FISCAL NOTE

Date Requested: January 11, 2019
Time Requested: 02:58 PM

1102	Introduced	HB2331
Agency:	Health and Human Resources, WV Department of
CBD Number:	Version:	Bill Number:	Resolution Number:
CBD Subject:	Health

FUND(S):

N/A

Sources of Revenue:

Special Fund

Legislation creates:

Creates New Revenue, Creates New Program, Creates New Fund:

Fiscal Note Summary

Effect this measure will have on costs and revenues of state government.

The purpose of this bill is to legalize the personal use and possession of cannabis by adults; providing for a county option election to allow for the production and sales in that county; providing for regulation by the Bureau of Health; authorizing an excise and local sales tax on cannabis; prohibiting underage use; and preserving current laws relating to allowing employers and property owners to prohibit use or possession. This legislation, if passed, will require the creation of a new program within the Department's Cannabis office. It will operate alongside the Medical Cannabis Program and function under the direction of the recently hired Cannabis office director. Legal and financial support for the Medical Cannabis Program will also provide services for this new program at no additional cost. This new program will require field inspectors to perform onsite inspections of facilities and HHR Specialists to review applications, issue licenses, and ensure compliance. According to the Oregon Liquor Control Commission website at http://www.oregon.gov/olcc/marijuana/Documents/mj_app_stats_by_county.pdf, Oregon has received 4,380 marijuana license applications as of January 10, 2019 of which 2,090 licenses were approved and are active; 2,068 are still being processed; and 222 licenses have been cancelled, denied, suspended, or surrendered. Oregon intentionally paused acceptance of facility permit applications on June 15, 2018 due to a processing backlog of new and recurring licenses. Oregon issued its first recreational marijuana license in April 2016. Assumptions must be made in order to estimate revenue should this proposed legislation pass. The Department estimates it could receive 1,927 applications to operate Recreational Cannabis establishments (cultivation, testing, manufacturing, and retail) and issue approximately 1,831 licenses based on comparing 2016 U.S. Census population data of West Virginia (1.8 million people) with the State of Oregon (4.1 million people). The Department anticipates that approximately 20 of the applications to operate a Recreational Cannabis establishment received in FY2020 and 30 in FY2021 will be from Medical Cannabis facility applicants. The Department estimates fiscal impact would be approximately $830,690 the first year and $842,118 ongoing. The legislation is estimated to generate revenue of $12 million the first year and $9.6 ongoing.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2019 Increase/Decrease (use"-")	2020 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	0	830,690	842,118
Personal Services	0	644,606	644,606
Current Expenses	0	186,084	197,512
Repairs and Alterations	0	0	0
Assets	0	0	0
Other	0	0	0
2. Estimated Total Revenues	0	12,055,000	9,635,000

Explanation of above estimates (including long-range effect):

