Assembly Budget Subcommittee No 5 State Administration

Thank you. Thank you. Thank you Thank you. Thank you. Thank you Thank you. Thank you. Thank you Thank you. Thank you. Thank you Thank you. Thank you. Thank you Thank you. Thank you. Thank you Thank you. Thank you. Thank you Thank you. Thank you. Thank you Thank you. Thank you. Thank you Good afternoon and welcome to the Assembly Budget Sub-5 on State Administration hearing today. I apologize for running a little bit late. Today our hearing will focus on the Department of Veterans Affairs, Cannabis Control and Consumer Affairs and the Cannabis Control Appeals Panel. This is an in-person hearing with all panelists testifying in person. We will take questions from members of this subcommittee after each panel and public comments will be taken at the end of the hearing and will be limited to one minute. If you are unable to attend this hearing in person, you may submit your comments via email to asmbudget at asm.ca.gov. And just to let you know, some of our members are going to be moving back and forth, so they will be coming and going, and I may as well, as I also have a JLAC hearing at the same time. With that, we will start with our first panel, which is the Department of Veterans, and would ask our panelists to come forward. We want to welcome our secretary from CalVet, Lindsay Sin, and we're going to have you kick us off, if that's okay, and if you can introduce yourself as you speak.

Do we have any other comments? So we're going to go ahead and move into some questions. I think I'll go ahead and start here. Do you have any questions right off? Okay. Okay, so our first item is the Southern California Veterans Cemetery, and we have been in close communication, and one of the factors that I like to focus on is making sure that as we make progress, which we have had significant progress that we're also transparent and that the public knows. So with that, I know that right now there is a study going on. So if you can go ahead and update us exactly on where we are and what next steps would be. Okay.

Thank you. Madam Chair, committee members, thank you again. Jason Kenny, Chief Deputy Director at the Department of General Services. Thought it would be wise, maybe provide just a little bit of background on the cap outlay process in general, just for any questions that might come up on timing, sequencing, those sorts of things, and then go into a little more detail on the specifics on the study and where we're at and what we're kind of seeing. So with that, it'd be helpful to maybe start out by noting that the state's cap outlay process is designed as it is because of the financial stakes in projects such as these. Cap outlay represents a significant expenditure with ongoing resulting obligations like operations and maintenance. So the process is designed to be deliberative, transparent and offer numerous opportunities to reevaluate the wisdom or need to proceed. So because of that, the cap outlay process is typically completed in three phases, preliminary plans, working drawings and construction. You might hear me refer to them as PP, WD or C as just the shorthand, but preliminary plans, working drawings and construction. Each of these are typically authorized in separate sequential budget cycles. So you might receive preliminary plan funding in July of say, 26. Typically you receive working drawing funding in 2027, and then construction funding sometime in July, 2028. Again, three budget cycles, three different deadlines for funding. You might complete a phase faster than that, but typically appropriations are one year at a time. Preliminary plans are where a lot of the initial work begins as the term implies, design begins, all required environmental reviews. In the case of Egyptian Camden, there's no CEQA review required, but there is NEPA, the federal version. Real estate due diligence, those sorts of things. At the end of the phase, the goal is to have a really well-defined sense of the project scope, risks, mitigations, cost, et cetera. The next phase after that is working drawings. That phase is pretty simple. Any remaining design is completed, the project achieves its permits, and then it goes out to bid, and then assuming the construction phase is funded, of course, and then the construction phase is exactly as it sounds, you build the thing, whatever it is. There are a couple of other phases that typically happen in a cap outlay process depending on the project. You might have a study phase, as this project does. You typically do that when you have a lot of unknowns, uncertainty, and you really want to make sure that, again, what gets forward to the legislature is clear and accurate. Wouldn't do to submit something and say it's X dollars, and then it's 15 times that next year. The other phase that typically happens if we're not talking about existing state property would be acquisition. So that would be a separate phase typically when property is purchased by the state. A couple of really important notes on acquisition. As a general rule, we typically purchase properties that are design construction ready, meaning clear title, adjacent utilities. Otherwise, if you were to acquire something that you don't have those rights to or couldn't do it relatively quickly, you're essentially buying a temporary liability until those can be addressed. And then second while typically acquisition precedes design it doesn have to work that way You can begin design without acquiring a site Now with that said and that kind of overview of the cap outlay process turning to the Gypsum Canyon site as the Secretary mentioned maybe just a little bit of additional background for the committee. We're talking about a site that's in the city of Anaheim. It's a 283-acre site. There's a new cemetery district, the Orange County Cemetery District, that was formed, and it's essentially a two-part development. You have the cemetery district who is doing a locally-owned cemetery, non-veteran for the lack of a better term, and then the idea is the Calvet Cemetery on the other portion of the property. So about 156 of those acres of the 283 acre site would be the context for the Calvet Cemetery. As was mentioned in January, 2024, DGS and Calvet in partnership completed the initial study, again, part of that study phase, to identify the costs associated with Gypsum Canyon. The study identified that the cost for Calvet's portion just the 156 acres there, and just phase one was $126 million. Now, a typical cemetery would be more like 10, and so if it helps to explain the price tag, it is important to note that the site is very much a large hillside, and so there is a lot of dirt, a ton of dirt, no pun intended, to be moved. And CalVet's portion of this is designed or intended to begin after the cemetery district, mostly because there's no roads, no utilities, and because the district actually has to have access to the CalVet portion in order to grade their property. And so because of all of that, the original study was actually based off of the cemetery's district's grading plans. As you can imagine, one big hill, right? And so you can't really just pick and choose how you would develop it. Their overall plan kind of drove what we studied in 2024. And the reason why that's relevant is in late 2025, we were notified from the Cemetery District and Orange County Public Works officials that they had substantially revised their grading plans in the hopes of reducing the overall site work costs. So CalVet fairly immediately authorized us to begin an update to the study, which would normally take at least six months. But we have been working together and with the Cemetery District and with Orange County and 24 other entities. It's a large group to try to get this done as fast as possible. And we are targeting the end of April. and a big part of that is again revised site plan, revised grading plans, re-evaluating how much of the footprint we have to touch at the beginning in order to drive the cost down as much as possible and so we are looking forward to the end of April. We are on target to hit that and I think once we do, the committee and anyone interested can see a revised understanding of what would cost to do a cemetery at Gypsum Canyon So I know that was a lot. I'll pause and take a breath and let you ask any questions you'd like of me.

