pay sales tax based on the cost of the 20 taxable products they sell without having to 21 obtaining a seller's permit. This is known as 22 consumer reporting status. 23 Existing law excludes from sales and use tax 24 charges for spaying, neutering and vaccinations 25 related to get -- related to pet transfers by animal 26 shelters and animal welfare organizations. 27 The proposed law would repeal the ability of 28 licensed veterinarians to report based on a consumer 56 1 reporting status. And it would create a sales tax 2 exemption for drugs and medicines used or sold by 3 licensed veterinarians, local government animal 4 shelters and nonprofit animal welfare organizations. 5 Supporters indicate that the proposal would 6 stimulate business in California, level the playing 7 field with internet pharmacies and assist owners with 8 more affordable health care for pets. 9 Additionally, supporters state that the 10 proposal would provide some limited relief for the 11 cost of pet medicine. Supporters include the State 12 Humane Association of California, the California 13 Veterinary Medical Association and the California 14 Veterinary Medical Technicians' Association. 15 Revenue impact of this proposal is $10.2 16 million State and local revenue loss. The estimate 17 does not account for any impact of any potential 18 economic activity resulting from the proposal. 19 MR. HORTON: Members, in support of 20 legislation is Miss Valerie Fenstermaker, Executive 21 Director of the California Veterans (verbatim) and 22 Medical Association. 23 Please, ma'am, welcome to the Board of 24 Equalization. 25 ---o0o--- 26 VALERIE FENSTERMAKER 27 ---o0o--- 28 MS. FENSTERMAKER: Thank you very much. You 57 1 can hear me all right? 2 A recent poll conducted by the American 3 Veterinary Medical Association shows that California 4 is home to over 20 million companion animal pets and 5 that 33 percent of California households own at last 6 one dog and 28 percent own at least one cat. In 7 addition, there are approximately 800,000 owned 8 horses in California, along with exotic animals and, 9 of course, livestock. 10 This bill would encourage the animal-owning 11 public to purchase drugs and medicines from their 12 veterinarian and not from the internet due to sales 13 tax savings that they take advantage of right now. 14 It offers a level playing field for 15 veterinary practices, which are primarily made up of 16 small business owners. It would also -- and of 17 utmost important to our profession -- reduce harm to 18 animals. 19 There are problems and risks contained in 20 not purchasing drugs direct from your veterinarian 21 and purchasing them from online pharmacies, which 22 most consumers not are aware of. 23 Drugs need to be stored at certain 24 temperatures and shipped properly. We don't know 25 where the drugs have been stored and under what 26 conditions they've been shipped. We also know of 27 reports of online pharmacies selling expired drugs. 28 For this reason, veterinarians would prefer 58 1 that their clients fill prescriptions at their 2 practice. 3 There is also an ongoing risk of counterfeit 4 and illegally imported drugs. We are told by 5 manufacturers that they don't sell veterinary drugs 6 to anyone except for veterinarians. However, the 7 internet pharmacies are getting their drugs from 8 somewhere and nobody really knows where they're 9 getting the drugs. 10 There are ongoing reports that internet 11 pharmacies are making drug substitutions without 12 checking with the prescribing veterinarian. This can 13 cause harm to animals. 14 There's a definite difference between 15 veterinary medicine and human medicine when it comes 16 to prescribing. What you would prescribe for a dog 17 is very different than what you what might prescribe 18 for a human. Most internet pharmacies do not have 19 veterinarians on staff that we know of. They have 20 pharmacists on staff. 21 And while we have great respect for 22 pharmacists, there is -- there is potential harm for 23 animals when there are dosage changes. 24 Purchasing from internet pharmacies also 25 cause delays in treatment. By the time they get 26 their dog, for instance, home, order from the 27 internet, several days could go by and that could 28 also cause harm to the animal. 59 1 The California Veterinary Medical 2 Association fully supports this proposal and 3 appreciates your consideration of this proposed 4 legislation. 