FISCAL NOTE

Date Requested: February 11, 2021
Time Requested: 02:39 PM

1574	Introduced	HB2291
Agency:	Health and Human Resources, WV Department of
CBD Number:	Version:	Bill Number:	Resolution Number:
CBD Subject:

FUND(S):

N/A

Sources of Revenue:

Special Fund

Legislation creates:

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 Office of Medical Cannabis (OMC)office. It will operate alongside the Medical Cannabis Program and function under the direction of the OMC director. Management, legal, financial, and clerical support for the Medical Cannabis Program will also provide services for this new program at no additional cost. The new program will require new positions; field inspectors to perform onsite inspections of facilities and Administrative Services Assistants to review applications, issue licenses, and ensure compliance. According to the Oregon Liquor Control Commission website at https://www.oregon.gov/olcc/marijuana/Documents/mj_app_stats_by_county.pdf, Oregon has received 4,013 marijuana license applications as of February 8, 2021 of which 2,469 licenses were approved and are active; 895 are still being processed; and 649 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 1,726 applications to operate Recreational Cannabis establishments (cultivation, testing, manufacturing, and retail) and issue approximately 1,447 licenses based on comparing 2019 U.S. Census population data of West Virginia (1.8 million people) with the State of Oregon (4.2 million people). The Department anticipates that approximately 20 of the applications to operate a Recreational Cannabis establishment received in FY2022 and 30 in FY2023 will be from Medical Cannabis facility applicants. The Department estimates fiscal impact would be approximately $858,988 the first year and $863,880 upon full implementation in FY2024. This legislation is estimated to generate revenue of $13 million the first year and $8.6 million upon full implementation.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2021 Increase/Decrease (use"-")	2022 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	0	858,988	863,880
Personal Services	0	678,916	678,916
Current Expenses	0	180,072	184,964
Repairs and Alterations	0	0	0
Assets	0	0	0
Other	0	0	0
2. Estimated Total Revenues	0	12,955,000	8,630,000

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

Estimated Personal Services costs for FY2022 and ongoing is $678,916 and include salaries and employee benefits. Salaries, totaling $502,901, include 4.00 FTEs Administrative Services Assistant 3 positions at $167,556 (4 FTEs x $41,889) to review applications and issue and renew licenses; 6.00 FTEs Field Inspectors, similar to the classification of an Environmental Inspector, at $279,774 (6 FTEs x $46,629), to perform onsite inspections across the State; 1.00 FTE Investigator Supervisor, similar to the classification of an Environmental Inspector Supervisor, at $55,571, to train and supervise field staff. Employee benefits are estimated at $176,015 ($502,901 x 35%). Estimated Current Expense cost for FY2022 is $180,072; FY2023 is $112,472; and upon full implementation in FY2024 is $184,964 and includes landline telephone service at $6,600 ($50 per month x 12 months x 11.00 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 investigators 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 $72,492 (150 miles per inspection trip x $0.56 per mile x 863 inspections). One-time costs for FY2022 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 11.00 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 FY2023, there will be 863 establishments to be inspected at $72,492 (150 miles per inspection trip x $0.56 per mile x 863 inspections. Upon full implementation in FY2024, there will be 1,726 licensed establishments (863 licensed in FY2022 + 863 licensed in FY2023) to be inspected at $144,984 (150 miles per inspection trip x $0.56 per mile x 1,726 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 (863) of the 1,726 applications in FY2022 and the remaining 863 in FY2023, revenue from application fees would be $4,325,000 in FY2022 ($5,000 application fee x 863 applications from new applicants, plus $500 x 20 applications from existing Medical Cannabis applicants) and $4,330,000 in FY2023 ($5,000 x 863 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, the 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 $2,162,500 in FY2022 and $2,165,000 in FY2023. As per §16A-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 (863) of the estimated 1,726 initial licenses in FY2022 and the remaining 863 in FY2023, revenue from initial license fees would be $8,630,000 each year in FY2022 and FY2023 ($10,000 license fee x 863 licenses each year) 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 FY2023 for the 863 original licenses issued in FY2022 would be $4,315,000 ($5,000 x 863 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 FY2024, the Department would renew the 1,726 licenses originally issued in FY2022 and FY2023 and estimates revenue for FY2024 and ongoing would be $8,630,000 ($5,000 renewal license fee x 1,726 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 HB2291 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 HB2291. The term "Department" in the Definitions section (Page 3, Line 31) of HB2291 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 HB2291, 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 HB2291 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 HB2291 no later than July 1, 2021 and begin accepting and processing applications by October 1, 2021. Should HB2291 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