So right now the state has about $35 million in reserve and most of which is in the master cemetery development fund. But we have the statutory authorization, but not the budget expenditure authorization for that. So are you saying that we should add additional funds to be used, or with the $5 million that is there, is that sufficient for the stage we're in? Right. Given that the study, the initial study showed about $30 million in plans and working drawings price tag, it's possible we would need that money. What I would like to do is come back to you in April, the end of April, if possible, when we really can look at those numbers and see what the kind of updated revised study says.

Yeah, yeah. In order to – well, importantly, as I mentioned, Secretary Sin's point, acquisition can be divorced from design. I mean, design can begin without taking possession of the site. It's not like those have to be sequentially linked. But yes, ultimately, without utilities, road access, easements from the locals, and the cemetery district having done whatever they need to do on the Calvet portion of the site to develop their own, or at least make their own grading, those would be the necessary steps, I think, before the state would be able or want to take over their property. Otherwise, we don't really have site access control. As you can imagine, if somebody were to trespass up there, start a fire, get hurt, we'd be liable but with no ability to remedy. And so looking to make sure that all of those things that the locals are planning on doing in order to make our site able to be developed, those would be probably the reasonable steps.

Thank you, Chair. I don't have any questions. Thanks for the presentation. I just wanted to appreciate the Chair's work and leadership on this. I know this has been something you've been working on for your tenure and had a most recent hearing in your district on this where I saw so many organizations and veterans came out so that we can get this built. So just wanted to thank you for your leadership.

members. Oh, thank you. Amy Jenkins here on behalf of the Orange County Board of Supervisors, I want to first thank you for your tremendous leadership over for more than a decade in bringing this project forward. It's been a pleasure to partner with you on that. I also want to thank the Secretary and Mr. Kenney for their comments. I would just say, as I've said many times, this is a very significant priority for Orange County and Orange County veterans. Appreciate all the work that's gone in. And you will hear, I would just urge support for additional spending authorization, probably as part of phase one and two, which I know is possible. The county is moving very aggressively forward. We certainly appreciate the clarity as it relates to the expectations for the property. It is entitled. We're ready to go, ready to break ground, and so look forward to further collaboration. And again, we just urge budget authority, spending authority this year. Thank you.