5 Thank you. 6 MR. HORTON: Thank you very much. Any other 7 witnesses? 8 My apologies, ma'am, we didn't receive a 9 notice. 10 Would you please introduce yourself for the 11 record? 12 ---o0o--- 13 VIRGINIA HANDLEY 14 ---o0o--- 15 MS. HANDLEY: Hi, I'm Virginia Handley and 16 I'm -- I represent PawPAC. We follow animal 17 legislation here in Sacramento. But I think more 18 importantly today I'm also with Animal Switchboard. 19 We're a 24-hour answering service for animal 20 emergencies, animal problems. And I can then refer 21 people either to emergency veterinarians or shelters 22 or rescue groups. 23 And we work closely with the Animal Welfare 24 Association and they try to help people with their 25 veterinary bills. And there's not many organizations 26 that really can afford to do that. So, it's -- 27 it's -- it would be so helpful to groups like Animal 28 Switchboard, like Animal Welfare Association in 60 1 trying to help people get treatment for their -- for 2 their animals and, therefore, being able to keep 3 their animals. Many animals end up in the shelters 4 just because the person can't afford the -- what the 5 medical costs are. 6 So, we very much appreciate it. 7 And also a letter has just come in from the 8 California Registered Veterinary Technicians 9 Association in support of this proposal. 10 MR. HORTON: Thank you very much -- 11 MS. HANDLEY: Thank you. 12 MR. HORTON: -- for your testimony. 13 Discussion, Members? 14 Member Runner. 15 MR. RUNNER: The -- walk through us kind of 16 the practical side of how this -- how this actually 17 operates in terms of the current system right now. 18 So, you go in and you -- you go to your -- 19 your vet. And you need some medications. And your 20 vet says, okay, I'm going to prescribe this 21 medication. 22 Right now the one of the processes is 23 that -- that's different, I guess, from human 24 medicine, at that point, is that the vet actually is 25 like the pharmacy too, correct? 26 MS. FENSTERMAKER: They're considered a 27 dispenser -- 28 MR. RUNNER: A dispensary? 61 1 MS. FENSTERMAKER: -- or dispensary, they're 2 not a pharmacy. 3 MR. RUNNER: Right, okay. So, they actually 4 dispense the -- 5 MS. FENSTERMAKER: Correct. 6 MR. RUNNER: -- what it is that they're 7 prescribing? 8 MS. FENSTERMAKER: Yes. 9 MR. RUNNER: If -- at times, did -- I mean, 10 but they can't force you to do that. So, I assume 11 what that means is that they also then say, this is 12 what I would recommend that you have, that your -- 13 you use this type of medicine for your pet. 14 And then what happens then if somebody 15 doesn't do that? Then they most likely go home, look 16 on the internet, buy it that way? 17 Is that -- is that kind of the business side 18 that we are missing here in California? 19 MS. FENSTERMAKER: A veterinarian in California 20 is required to write a prescription for their client 21 if they request it. 22 MR. RUNNER: Okay. 23 MS. FENSTERMAKER: So, in the old days 24 they -- they mostly dispensed it -- 25 MR. RUNNER: Uh-huh. 26 MS. FENSTERMAKER: -- 'cause there weren't 27 any options out there. 28 With internet pharmacy, veterinarians are 62 1 often now writing prescriptions. The client will 2 take that prescription home, call the internet 3 pharmacy -- 4 MR. RUNNER: Gotcha. 5 MS. FENSTERMAKER: -- and order it 6 themselves. 7 There's a lack of oversight there once that 8 happens as well and -- 9 MR. RUNNER: So, by law they have to 10 actually -- they -- if a pet owner asks, they have to 11 write the prescription? 12 MS. FENSTERMAKER: Absolutely. 13 MR. RUNNER: And they can -- and then the 14 individual then can take that prescription and -- 15 MS. FENSTERMAKER: Have it filled 16 anywhere. 17 MR. RUNNER: -- have it filled anywhere. 18 MS. FENSTERMAKER: Correct. 19 MR. RUNNER: Some prescriptions can be taken 20 then to -- to local pharmacies -- 21 MS. FENSTERMAKER: Correct. 22 MR. RUNNER: -- too? 23 MS. FENSTERMAKER: Yes. They can take the 24 prescription wherever they want. 25 MR. RUNNER: Okay. Is a -- is a pharma -- 26 if you take a -- but if you take a pet med, let's say 27 it's the same, let's say it's a Prednisone, and you 28 take that to -- to your -- to the -- to the pharmacy, 63 1 that's taxed? 2 MS. FENSTERMAKER: By the pharmacy? 3 MR. RUNNER: By the pharmacy? 4 MS. FENSTERMAKER: I -- my understanding is 5 that pharmacists do not have to charge tax like 6 veterinarians do. 7 MR. RUNNER: Is that -- can we clarify that 8 in regards to if it's for your pet versus for a 9 person? 