California Psychedelics Ballot Measure Could Undermine Marijuana Taxes, State Officials Say

The California Legislative Analyst’s Office (LAO) released its review this week of a prospective ballot initiative to legalize psychedelics, outlining not only the plan’s policy implications but also its potential fiscal impacts on the state—which the report calls “various” and “uncertain.”

The measure, which proponents submitted the final language for earlier this month, would allow adults to legally grow, possess and use substances like psilocybin, LSD, MDMA, DMT, ibogaine and mescaline. A person would need a healthcare practitioner’s recommendations to purchase psychedelics at regulated stores.

As filed, the so-called Psychedelic Wellness and Healing Initiative of 2024 refers to “entheogenic” plants and substances, and it includes cannabis among them.

That approach, LAO said in its review, could cost hundreds of millions of dollars in potential tax revenue to the degree it affects the state’s existing marijuana market.

“If the interpretation and implementation of the measure causes a large share of cannabis businesses and consumers to shift from the existing legal cannabis market to the new market created by the measure,” the report says, “it could result in a net reduction of hundreds of millions of dollars in cannabis-related tax revenue.”

On the other hand, LAO added, the change could in fact lead to more revenue for the state.

“If there is not such a shift, the measure could result in a net increase in tax revenue,” the office said, “as people selling currently illegal entheogenic plants or substances or providing related services could begin doing so legally under state law and therefore pay sales and personal income taxes.”

Analysts noted that the potential increase in tax revenue, however, “is significantly smaller than the potential revenue reduction.”

Pursuant to Elections Code Section 9005, we have reviewed the proposed statutory initiative related to cannabis and certain psychedelic drugs (A.G. File No. 23-0032, Amendment #1). https://t.co/zIXQIa8BVv

— Legislative Analyst (@LAO_CA) December 18, 2023

Additionally, because of the proposal’s limitations on taxes and regulations that authorities could place on entheogenic businesses and activity, LAO said, overseeing the new industry could “cause state and local regulatory costs to exceed regulatory revenues by more than $100 million annually.”

“This could happen if a large number of existing cannabis businesses choose to become entheogenic businesses and the measure is legally interpreted and implemented in a way that continues to require the current level of regulation for these businesses while limiting the regulatory fees agencies can charge,” the report explains. “To the extent that fee revenues are not sufficient to fully support such costs, some of the costs could require support from other funding sources (such as the state General Fund).”

Changes to legal penalties and law enforcement around psychedelics, meanwhile, would likely save the state money, LAO concluded, by reducing incarceration and policing costs.

“The measure would reduce ongoing costs to the state and local governments by reducing the number of people convicted of entheogenic substance-related offenses incarcerated in state prison and county jail, as well as the number placed under community supervision (such as county probation),” the report says. “The measure would also result in a reduction in state and local costs for the enforcement of entheogenic-related offenses and the handling of related criminal cases in the state court system.”

The savings would be slow to come, however, and would ultimately result in relatively minimal cost savings, LAO said. And any money saved, the office added, would likely be spent elsewhere in the criminal legal system.

“In the near term, these savings could be partially or more than offset by increased state and local government costs due to workload associated with resentencing and changing of criminal records for people previously convicted of crimes affected by the measure,” its report says. “In total, we estimate that the measure could eventually result in a net reduction in costs of around a few million dollars annually. In many cases, these resources would likely be redirected to other law enforcement, corrections, and court activities.”

Here are some of the other changes that would be made under the proposed Psychedelic Wellness and Healing initiative:

• Simple use and possession of psychedelics at a person’s home would be declared lawful. The change would apply to all “hallucinogenic substances” as identified under California law, a list that includes DMT, ibogaine, LSD, mescaline, psilocybin, psilocyn and MDMA.
• Adults could possess “as much entheogenic substances as is needed for one’s own annual personal use.”
• Cultivation on private property of psychedelic plants and fungi would be legal provided it’s done out of public view and with consent of the owner. Further, the proposal would limit state and municipal authorities from prohibiting cultivation through nuisance laws or through “impracticable” regulations.
• Beginning on January 1, 2025, any entheogenic business could begin cultivation, manufacture or wholesale distribution of psychedelics provided it operates on land zoned for commercial agriculture and approved by the California Department of Food and Agriculture for food production.
• Beginning on April 19, 2025, any incorporated business in California with a state seller’s permit—required of most retail businesses—could begin sales of psychedelic products to qualified patients or their designated caregivers.
• The proposal says that “nothing in this Article shall prevent any church, spiritual organization, indigenous group, or any individual from using entheogenic plants or substances as a sacrament in their own religious or spiritual practice.” Definitions for such practices are not provided.
• With approval from local voters, a municipal tax of up to 10 percent could be applied to psychedelics products sold for medical or therapeutic use.
• The sale or use of endangered species or any parts thereof would not be allowed “unless the producer can demonstrate that the species, or part or product thereof, was farmed in a sustainable way and not harvested in the wild” and does not negatively affect the species in its natural habitat.
• While doctors could recommend psychedelics for any “physical or mental illness” for which the substances provide relief, specifically listed qualifying conditions would include: PTSD, depression, anxiety, addiction, suicidality, spiritual development, obsessive-compulsive disorder, chronic and acute pain, inflammatory disorders, Alzheimer’s disease, Parkinson’s disease, traumatic brain injury and migraines.
• No healthcare practitioner would be “punished, or denied any right or privilege, for having recommended entheogenic plants or substances.”
• The state Department of Public Health could promulgate regulations to implement the state framework, but “the rulemaking process shall not unreasonably delay implementation.”
• Businesses would be regulated “as closely as practicable to non-psychoactive agriculturally produced products” with the exception of warning labels in English and Spanish that would be required on psychedelic product packaging.
• The state would be required to allow research into psychedelics, for example by allowing healthcare practitioners to use and deliver psychedelics to patients as well as to recommend their use.
• Doctors could recommend psychedelics to minors for the treatment of “specific and appropriate conditions” that are “severe and life threatening” with the consent of a parent or guardian and the minor’s primary care physician.
• The state Department of Consumer Affairs and the Health and Human Services Agency would need to adopt and implement qualifications requirements for psychedelic-assisted therapy “created by an independent professional certifying body.”
• Municipalities could ban or limit the number of psychedelics businesses with approval of voters, but they could not prohibit individual or group activities permitted under the proposal.
• The “mere presence” of psychedelics in compliance with the updated law could not be used to make a determination under state law of risk of harm to a child, nor could it be used to diminish parental rights or justify the removal of a child from the home.
• Minors could be penalized for psychedelics-related activities without parental consent, but “the maximum penalty for such offense shall be no greater than a mandatory drug education program, and no conviction shall remain on the juvenile record of such a minor.”
• Adults who provide entheogens to a minor who is not a qualified patient would be guilty of a misdemeanor and subject to a fine of up to $1,500 for a first offense and $3,000 for subsequent offenses.
• For people serving criminal sentences for convictions over conduct that would be a lesser offense under the initiative, a court would need to grant a recall or dismissal of the sentence and allow for resentencing, with no hearing necessary. After completing a sentence, records of certain convictions could be sealed.

Organizers have been working on the measure for nearly a year, but the campaign accelerated its pace after Gov. Gavin Newsom (D) vetoed a psychedelics legalization bill, SB 58, in early October, said lead campaign organizer Dave Hodges, the founder of the Church of Ambrosia. In a veto message at the time, the governor expressed that he wanted the legislature to send him a new bill establishing guidelines for regulated therapeutic access to psychedelics.

Last month the backer of the vetoed measure, Sen. Scott Wiener (D), said he will file a revised psychedelics bill next year alongside Assemblymember Marie Waldron (R), a former minority leader of the GOP caucus, that will focus on providing regulated therapeutic access. Wiener said the measure will be crafted in a way that’s responsive to Newsom’s veto message.

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A separate ballot proposal, meanwhile, would legalize psilocybin, including regulated sales to adults. That measure, backed by the group Decriminalize California, recently got approval from state officials to begin collecting signatures. Activists have tried twice to put the reform on the ballot in prior cycles, but they’ve come up short due in large part to signature gathering complications during the pandemic.

Hodges previously told Marijuana Moment he doesn’t oppose the other proposed reforms, but he feels his Psychedelic Wellness and Healing Initiative would best secure access for Californians.

With the proposal now final, advocates can begin collecting signatures once the state attorney general issues a ballot title and summary. To qualify for the 2024 ballot, Hodges has said, the campaign will need to gather 546,651 valid signatures from California voters by April 23 of next year.

“If we miss the April 23 date but still gather enough signatures” within the 180-day window the state allows, “then we end up on the 2026 ballot,” he said.

Asked about the steep costs of signature-gathering in California, Hodges has said he’s confident. He told Marijuana Moment earlier this year that he expects members of the Church of Ambrosia—a nondenominational, interfaith religious organization that supports the use and safe access of psychedelics—to support the reform financially.

“We know we can raise it,” he said. “We have 100,000 members of the church who all want to see these things happen. It’s just a matter of giving them somewhere to put the money.”

Some California municipalities, meanwhile, are pushing forward with reform on the local level. The city of Eureka, for example, adopted a resolution in October to decriminalize psychedelic plants and fungi and make enforcement of laws against personal use, cultivation and possession a low priority for police. It’s at least the fifth local jurisdiction in the state to embrace the policy change. Others include San Francisco, Oakland, Santa Cruz and Arcata.

At the state level, Oregon in 2020 legalized psilocybin therapy in addition to decriminalizing possession of all drugs. The state approved the first legal psilocybin service center this past May. And in Colorado, Gov. Jared Polis (D) signed a psychedelics regulation bill into law in May, setting rules for a psychedelics legalization law that voters passed last year.

In Massachusetts, meanwhile, a reform campaign submitted what organizers say is more than enough voter signatures to force legislative consideration of a psychedelics legalization initiative before potentially putting the issue on the 2024 ballot. Leaders in Provincetown, meanwhile, recently voted to make the town the state’s seventh municipality to deprioritize laws against psychedelics.

An analysis published in an American Medical Association journal last year concluded that a majority of states will legalize psychedelics by 2037, based on statistical modeling of policy trends.

According to a national poll published in March, a majority of U.S. voters support legal access to psychedelics therapy and back federally decriminalizing substances like psilocybin and MDMA, both of which have been designated by the Food and Drug Administration as “breakthrough therapies.”

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Image element courtesy of Kristie Gianopulos.