On to thing number two. It's going well. So, with me now replacing Deputy Director Kenney is Kobe Peterson, Deputy Secretary for the Veterans Homes at CalVet. So, we first want to start with a little bit of background. The skilled nursing facility at Yauntville is a 240-bed, more than 317,000-square-foot facility that will replace the aging Holderman Hospital. This has been a project that's been in the works for some time now, and I'm happy to report it is going well, and we look forward to an absolutely beautiful new building. The reason it's so important that we achieve this is we do need a state-of-the-art skilled nursing facility at our Yontville home. Yontville is, of course, the largest home in our systems of homes, if not the largest and oldest in the country, as it was built in 1884. Not all buildings go back to 1884, but there may still be some buildings that go back to 1884 on that property. So to be able to have a state-of-the-art building that is reflective of modern long-term care, that includes really important considerations for accessibility, ADA, as well as memory care facilities that support populations with specific types of dementia or Alzheimer's, is a wonderful addition to that campus because it is reflective of modern quality care. It also is more efficient because we'll have a central kitchen along with many kitchens on each floor. That means that rather than having to move meals from one building to another or across the campus, we're able to do it all right there. And it's a 240-bed facility, so we'll be able to house about 60 memory care beds and the rest are sniff beds. So this is just a wonderful project. It also is reflective of the kind of style and architecture of the other buildings. If you haven't had a chance to visit, you know, we would welcome tours and visits, of course. Ma'am, I know you were up there recently, and I hope that you got to see kind of that campus and that building for all it is right now. It's really incredible. So with that, we are still in construction, but that is wrapping up. We did get a certificate of occupancy from the fire marshal this week, which means we're able to go in and start adding some additional systems and equipment that's needed, including shelving for pharmacy, for supplies, etc. That allows us to then continue on our really important punch list with the contractor make sure that our home is ready for licensing when we do bring licensing in there So our next steps after we complete construction which will be a little bit later this year is to continue some of that work along with bringing in CDPH to start the licensing process Once we achieve licensing with them, then we go to the VA for the VA to start the VA survey process so that we can be kind of approved by the VA. And the reason that's important is obviously we have a relationship with the VA in caring for these veterans through per diem, as well as medical cost reimbursement for managed medication, et cetera. They're also one of our oversight agencies and survey our homes, as well as providing the state home construction grant program. So of the $330 million cost for this facility, about $209, $210 of that is reimbursable through the VA. and we are in the process of being approved for that reimbursement and that will happen over a number of years. But we obviously have to go into survey and have full approval from them first. So we do expect to bring veterans into the facility starting later this year. I don't want to promise too many timelines and dates because things do shift a little bit, but I think we're on a really good track right now to continue the final stages of this project.

I don't know that I can add too much more to that, but appreciate all the support. We're really excited about where we are along the process. This has been a project that's been in the works for many years. It's a beautiful facility. It'll completely transform that campus. It's what the veterans deserve, and we could be prouder of where we are, and we'll keep everybody posted.

Thank you, Chair, and thank you for your presentation, Secretary Sinn. I think this is a great project and facility. I haven't visited it myself, but please do keep us a prize. It's exciting that you got your certificate of occupancy this week. That's a big deal. working towards, you know, ribbon cutting and actually getting more folks through the door to get the help that they need at this skilled nursing facility. Can you just walk us through what the process is once you move veterans into this new facility How does that work when you transition them out of the older facilities and what going to happen to those older facilities Sure

Thanks for sharing that. And can you share how, is there a waiting list right now with your agency? How many veterans are waiting to get care?

Thanks for sharing that. And just kind of a last question for me. From some of these older facilities that I know you have a current use for, could any of them be retrofitted or used in a different way to get some of these veterans off of the waiting list? And I know obviously that would mean additional costs to the agency. I think one of the reasons why I'm asking, and I think this is a great investment from the state, is in my district, I have a number of veterans who live in my district as well, and we see a lot of veterans homelessness. And I'm always trying to figure out how can we reuse some of these facilities, turn them potentially into housing, veterans housing? Has there been any discussions

Thank you, Secretary Sin, for the very thorough response. I really appreciate it. I would love to follow up with your agency afterwards just to figure out how we can bring maybe some of your resources, any work that you do in the community into my district, some of the outreach that you may be already doing to some of the veterans organizations. So we'd like to follow up and thank you for the presentation. Thank you. Just related to some of the same questions related to the buildings, at least on Yachtville, and I walked out for a moment, so you might have But I thought I remembered when I was at Yonville that you were going to go through a study process, possibly for the future of those buildings. Or are you just planning on not using those buildings at all?

Thank you. And I think one of the things that we'll probably talk about next but is related to this is it does seem at least at Los Angeles and at Yonville, some of the nursing, getting the staffing related to nursing has been difficult because it's very competitive out there. I know we heard that nurses can go other places and make a larger amount of money somewhere else. So having them at maybe Los Angeles or Yonville doesn't always pay what they need. And maybe on the list of ideas, and I know it might sound random, is perhaps using some rooms for nursing, kind of like the traveling nurses. And maybe that's not even a model that you could entertain. But I do know that the traveling nurses, they seem that's a growing part of the profession, that there seems to be more and more nurses that want to be in that particular space of being a traveling nurse.