10 MS. WATERS: The law is specific that it has 11 to be for the treatment of a human being for -- 12 MR. RUNNER: Okay. 13 MS. WATERS: -- pharmacists. 14 MR. RUNNER: Okay. 15 MS. WATERS: So, whether or not they ask the 16 question as to whether this is for, you know, an 17 individual or a family pet -- 18 MR. RUNNER: You may be being treated by the 19 vet, you think? 20 MS. WATERS: -- yeah. 21 MR. RUNNER: Okay, okay. So, I mean, that 22 kind of answers that. 23 So -- so -- but basically you can take it in 24 there, but it is taxed at that point. 25 But getting it from the pharmacy right now 26 is the same activity of getting it if it was 27 dispensed by the veterinarian at that point? The tax 28 is the same; is that correct? 64 1 MS. WATERS: Well, it -- from a -- under 2 current law when a vet dispenses medicine in 3 connection with the professional services, there is 4 no tax applied to that transfer of medicines under 5 current law because the vet is considered the 6 consumer of drugs and medicines used or furnished in 7 connection with those professional services. 8 MS. MANDEL: So, there's tax, it's just a 9 different measure? 10 MR. RUNNER: It's -- it's -- 11 MS. MANDEL: It's -- 12 MR. RUNNER: -- paid as a use tax by the -- 13 okay. 14 MS. MANDEL: On the use -- 15 MR. RUNNER: Okay. 16 MS. MANDEL: -- on the vet's -- 17 MR. RUNNER: Right. There's -- 18 MS. WATERS: Correct. 19 MR. RUNNER: -- there's no tax in the 20 transaction, but the -- 21 MS. WATERS: Correct. 22 MR. RUNNER: -- amount of tax is equal? 23 MS. MANDEL: Not necessarily. 24 MR. RUNNER: Well, it depends, I guess -- 25 okay. 26 It's sales tax versus use tax. There is a 27 tax on it. And the nuance is the difference between 28 the sales and the use tax may be a little bit 65 1 different. 2 Is that -- 3 MS. WATERS: Correct. 4 MR. HORTON: Well -- 5 MS. WATERS: There is a little -- perhaps a 6 little. 7 MR. HORTON: -- staff is here. So, I would 8 defer to staff. But let me just ask staff a 9 question, I guess. 10 In California the rate on sales and use tax 11 is the same and tax is imposed on the consumer of the 12 product. In this case is the veterinarian considered 13 a consumer and, therefore, the measure of tax is the 14 cost of the product versus the retail selling price, 15 which is often the difference between shipping, 16 marketing, markup and all that other stuff? 17 Does that help? 18 MR. RUNNER: Okay. 19 MS. WATERS: That's correct. 20 MR. RUNNER: Okay, that's right, it's on the 21 cost. 22 But what happens right now then is the 23 individual then, rather than choosing to go ahead and 24 get it dispensed by the vet, goes out and -- goes to 25 the internet and, therefore, then has potential -- 26 and still has -- still has tax liability. It's 27 just -- it's just very difficult for the State of 28 California to -- to collect it because it comes 66 1 across as a use tax at that point, correct? 2 MS. FENSTERMAKER: Correct. 3 MR. RUNNER: And, so in that sense, many 4 consumers would say, "Gee, I'm saving money." 5 MS. FENSTERMAKER: They absolutely think 6 they're saving money. Even if they're not, they -- 7 they think there's a deal out there. 8 MR. RUNNER: Okay. So, in this sense what 9 this does, in a very real way, is help level that 10 playing field for that. 11 A couple things, No. 1, it creates an 12 economic level playing field then for that vet. 13 MS. FENSTERMAKER: Uh-huh. 14 MR. RUNNER: But then also it -- for the pet 15 owner, it puts them in a more direct path between the 16 medication for their pet and who is prescribing that 17 medication for that pet. So that it can be more 18 safely monitored, right kinds of medicine used, those 19 kinds of issues? 20 MS. FENSTERMAKER: Correct. Right, there's 21 even -- there's even evidence that an internet 22 pharmacy might replace a drug. Say they don't have 23 it in stock, so, they replace it with a generic-type 24 drug, that doesn't necessarily work on pets. It's a 25 different animal -- pardon the pun. But you can't -- 26 you can't just say what works for humans works for 27 dogs and cats and horses. It's very, very different. 28 So, there's a lot of anecdotal evidence and, 67 1 actually, the States of Oregon and Washington both 2 recently did studies and had a lot of information 3 from their veterinarians on animal deaths and a lot 4 of harm and injury to animals because of 5 inappropriate dosages. 6 MR. RUNNER: Okay, thank you. 7 MR. HORTON: Further discussion, Members? 