Estimated Personal Services costs for FY2020 and ongoing is $644,606 and include salaries and fringe benefits. Salaries, totaling $477,486, which include 4.00 FTEs HHR Specialists (4 FTEs x $39,522 = $158,088) to review applications and issue and renew licenses; 6.00 FTEs Field Inspectors, similar to the classification of an Environmental Inspector (6 FTEs x $44,412 = $266,472), to perform onsite inspections across the State; 1.00 FTE Inspector Supervisor, similar to the classification of an Environmental Inspector Supervisor ($52,926), to train and supervise field staff totaling $477,486. Employee benefits total $167,120 ($477,486 x 35%). Estimated Current Expense costs for FY2020 is $186,084 and ongoing is $197,512 and includes landline telephone service at $6,600 ($50 per month x 12 months x 11 FTEs); cell/smart phone service at $5,040 ($60 per month x 12 months x 7 cell/smart phones); iPad service at $5,040 ($60 per month x 12 months x 7 iPads); office supplies at $1,100 ($100 per FTE x 11.00 FTEs); dedicated fax line at $600 ($50 per month x 12 months); office space rental for field inspectors positioned regionally across the State at $21,600 ($300 per month x 12 months x 6 Inspectors); and in-state travel for performing onsite inspections of cultivation, manufacturing, testing, and retail establishments at $78,504 (150 miles per inspection trip x $0.545 per mile x 964 inspections). One-time costs for FY2020 are $67,600 and include $50,000 for modifications to the WV Cannabis system to include personal use cannabis; computer equipment and monitors at $11,000 ($1,000 x 11 FTEs); iPad equipment at $2,100 ($300 x 7 iPads); cell/smart phone equipment at $2,100 ($300 x 7 cell/smart phones); fax machine at $400; network printer at $500; desktop printers at $1,500 ($250 x 6 desktop printers). In 2021 there will be 963 licensed establishments to be inspected at $78,725 (150 miles per inspection trip x $0.545 per mile x 963 inspections). Upon full implementation in FY2022, there will be 1,927 licensed establishments (964 licensed in FY2020 + 963 licensed in FY2021) to be inspected at $157,532 (150 miles per inspection trip x $0.545 per mile x 1,927 inspections). Assuming that each establishment is required to submit an application and pay the $5,000 application fee reflected in this proposed legislation regardless of the number of facilities or stores the establishment owns and operates and the Department receives one-half (964) of the 1,927 applications in FY2019 and the remaining 963 in FY2020, revenue from application fees would be $4,830,000 in FY2019 ($5,000 application fee x 964 applications from new applicants, plus $500 x 20 applications from existing Medical Cannabis applicants) and $4,830,000 in FY2021 ($5,000 x 963 applications from new applicants, plus $500 x 30 applications from existing Medical Cannabis applicants) As per §16A-17-6(d)(2) of the proposed legislation, department is interpreting that 50% of application fees collected are to be retained by the Department with the remaining 50% to be distributed to the counties and municipalities in which the applicants desire to operate. The Department would retain $2,415,000 per year in FY2020 and FY2021. As per §16-17-7 of the Bill, no revenue from excise and sales taxes will be available for Cannabis program operations. License terms, license fees, and renewal license fees are either absent or unclear in this proposed legislation. The Department is presuming that a separate initial license fee can be established, as outlined for Medical Cannabis permits, with a license term of one year that is renewable annually. The initial license fee would be $10,000, with renewal license fees at $5,000. Assuming that the Medical Cannabis one year term and license fee schedule applies under this legislation and the Bureau issues one-half (964) of the estimated 1,927 initial licenses in FY2020 and the remaining 963 in FY2021, revenue from initial license fees would be $9,640,000 in FY2020 ($10,000 license fee x 964 licenses) and $9,630,000 in FY2021 ($10,000 license fee x 963 licenses) if the license fee is determined to be non-refundable with the Cannabis Program retaining 100%. Following the methodology used for approximating revenue from application and initial license fees, the Department estimates revenue from license renewal fees in FY2021 for the 964 original licenses issued in FY2020 would be $4,820,000 ($5,000 x 964 license renewals) if the renewal fee is determined to be non-refundable with the Cannabis Program retaining 100%. Upon full implementation of this new program and beginning in FY2022 and continuing for each fiscal year thereafter, the Department would renew the 1,927 licenses that were originally issued in FY2020 and FY2021 and estimates revenue for FY2022 and ongoing fiscal years would be $9,635,000 ($5,000 renewal license fee x 1,927 licenses) if the renewal fee is determined to be non-refundable with the Cannabis Program retaining 100%.

Memorandum

It is important to note that should HB2331 become effective, it will have a negative effect on the Medical Cannabis Program activities and revenue. The application fee under this proposed legislation is $5,000 versus the Medical Cannabis application fee of $50,000. The Department is unclear about the term "Department" reflected throughout HB2331. The term "Department" in the Definitions section (Page 3, Line 31) of HB2331 refers to the Department of Revenue only. However, the word "Department" is included in passages referring to applications, fees, and rules which would apply to the Department. A required application fee of $5,000 is included in HB2331, but license and renewal license fees are not reflected in this proposed legislation. Additionally, it is unclear if fees are refundable or non-refundable which could greatly impact revenue collections. It is unclear in HB2331 if an establishment that owns and operates multiple facilities or stores will be required to pay one fee (application or license) that covers all of its facilities or stores or if the intent of this legislation is to require a separate fee for each facility or store. This proposed legislation requires the Department to adopt legislative rules necessary for implementation of HB2331 no later than July 1, 2019 and begin accepting and processing applications by October 1, 2019. Should HB2331 pass and become effective upon passage, it is likely that this new program would start prior to funds being available to hire staff and before Rules can be written. It is important to note that the Department will need time to write rules and hire staff to create and develop this new program before any applications can be accepted or processed.

Person submitting Fiscal Note: Bill J. Crouch
Email Address: Bill.J.Crouch@wv.gov