150 of which were skilled, were certified nursing assistants positions. that would be then eliminated through the process of the state looking at positions to be eliminated. And I can first assure you that while those positions did get removed primarily from Yonville and the West Los Angeles Veterans Homes, we went through this exercise extremely carefully. We wanted to ensure that first and foremost, we were able to meet the needs of the veterans that are currently in our care, veterans and spouses, so residents in our care. We also wanted to ensure that we did not essentially cut our nose off to spite our face and eliminate all vacancies that we were not able to then backfill and continue to grow and fill beds as needed So even though we have put these positions up to be eliminated we are confident that we are still meeting our excellent quality care needs and we're still able to bring veterans in and still fill beds. And the reason that's critical is it means that what we've been looking at is achieving greater efficiencies in our staffing models, in our processes, and in our financial systems within the veterans' homes. And that's represented partially through the new electronic health record project that we are doing, where it's been rolled out to five homes, three more homes to be completed this year. And it also means that we're looking at the processes that are most important to us from starting with evaluating a veteran for admission, what that care program needs to look like for that individual veteran, and then bringing them into the appropriate level of care and ensuring we have the staffing to back it up. We feel that this was the responsible thing to do because these positions had been vacant for some time, and our two most kind of like highest competitive and most difficult homes to fill with positions tend to be Yonville and West Los Angeles. Going back to my earlier comments on if you could build a veteran's home or expand capacity, where would you do it? where would you not do it? Those two homes are probably represent different challenges for different reasons. West Los Angeles is difficult commute times, high competition among other medical facilities, not always the easiest place for people to work just given those commute times and high cost of living. Likewise, Yonville is a little bit out of the way and might represent a higher commute as well and is not a place where people are living right out in the community typically. So again, kind of a longer commute. So it was important for those positions to be evaluated because fiscally we're able to be responsible enough, again, to be able to meet that care need, but also look at the budget, realize we still have cost savings to achieve across the board, especially as we get leaner and meaner in what we do. And that is our big focus right now, especially with this electronic health record project. And that means that even And the $15 million that is associated with those positions is not a big hit to our budget at this time.

I don't have any questions. Just a comment just to say thank you for your leadership and to your agency. It's not often where we're reviewing an item where you're eliminating positions. And I know that's really tough, but want to thank you for, you know, being fiscally responsible and coming before us to say that you've done your own assessment. You know, we're in a tough budget year and you're making some tough choices to really right size the agency and trying to figure out where you need resources. So just wanted to commend you for doing that.

My only concern is the vacant positions that we're talking about here. How critically, I guess, have you analyzed whether or not we were going to be needing those to be able to meet the level of care and sufficient support you have at these facilities on an ongoing basis? Right.

for ongoing work as well, too. So definitely also commend and like my colleague that you're thinking critically about where to find savings in a very challenging fiscal time. Yes. But definitely don't want to throw any babies out with a bathwater, too, if we're thinking about the long term solvency of your mission.

Thank you. Appreciate those comments. I think that, again, being on both of those campuses over, I think, twice to West Los Angeles and Yonville, it's definitely a community, Phil, that I see there. And I even, not necessarily in nursing, but in some of your food service and others, I was told and I saw firsthand, you know, you have some generations that have been working there, family members and so forth. and I think that's really important as far as the care the veterans get. So we appreciate that.

Good afternoon, Madam Chair, members of the committee. My name is Clint Kellum, I'm the director of the Department of Minibus Control. I appreciate the opportunity to be here today to discuss the department's budget with you and the proposals before you for consideration. I'll provide a brief overview of the department, how we're doing our work, and then I'll pass it off my colleagues here to get in a little more detail on the proposals. So who we are, the Department of Cannabis Control regulates the full legal cannabis supply chain, right from cultivation, manufacturing, distribution, testing to retail. We also have a law enforcement arm focused on the illicit market that complements this regulatory work, given where we are in this space. A quick overview of our budget, if these proposals are approved in our budget will be approximately $198 million. $104 million of that is funded through licensing fee revenue. The other $94 million is funded through the cannabis excise tax, including $10 million for academic research grants. A quick overview of the scale of our programmatic operations. We have about 240 people in our compliance division. They're really doing the field work on our licensed staff. They do inspections, complaint visits, and that type of work. We have about 110 people in our licensing division. They do the typical application work, ownership reviews, license modifications. And then we have 93 staff in our law enforcement division. 75 of those are sworn. 54 are the actual line detectives, boots on the ground. And then we have the standard department divisions that would support that work. When we think about our mission as a department, we're just like any other regulatory agency. We want to protect consumers, youth, the environment, but we're in a unique situation given our market. Only about 40% of California's consumption is coming from our legal space, even after eight years of legalization. And so a priority for us is really just actually increasing the consumption that's coming from our legal market. legal market. It provides consumers tested product, it has youth protections, and it provides environmental standards. We see that work being done, and just to be clear on that front, I'm not advocating in any way for more consumption, just that it's happening from the legal space that we offer in California. We're delivering on that work across sort of four continuums. Your standard hallmark work, trusted and safe product for consumers. That's our value add in the legal space, and that's how we're able to show the typical regulatory work. We want to continue pressure on the illicit market. It's large in scale. That will be discussed. The proposal is before you for consideration on that front. Another important piece is the amount of consumer confusion in this market. It's complex, local control, intoxicating hemp. We are restarting our public awareness campaign on that front to help consumers understand when you're consuming cannabis in California, check to make sure it's legal. We also want to have a conversation to invite intelligent conversations into retail access at the local level to make sure that folks understand that without legal options, the illicit market persists. And then the final thing is reducing friction on operators so that our legal market can be functional. Not in a way that reduces trust and safety in our products, but in a way that is thoughtful for everyone involved. These all work together. There's no silver bullet here. Everything we discuss is going to be one piece in sort of build momentum to a long-term sustainability and getting to where we want. With that, I'll pass it to Chief Kevin McInerney, who's the chief of our law enforcement division, to get into our budget change proposal on enforcement.