8 Okay. Members, have we -- have we -- as we 9 have heard from the witnesses there are a few issues 10 of concerns here. 11 One is many of us see our pets as part of 12 the human family. And in many cases we actually 13 consider them smarter than a few. And, so, when they 14 are going through their pain and suffering, should we 15 be taxing that at all is one of the debatable 16 questions before us? But certainly when it is 17 prescribed by a veterinarian in the process of care 18 for their patient, if you will, we should increase 19 access. And taxation shouldn't be an impediment to 20 that process, I believe. 21 The second concern is the economic concerns 22 that by doing -- by leveling the playing field, 23 theoretically, we increase the sales here in 24 California 'cause many of the online internet 25 providers are actually located outside the State of 26 California and, therefore, we are losing several 27 different tax increments, not only sales tax but also 28 property taxes, income taxes and so forth. And, so, 68 1 in leveling the playing field, theoretically we 2 increase the sales activity here in the State of 3 California. 4 Then there's the health and safety issue of 5 the proposal to say that many of our patients -- many 6 pets are now receiving -- well, many individuals are 7 now becoming veterinarians and they don't have a 8 license to do so, but for economic reasons they go to 9 your local drug store, they go to the local online 10 and say, "Well, let me see if this works on my pet." 11 And they end up giving him something that, in fact, 12 could cause an ulcer, could cause a heart attack and 13 so forth -- things that we don't particularly -- some 14 of us, I do, of course, but we don't particularly 15 relate to an animal or as family or human being or a 16 person that is close to us. 17 And, so, much like humans in our tax, in the 18 treatment of their care and pain and suffering at 19 least there's a vehicle in which medicine is exempt. 20 This seeks to provide a similar exemption in similar 21 circumstances. 22 And then last, of course, increasing the 23 access to people who are volunteering, who are taking 24 animals in off the streets so that they now have 25 access to -- a greater access to -- to -- to medicine 26 for these particular individuals that we happen to 27 call pets -- we happen to call other different names. 28 So, thus is the genesis of the concept, if you will. 69 1 Further discussion, Members? 2 MS. YEE: I have a question for 3 clarification. 4 MR. HORTON: Member Yee. 5 MS. YEE: We -- are there other entities 6 that we haven't referenced in the proposal that 7 actually fills prescriptions? 8 I just want to be sure we're covering all of 9 the potential entities -- so, the veterinary's 10 office, shelter, a rescue organization. 11 Are there any others? 12 MR. RUNNER: Well, pharmacies, right? 13 MR. HORTON: I'm going to go to staff and 14 then Miss Fenstermaker. 15 Staff? 16 MS. PIELSTICKER: Pharmacies do sell 17 medicine for -- 18 MR. HORTON: The question is are they 19 included in the exemption? 20 MS. PIELSTICKER: They are not included in 21 the exemption. 22 MR. HORTON: Okay. 23 MS. MANDEL: This -- 24 MR. HORTON: Miss Fenstermaker, are there 25 any others that you can think of that should be or -- 26 MS. FENSTERMAKER: Nothing -- nobody that I 27 can think of now. 28 MR. HORTON: Okay. 70 1 MS. YEE: Okay. I just want to be sure that 2 we're capturing them. 3 MR. RUNNER: Would -- is there any reason 4 not to expand it to pharmacies? 5 MR. HORTON: Well -- but the challenge in 6 expanding it to pharmacies is a direct connection to 7 the treatment. And we're trying to tie the two 8 together -- 9 MS. YEE: Yeah. 10 MR. HORTON: -- is you're also -- you're 11 treating the patient, so that the benefit here to the 12 individuals who have the expertise to make sure that 13 that the patient is receiving the proper medical 14 care. And it also limits it to -- 15 MR. RUNNER: Let me ask you -- 16 MR. HORTON: -- a great degree it relates to 17 appropriations. 18 MR. RUNNER: -- do -- do all -- do all 19 veterinarians dispense medicine? 20 MS. FENSTERMAKER: If they have a DEA 21 license, yes. And in a practice there's -- almost 22 every practice is going to be a dispensary, yes. 23 MR. RUNNER: Okay. I'm just wanting to -- 24 I'm just trying to think if there's a veterinarian 25 out there who -- who just does not dispense and, so, 26 the dispense is actually through that veterinarian's 27 care -- 28 MS. YEE: Yeah. 71 1 MR. RUNNER: -- they just dispense it, they 2 just say, "Go down to the Rite Aid to get it." 3 MS. YEE: Yeah, if they don't have a 4 license, what generally happens? 