Good afternoon, everyone. As the director said, my name is Kevin McInerney. I'm the chief of law enforcement for the Department of Cannabis Control. I've been in this role for approximately six months, but I've worked in cannabis enforcement since it began in 2018. Prior to that, I worked in traditional law enforcement for about 20 years now. As I've taken over the role as chief of the law enforcement division, I've changed the strategic direction of the division to some degree to align with the director's goals and mission that we've set, and that is to push more people into the legal market. With that said, it's an uphill fight. This is a large problem that we have in front of us. It is significant. And we going to talk a little bit about that over the next couple of minutes Thank you California illicit cannabis market Total, our market produces approximately 11.4 million pounds. It's grown illegally. And two-thirds of the sales. Two-thirds of all sales are on the illicit side. there's also an incredibly high export value, mostly to Europe at this point. Historically, a significant amount of cannabis was shipped east to the eastern states because it was just more lucrative for illicit market producers to send there. As the market has begun to produce more and more cannabis across the country and more states have turned to legal production and their own illicit markets have grown, a significant portion of cannabis is now moving to Europe and specifically to England. As the director said as well, enforcement is not the only solution here. We can't enforce our way out of this problem. We can't arrest our way out of this problem. This is going to take a multimodal approach that includes educating the public on why they should be buying from the legal market. It's going to take us enforcing across the spectrum of the illicit cannabis market and across the entire market. There is no silver bullet to solve this problem. So we're using as strategic an approach as possible. This illicit market is dominated by organized crime. There is a significant amount of organized crime throughout the entire supply chain from production and cultivation sites, both indoor and outdoor across the state. They're not focused in any particular areas and it can be found in just about anywhere. Distribution is one of the places that we have the ability to make the most impact and we're focusing our investigations on this at this point, both at the distribution level, but also at the financiers behind it. And we'll talk more about that in a moment. We're focusing on the highest priority cases, which are prioritized based off both public safety and health risk, but also based on how much of an impact we can make on illicit market operators. The strategy that we've adopted is an intelligence-led program. Intelligence-led policing is not a new concept, but it is probably one of the most effective means of enforcement, especially for investigative agencies like our own, or we do not respond to patrol calls, and our focus is strictly on the illicit market. We're building relationships with all levels of law enforcement, federal, state, and local, to gather information. We're working on initiatives that build our ability to gather information and intelligence on what the illicit market actually looks like, so that we can focus our efforts where we can have the most impact. We have prioritized education and outreach because we only have 54 detectives, which with 58 counties in the state, that is less than one detective per county. We focused our efforts on leveraging the expertise that we've built to educate prosecutors and law enforcement officers from all levels on what the illicit market actually looks like and where they can make the greatest impact as well. We hold a Cannabis Enforcement Summit every other year Historically we had about 300 people law enforcement officers and prosecutors attend And we provided insights on trends what things look like day to day how they can make a larger impact and the dangers that are inherent in doing this type of work. As I previously stated, we focus on high-harm criminal activity. we're trying to develop and have developed extremely competent, effective, and knowledgeable investigators. We recruit from federal, state, and local law enforcement. We have people that work for us that were previously supervisors with the Drug Enforcement Administration, other state agencies, and many sheriffs and police departments from around the state where they've served as SWAT officers, investigators, everything from narcotics to homicide and white collar. where we've developed an incredibly eclectic, high-performing team. We use innovative investigative models, and we're developing innovative programs to disrupt mostly distribution at this point, because that is the choke point where we think our focus and efforts will have the most impact. And we're working to support local agencies with the BSCC grant and funding that will allow them to focus on the retail sales and the cultivation, where we assist and we work with them because they do need our expertise, and we need their information and intelligence to push our investigations further and make a greater impact. Our current request, our BCP request, is for a North State office, as well as more analytical support. So in law enforcement, in our program specifically, we have eight sworn officers per team, one supervisor and seven detectives. It takes all of them to work many of the cases that we work. And the reason for that is every case has worked as a team. These are complex cases. They often require significant amounts of surveillance, both static and dynamic, meaning following people from location to location, following money couriers back to locations and following people when they re-up on their supplies, either after we've served a search warrant at their location and attempted to shut them down so we can find out where their distribution hub is and shut that down as well, or because we're trying to identify where the money is going. Since this is all the listed market activity is associated with money, and when I say money, I mean billions and billions of dollars, We are currently working cases where we've identified somewhere between $2 and $3 billion that's moving through escrow accounts to fund the purchase of properties as retail investments. There's a tremendous amount of money in this. The more we're able to defund these organizations, the more difficulty they have buying new properties to invest in to either sell from or to produce more product from. So we focus a great deal on