5 MS. FENSTERMAKER: Well, there are 6 veterinarians who don't dispense, for instance, 7 faculty. I mean, that would be a totally different 8 situations. 9 But -- but veterinarians have to register 10 with the DEA in order to dispense prescription 11 drugs. 12 MR. RUNNER: Would -- would they have like 13 all -- all the medicines? 14 I'm -- I'm just trying again to think, not 15 that -- for instance, I'm not necessarily agreeing 16 with the idea that said if you go to your local 17 pharmacy, if you're -- if you go to your vet and your 18 vet says, "I don't have that in stock, but you can go 19 down to the Rite Aid aid get it there." 20 MS. MANDEL: I think that may have happened 21 to me one time in forty -- in a long time of owning 22 animals. 23 MR. RUNNER: I -- 24 MS. MANDEL: You know, it's -- I have a 25 vague recollection one time of -- 26 MR. HORTON: She actually said 14. 27 MS. MANDEL: Yeah, thank you. 28 MR. RUNNER: Yeah. My only question -- 72 1 MS. MANDEL: Of having to go to the pharmacy 2 for that reason, because the vet didn't -- didn't 3 have it in stock and I needed it that day. But -- 4 but that's just -- 5 MR. RUNNER: -- well, I'm just wondering 6 if -- I mean, our goal -- seems to to me our goal is 7 still accomplished, but if you -- if you take your -- 8 your -- 9 MR. HORTON: Prescription. 10 MR. RUNNER: -- prescription to a local 11 pharmacy, you're still working under the care, 12 theoretically, I would think, of your -- of your 13 veterinarian, just like you are when you go there and 14 get your own personal medicine. 15 So, anyhow, I just -- I'm just trying to 16 figure out why it is that -- again, if the issue is 17 leveling the playing field, which is you don't want 18 the mail order issue, but you've got -- but you can 19 go down the street to the -- to the drug store and 20 get it, I guess I'm not seeing how that doesn't level 21 the playing field or still keep the vet in the 22 loop. 23 MS. MANDEL: Well, uhm, uhm -- I don't mean 24 to speak for the vets, but -- I mean the leveling of 25 the playing field is a little of a slippery slope, 26 but the vets' point on the internet was a concern of 27 quality of the drug and possible substitution. 28 And I guess the question for the vets would 73 1 be, presumably, pharmacies in -- within the state, 2 presumably you're not going to have the quality 3 concern, but potentially you have -- I don't know 4 what pharmacists -- pharmacists, do they check with 5 the doctor? 6 It's not like -- it's not like on your 7 insurance. If your personal health insurance says 8 that I have to accept generics, I guess they don't 9 check, I don't really know what they do. But that -- 10 that was the other issue that the vets raised, that I 11 heard in the testimony, was the substitution of 12 things that might not be appropriate in animal 13 treatment, even if the same substitution was 14 appropriate in human treatment. 15 Am I -- 16 MS. FENSTERMAKER: Yes, you're exactly 17 correct. We don't have concerns about the quality in 18 the State of California as opposed to internet 19 pharmacies. 20 We do have concerns and there are a number 21 of veterinarians who do have a relationship with 22 pharmacists and -- and that goes very well. But we 23 have reports of pharmacists who are, just by the 24 nature of their education and experience, making 25 assumptions regarding veterinary drugs. 26 MR. RUNNER: So -- so, there is a concern -- 27 MS. FENSTERMAKER: Absolutely. 28 MR. RUNNER: -- if it was extended to 74 1 pharmacies at that point because there -- it's not 2 their specialty? 3 MS. FENSTERMAKER: Correct. 4 MR. RUNNER: Okay, thank you. 5 MS. STEEL: I just want to make it clear 6 here, pharmacy means human pharmacy. And we talking 7 about animals that usually it's internet sales, it's 8 not like a pharmacy -- pharmacy out there. 9 So, when you have a problem -- I been 10 having -- I have three dogs right now. One's 17. I 11 always take them to vet and then I always end up 12 getting all the medications from the doctor. 13 So, you know, doctor suggests that, you 14 know, sometimes when they don't have it, then some 15 substitution that you have from the pharmacy, certain 16 drugs that you can get and how much you can give. 17 But a lot of times we talking about pharmacy means 18 it's human pharmacy, but not using for animals, 19 right? 