trying to disrupt their financial abilities. That also lets us pursue money laundering charges and tax evasion charges that we would not be able to get if we were purely pursuing the lower level sales or cultivation charges by themselves. And it's all interrelated. The other part of our request, beyond the North State team, which is centralized in the Redding-Shasta area, because it's easier to recruit in that area, it is centralized to the area that we like them to serve which is a significantly underserved portion of the state when it comes to our operations mostly due to the amount of the logistical issues when it comes to having teams travel from Sacramento which is the closest team to pursue investigative leads It can be a six-hour drive until they get to the location where they need to go. We have to pay for overnight travel. We're paying for per diem. Having an office in there would help us offset that a good bit, and it's just fiscally responsible for us to do. We're also adding analytical support because a lot of the initial investigative work that comes in can be taken care of by crime and intelligence analysts. Crime and intelligence analysts do open source intelligence gathering. They look at Instagram and other social media. They gather information on these operations. They go to the Secretary of State's website and pull relevant documentation. They can actually do a significant amount of information gathering before a detective ever gets the case and puts the detective at an advantage so that they can focus on things that only a detective is allowed to do. Writing and serving search warrants, pursuing the investigation further, suspect contact, being out in the field. The less time they have to do that, the less effective they are overall. So we're trying to maximize the amount of work our detectives do while giving us a significant tactical advantage when it comes to the work that our analysts can do. I believe you all have the PowerPoint presentation, and you can see the map that we have up there up at the moment where it shows that the 36 northern counties of the state are currently covered by two teams. as I said before, those two teams have to travel sometimes six hours to get to a location, and often we're doing surveillance for eight to 12 hours at a time. Currently, the MOU that we have with the union only allows us to work 16 hours at a time, so we're at a limit because of travel time and logistics because of that. Placing the office in Shasta gives us that logistical advantage. We also have a significant number of cases up there, too, but that's a secondary problem. And that issue is related to the fact that a lot of the sheriff's departments in those areas are understaffed. They have resource constraints, and we are the most knowledgeable people when it comes to this issue. So they seek out our assistance on a regular basis, as well as CDFW's cannabis enforcement officers as well. The next slide that you have is our prioritization schedule. This has been in place for a while. We try to focus on the highest harm and highest impact to cases that involve the highest impact to the illicit market, with our main focus being public safety. Our focus is on human trafficking, labor exploitation, activity involving volatile solvent extraction labs, which are a fire and explosive threat and occur throughout the state occasionally. In fact, many firefighters were actually injured a couple of years ago in L.A. at a large BHO fire. Violent criminal activity associated with this. The interesting point I'd make about that is when it comes to the major criminal organizations and the more business-oriented organizations that are involved in this, they tend to avoid violence. They don't want violence because they don't want police attention. that doesn't mean the street gangs who are actually operating retail sales locations and others don't use violence, intimidation threats to protect their businesses but the larger organizations tend to away from that. They don't want law enforcement focused. And in the current state of this, where enforcement is somewhat limited, if they avoid the violence, they avoid the attention of the police and law enforcement in general. We also focus on substantial environmental harm, and we partner with CDFW and the Water Board for that in most cases. And any activity that's close to a school, we target as much as possible. Now, even when we target those individual locations that are close to schools, our detectives are attempting to take those cases further. They're attempting to identify not just who the shell corporations are that are renting or leasing the location and following that trail. They're also looking at who the distributors are that are providing for this place. They're looking at who the money couriers are that are coming in hourly or every couple of hours to pick up the cash. A lot of these retail locations, because they've been hit by local law enforcement and we have served search warrants at many of the locations, have adapted. They often have less than 40 pounds of product in there instead of the hundreds that we were getting three, four, five, six, and seven years ago. They are sophisticated in their operations. And even though it's a common MO across the board, it's effective enough that if we can only pull 40 pounds of product at a time and $2,000, not taking the $100,000 that we used to get, it allows them to continuously operate at limited risk and limited cost. And any activity involving minors we prioritize as well. Our priority, too, is basically any cases where we have good, solid information to act on, or it was referred by another government agency, whether that be police or a regulatory agency. And then priority threes, I'll be honest with you, we get approximately 1,200 cases per year. We have the ability to clear about 400 of them a year. So every year we end up with about 800 cases as a backlog. That's continuously adding up. The other point I'd like to make is, as I said, as we said in the BCP, the reality of the situation is just to catch up with the backlog, we need approximately 300 officers. We know that is a significant ask. We're trying to be fiscally responsible and we're trying to close the gap in the North State instead of having to send officers up there at increased costs because of travel. So our focus is on making a fiscally responsible ask that will allow us to close the gap to some degree. And it's not specifically focused on cultivation. It's focused on cases that identify and disrupt the distribution cycle, the choke point in the chain. Thank you.

Heather Gonzalez with LAO, nothing to add.

DCC's proposal for additional sworn enforcement staff and a new field office in Reading reflects a targeted investment to close geographic gaps where DCC's existing presence is stretched thin in the areas where there is no distribution of illicit market activity. Additional legal staff will help BCC take on cases of increased complexity and volume related to environmental compliance testing standards manufacturing standards and pesticide use This proposal reflects phased enforcement and legal staffing levels that is achievable and realistic for the department to hire in 26 and 27 Thank you

Thank you for the presentation. Certainly well justified. And I hear the stress that you are conveying for the ability to meet the demands that I know you care very much about. I'm curious for these positions being proposed to be able to come out of the Cannabis Control Fund, where might this leave the level of the fund with these positions included?

these funds will come from. And then how would that leave the status of the fund?

Great, and it would not cause a cost overrun, or it wouldn't withdraw that fund.

But logically, what we're trying to do is shrink the illicit market to the extent those actual sales turn up in the legal market.

I guess related to that, I know there's been some ongoing conversation this year about the rate and the actual tax rate that we're looking at for that. The impact that we're having to legitimate businesses is the whole point that we worked on with voters under Prop 64, right, is that we would be able to over time self-regulate and be able to do the enforcement that you're talking about, the management, the testing, and everything else that we're responsible to be able to do. You know, how are we seeing this, I guess, in balance? Can you talk a little bit or can anybody else from the department talk a little bit about the proposed increase in rates to legitimate businesses?

Okay. Great. Thank you. I'm very supportive. And that was late action on the, I think it actually went into July, and we were very concerned about that 40% increase for the legal market. And then the governor did step in and address that. So we appreciate that, as we know that we have been all talking about enforcement. We know that the state of California is quite large and I can definitely see why when we look up into the northern California part of the state which is pretty broad that it would be difficult to travel and do all the things that you have noted that would cost additional dollars over time and so forth.