20 So -- 21 MS. FENSTERMAKER: Correct. 22 MS. STEEL: -- yeah. 23 So even we can expand, actually they are not 24 really included for this medications we are talking 25 about here because this is mostly from the vets that 26 we are getting it. 27 MR. HORTON: I think most -- most of us take 28 our pets to the vets when they're sick and so forth. 75 1 And they, in turn, will prescribe the medicine and 2 provide us with the medicines. 3 So, the vet serves in -- in two different 4 categories, one is that they are the consumers, they 5 actually provide the medicine, they actually 6 administer the medicine at that particular time and 7 then the continuation of the treatment is where the 8 pharmacist could very well occasionally come in and 9 get engaged, I guess, is where they actually dispense 10 the medicine along with a complete description of how 11 to administer and deliver the medicine to your -- to 12 your pet. 13 And that's the benefit that we want to sort 14 of enhance or encourage is to -- in addition to the 15 economic benefit of leveling the playing field, which 16 is somewhat secondary to the health of the patient, 17 and increasing access to medicine for the patients 18 who are suffering and need the care of a 19 veterinarian. And then, of course, expanding it, 20 even though it appears by the testimony nominally, 21 would also expand the cost and -- 22 MS. MANDEL: My understanding of the 23 proposal was that there's some level of cost involved 24 currently that may provide a barrier to treatment of 25 animals whether they have found a home or not yet 26 found their permanent home and that that -- that in 27 conjunction with insuring, to the extent that the 28 proposal can -- uhm, be an encouragement that people 76 1 and organizations -- uhm, care for the -- have 2 appropriate veterinary care for the other animals of 3 the world that we have some obligation to care for. 4 MR. HORTON: Yes. Further discussion, 5 Members? 6 MS. STEEL: Just one more question. 7 BOE has 1900 vets registered with the 8 seller's permit. And there's licensed about 11,000 9 people, so -- 11,000 vets. 10 So, when we did the revenue loss, are we 11 really figuring out the right number? Because most 12 of the vets, they don't have seller's permits, I 13 don't think they really paid for sales taxes. 14 So, maybe we overcalculating for the revenue 15 loss at this point. 16 MS. MANDEL: Or are the -- are the number of 17 permits based on practices that may include more than 18 one vet? 19 MR. HORTON: Please introduce yourself for 20 the record. 21 I presume you're here to answer that 22 question? 23 MR. BENSON: Uhm, yeah, this is Bill Benson, 24 Acting Chief, Research. 25 We put together the -- this estimate. The 26 estimate was not based necessarily on the number of 27 veterinary clinics that were -- that are currently. 28 We use a national number. We broke it down -- excuse 77 1 me, the -- the total purchases on veterinary care in 2 California we estimate to be $1.6 billion. Of 3 those purchases we are -- of those -- of that 4 spending, purchases on the part of veterinaries we 5 estimated to be about 244 million. Half of that we 6 assumed would be strictly for medicine. And, so, we 7 took that 122.3 million, which is what we come down 8 to, and multiply that by our tax rate and that's how 9 we came up with the $2.2 million in revenue loss. 10 MR. RUNNER: Just a quick question. 11 Did we engage the Associate -- Veterinarians 12 Association with that? When you say we assumed about 13 half of it was for -- 14 MR. BENSON: No, we did not engage -- as 15 far as I know, we didn't engage. 16 MR. RUNNER: Okay. 17 MR. BENSON: That can be done. 18 MR. RUNNER: So, maybe we can refine that 19 number. 20 MR. BENSON: We can refine that number after 21 that engagement, yes. 22 MR. RUNNER: Okay. 23 MR. BENSON: We're not tied to a number. 24 MR. HORTON: Further discussion, Members? 25 Is there a motion? 26 MR. RUNNER: Move to support. 27 MR. HORTON: Member Runner moves to support 28 the legislation -- legislative proposal, given the 78 1 caveats of evaluating -- re-evaluating the estimates 2 based on statistical -- on the expert advice of the 3 Veterinarian Association and others in the industry. 4 Member Mandel seconds. 5 Without objection, Members, such will be the 6 order. 