Thank you, Chair. Thank you for your presentation to Director Kellum and your Deputy Director and your entire team. Also, I just wanted to commend, I think it was in January where you put out an announcement that the administration had $1.2 billion in illegal seizures, which was 18 times more than 2022. So thank you for your work in that space. I know that's been tough. So I just wanted to thank your team for that work and the task force that you have, the Unified Cannabis Enforcement Task Force. As a follow-up to that, with your request to open this additional office, I know the task force, you guys also work with the California Department of Justice, Fish and Wildlife, Water Resources. is there any potential opportunity to work with any of those agencies? Do they have any offices in Shasta or Reading where there's potential opportunity to co-locate or to join forces since you already conduct operations together? I'm just thinking ahead of, obviously, the tough budget year ahead. How do we, obviously, work to support the enforcement actions that you hear consistently from this budget sub, but also knowing the reality of the budget that we're facing this year. For sure. We have had some just preliminary thoughts about agencies up in that area that we would just see if cloven location is an opportunity. But none of those have sort of materialized in any sort of specifics at this point. And I would also note that this is not coming from the general fund. It's coming from the cannabis excise tax, which isn't sort of, you know, subject to, unfortunately, the challenges before you on the bigger budget problem. No, thanks for clarifying that. That comes from the Cannabis Fund. I think, you know, I would love to follow up with you on that piece on this budget request that you have before us. I don't have any additional questions at this time. You know, I have, you know, a number of cannabis, legal cannabis dispensaries, licensed cannabis dispensaries in my district. So I know there's, as I see from the number of complaints that your agency gets, comes from Los Angeles, which is the part of the state that I represent. And so would love to work with you on that piece and how we can support your efforts. I guess I do have one last question. Is there an opportunity or do we incentivize people in the public to report any illegal grows that we see or what does that look like? Or is it all from what your agency is seeing? There is public complaints that go into the department, licensed, unlicensed across the board and then shared into our law enforcement division and then triaged across the priority list. I think what I would say to people regularly is we appreciate when people point out the sort of bad actions But what is important given our resource level is that we taking out the most impactful ones And so I think in some of the discussions leading up to this I had heard some of the challenge of like the illicit storefronts and how those are available. I see them in my jurisdiction and I can understand that challenge where we're trying to focus our sort of limited resources are on those higher level investigations to disrupt further up into the criminal organizations that are supplying those storefronts to just make it harder in general ultimately and then I would also say that we've been partnering with the Board of State and Community Corrections on their Prop 64 grant that's been prioritized for illicit market enforcement and we really made a conscious decision with them to put that around bigger population centers. So that's going to go to the local law enforcement agencies in those districts because they're more likely to do the storefront closures. And as those move, they'll be more attuned to being able to kind of follow up on that work. And so we see our proposal in the North State helping advance our sort of deeper investigative work across the state. And then the BSEC grant helping to fund more populous local law enforcement jurisdictions to kind of get at that illicit storefront issue. There really isn't a piece of the supply chain that's solving the problem by itself. It's kind of everything and all. Locals tend to focus on whatever's in front of them locally. We're bringing that up a level and seeing where we can connect the dots across jurisdictions to get to that deeper level investigation. And then the feds do that even a level above us. And so that's kind of how that continuum is working on that front. Thank you.

Thank you. Thank you, Madam Chair and members. Amy Jenkins here on behalf of the California Cannabis Operators Association. Really appreciate the discussion today and the focus on enforcement. Just want to emphasize that, you know, any augmentation, any augmentation to bolster enforcement against the illicit market is critically, critically important to the legal industry. As was noted by Director Kellum, we have a 60 percent illicit market that is that is entrenched. It has not gone down. It has remained stable throughout this 10 years. since we passed Proposition 64, and so really would encourage additional investments in this area, particularly around illicit retail. So I appreciate the comments that were made today as it relates to retail. That is a really, really critical component that is lacking funds, and I do recognize that there were changes to the BSCC grant program last year. We would argue that is still insufficient. We would like to see more investment of sworn officers in urban settings. That's going to be terribly important as we're looking at addressing this illicit market to allow operators to effectively compete. And as it relates to the Cannabis Tax Fund and the questions that were raised by Assemblymember Ward, I would just comment that the more we can migrate consumers by addressing that illicit market, the more we can increase tax revenues for all those vital programs. So thank you.

Good afternoon. Thank you for hearing this issue. My name is Christina Dempsey. I'm the Deputy Director of Government Affairs. So this is the second half of your slide packet. So I'll start by just saying briefly what AB8 does. It addresses a gap in which intoxicating hemp products were being sold throughout the state without real regulatory controls to protect youth, to ensure product safety, and really bypassing the regulatory structures that are in place under the cannabis supply chain and governing that. This bill really does two things, and I'll talk about our budget request separately in the context of these two things. The first thing is that it strengthens enforcement by closing loopholes that have existed around intoxicating hemp products. Those provisions went into effect January 1 of this year. And the second piece of AB8 is that it brings hemp under the cannabis regulatory framework starting January 1, 2028. and so at its core what it's doing is that it's ensuring that intoxicating cannabinoids are treated consistently regardless of whether they came from cannabis or hemp and ensuring that state agencies and law enforcement have the tools that they need to address this sort of proliferation that we've continued to see with intoxicating hemp products. So starting with the the first piece of strengthening enforcement by closing loopholes, there is a fairly coordinated state structure that started to form after intoxicating hemp products began to emerge. And so the general division of labor among state agencies is that DCC addresses illicit cannabis retailers, the Department of Tax and Fee Administration addresses tobacco retailers that are selling illegal hemp products, the Department of Alcoholic Beverage Control addresses alcohol retailers that are selling mostly hemp beverages and then the

Hi, my name is Michael Mark. I am a current contractor, state license force board member, past chair, governor appointee representing as a labor representative.

Okay, apologies. I'll start over much better. My name is Michael Mark. I am a current board member of Contractor State License Board as a governor appointee representing labor and past chair. So I just appreciate the committee hearing Contractor State License Board's BC and P for this particular funding proposal. We really appreciate hearing us. And again, the questions that were asked regarding enforcement strategies and whatnot, that is much needed. These funds overall would help the whole mission of CSLB for consumer protection. So thank you.