7 Thank you very much for -- 8 MS. FENSTERMAKER: Thank you very much. 9 MR. HORTON: -- your testimony before the 10 Board today. 11 We're very grateful for your advice in the 12 process. 13 Thank you. 14 Miss Pielsticker, our next item? 15 That's it? 16 MS. PIELSTICKER: No, SB 385 was pulled from 17 the agenda. 18 MR. HORTON: Oh, that's right, year. 19 Miss Pielsticker, since it was on the 20 agenda, can you just share -- I don't know if you're 21 in a position -- because I think it's important to 22 the Members are sort of cognizant of what the problem 23 that we faced with the numbers, at least, that we are 24 facing as it relates to successor liability. 25 And I ask that shared -- that it is -- place 26 it -- I see Randy looking at me. I'm wearing two 27 hats here trying to figure out the agenda aspect of 28 it and can we discuss it or not? 79 1 MR. FERRIS: I suppose Michele could make 2 some public comments. 3 MR. HORTON: That would be helpful. 4 MS. PIELSTICKER: I can certainly make some 5 general public comments about successor liability. 6 Unfortunately, I don't have my notes with me 7 as I didn't anticipate speaking on the subject. 8 Successor liability occurs when someone 9 purchases a business and the business that they 10 purchased had a liability with the BOE. And usually 11 purchasers would be -- would get a tax clearance 12 certificate from the seller of the business to ensure 13 that all is clear and there is no liability. 14 However, not everyone does so and not everyone is 15 aware the the potential for successor liability. 16 And when that happens, some folks end up 17 pretty offguard and saddled with a debt that they 18 didn't expert. 19 And, so, staff would be hopeful that working 20 together with the Customer Services Committee and 21 other departmental staff that we could augment our 22 outreach efforts in this regard to ensure that those 23 people that are purchasing a business know all -- all 24 of the ramifications for failure to obtain a tax 25 clearance certificate and that they don't end up 26 before us with successor liability. 27 MR. HORTON: Yes. Since 2009, Members, we 28 have experience somewhere around 375 successor 80 1 liabilities, which equates to -- to somewhere around 2 $20 million in liability that individuals who have 3 unknowingly purchased a business that has a sales tax 4 liability has been saddled with that liability and 5 forced to pay that liability, unbeknownst to them in 6 the selling process. When, in fact, some effort on 7 our part, either legislatively or administratively, 8 we can begin to accelerate the collection because 9 we're collecting the revenue in the the escrow 10 process or in the selling price and limit the State's 11 exposure to additional accounts receivables and 12 leveling the playing field, if you will, for 13 purchasers who are going -- in some cases who are 14 being defrauded in some cases, in some cases may be 15 very well unintentional, but that's not part of the 16 process. 17 And, so, as those -- as the problem begins 18 to increase, the exposure to the State of California, 19 as well as everyone who participates in that process, 20 increases as well. 21 And, so, we're seeking to try to address it 22 administratively for now, possibly legislatively down 23 the road, depending on confirms with the Department 24 of Real Estate, escrow agencies and so forth. 25 All right, thank you, Miss Pielsticker. 26 ---o0o--- 27 28 81 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, KATHLEEN SKIDGEL, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on March 12, 2013 I recorded verbatim, in 10 shorthand, to the best of my ability, the proceedings 11 in the above-entitled hearing; that I transcribed the 12 shorthand writing into typewriting; and that the 13 preceding pages 1 through 47 constitute a complete 14 and accurate transcription of the shorthand writing. 15 16 Dated: April 12, 2013 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 82 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, JULI PRICE JACKSON, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on March 12, 2013, I recorded verbatim, in 10 shorthand, to the best of my ability, the proceedings 11 in the above-entitled hearing; that I transcribed the 12 shorthand writing into typewriting; and that the 13 preceding pages 48 through 81 constitute a complete 14 and accurate transcription of the shorthand writing. 15 16 Dated: April 4, 2013 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 83