§ 999.10. Scope and Purpose, Definitions, and Written Confirmation of Compliance with Reserve Fund Requirements by Non-Participating Tobacco Product Manufacturers.

(a) Scope and Purpose

The purpose of these regulations is to implement California's Reserve Fund Statute (codified at Health and Safety Code sections 104555, 104556 and 104557) by providing Tobacco Product Manufacturers clear definitions, instructions, guidance and forms to comply with the requirement to establish a reserve fund for tobacco-related illness and other potential liabilities. The Legislature imposed the reserve fund requirements to ensure a source of compensation for the financial burdens imposed upon the State by cigarette-smoking related illness and other health conditions. Health and Safety Code sections 104555-104557 essentially require Tobacco Product Manufacturers to provide a surety bond against future liability for cigarette-smoking related healthcare costs. This surety bond is imposed upon manufacturers which choose to avoid the conduct restrictions that apply if they sign the Master Settlement Agreement ( “MSA”). Government Code sections 11110-11113 require the Attorney General to adopt regulations to provide forms for surety bonds which are approved by the Attorney General as conforming with applicable law. Revenue and Taxation Code section 30165.1(o) also authorizes the Attorney General to adopt emergency rules and regulations regarding the reserve fund requirements of Tobacco Product Manufacturers.

The Legislature also intended to prevent the unfair competition that would occur if Tobacco Product Manufacturers who did not sign the MSA and did not incur the financial obligation under the MSA were allowed to derive large short-term profits to the disadvantage of those manufacturers participating in the MSA. These regulations are also intended to protect tobacco Distributors and Wholesalers from the financial risk of accepting orders for tobacco products or purchasing tobacco products that may be banned from sale by a court or are not listed on California's Directory of Tobacco Product Manufacturers and Brand Families because the Tobacco Product Manufacturer failed to make the required deposits or otherwise comply with the Reserve Fund Statute and Revenue and Taxation Code section 30165.1.

Through the definitions, instructions, guidance and forms provided, these regulations also make available to the public and local and state government officials the Attorney General's enforcement policy and interpretation of how Tobacco Product Manufacturers should comply with the reserve fund requirements to avoid unfair and unlawful business conduct and activity. Toward that end, these regulations are intended to describe the meaning of compliance with the reserve fund requirements, the proper interpretation of the statutory requirements and the enforcement policy designed to protect those manufacturers which do comply from unfair competition by those manufacturers which might otherwise fail to comply with the reserve fund requirements without the definitions, instructions, guidance and forms provided.

The purpose of regulations 999.16 through 999.23 is also to implement Revenue and Taxation Code section 30165.1 by prescribing procedures to be followed by all Tobacco Product Manufacturers who wish to sell Cigarettes in California. Section 30165.1 requires the Attorney General to develop, publish and maintain on its internet website a Directory of Tobacco Product Manufacturers and Brand Families that are in compliance with the statute. Any person who sells, distributes, acquires, holds, owns, possesses, transports, imports, or causes to be imported Cigarettes or Roll-your-own tobacco that the person knows or should know are not included on the Directory commits a misdemeanor, as well as a violation of California's Unfair Competition Law, and is subject to civil penalties, license suspension and revocation, and criminal prosecution.

Regulations 999.16 through 999.23 set forth the certification process for inclusion on California's Directory of Tobacco Product Manufacturers and Brand Families, as well as the conditions under which a Tobacco Product Manufacturer must provide supplemental certifications. The regulations also specify the circumstances under which Tobacco Product Manufacturers must certify and make escrow deposits more frequently than on an annual basis. The regulations state the requirements for records retention and production of documents by Tobacco Product Manufacturers, Distributors and Wholesalers. The regulations set forth additional requirements on Non-Participating Manufacturers who are non-resident or foreign and who are not registered to do business in California. The regulations clarify the requirements and protections of California Distributors under Section 30165.1. Finally, the regulations delineate the conditions a Tobacco Product Manufacturer, which has been removed from the Directory, must satisfy if it seeks to be relisted with its Brand Families.

(b) Definitions

All terms used in these regulations, which are defined in Revenue and Taxation Code section 30165.1 and/or Health and Safety Code sections 104555-104557, shall have the same meaning in these regulations.

The definitions contained in this subdivision shall govern the construction of this chapter.

(1) “Board” means the State Board of Equalization.

(2) “Brand Family” shall have the same meaning as in Revenue and Taxation Code section 30165.1(a)(2).

(3) “Cigarette” shall have the same meaning as in Health and Safety Code section 104556(d).

(4) “Distributor” shall have the same meaning as in Revenue and Taxation Code section 30011.

(5) “Non-participating tobacco product manufacturer (NPM)” means any Tobacco Product Manufacturer selling Cigarettes to consumers within the state, whether directly or through a Distributor, retailer or similar intermediary or intermediaries, which has not become a participating manufacturer as that term is defined in section II(jj) of the Master Settlement Agreement (MSA) or has become a participating manufacturer but does not generally perform its financial obligations under the MSA.

(6) “Original Participating Manufacturer (OPM)” mean the companies specified in section II(hh) of the MSA which are generally performing their obligations under the MSA.

(7) “Qualified Escrow Fund” shall have the same meaning as in Health and Safety Code section 104556(f).

(8) “Reserve Fund Statute” means Chapter 1 of Part 3 of Division 103 of the Health and Safety Code (sections 104555-104557).

(9) “Roll-your-own” or “RYO” tobacco means any tobacco which, because of its appearance, type, packaging, or labeling is suitable for use and likely to be offered to, or purchased by, consumers as tobacco for making Cigarettes.

(10) “Tobacco Product Manufacturer” shall have the same meaning as in Health & Safety Code section 104556(i).

(11) “Units sold” shall have the same meaning as in Health and Safety Code section 104556(j).

(12) “Wholesaler” shall have the same meaning as in Revenue and Taxation Code section 30016.

(c) Confirmation of Compliance with Reserve Fund Requirements

(1) Before an NPM sells or ships Cigarettes or Roll-your-own tobacco to a Distributor or Wholesaler for sale in California, the NPM shall provide written confirmation to the Distributor or Wholesaler that said manufacturer has either become a participating manufacturer under the MSA and is generally performing its financial obligations under the MSA, or has made the requisite escrow deposits and certification of compliance required of NPMs by Health and Safety Code section 104557 and these regulations. A copy of the CERTIFICATION OF COMPLIANCE AND AFFIDAVIT BY NON-PARTICIPATING TOBACCO PRODUCT MANUFACTURER REGARDING DEPOSIT OF RESERVE FUNDS INTO ESCROW ( “Certificate of Compliance” JUS-TOB3 Rev. 02/2011) filed with the Attorney General by an NPM or an equivalent notarized statement which has been approved by the Attorney General pursuant to section 999.11 is adequate written confirmation for the purposes of this section.

(2) An NPM which has not sold tobacco products in California before these regulations become effective shall not sell or ship Cigarettes or Roll-your-own tobacco to a Distributor or Wholesaler purchasing or accepting orders for any Cigarettes or Roll-your-own tobacco for sale in California, unless the NPM has provided written confirmation to the Distributor or Wholesaler that the NPM has received and reviewed a copy of Health and Safety Code sections 104555-104557 and these implementing regulations. During the first quarter year of sales in California, an NPM must provide written confirmation of compliance either by producing a copy of the ACKNOWLEDGMENT OF RECEIPT & REVIEW OF NPM RESERVE FUND STATUTE, IMPLEMENTING REGULATIONS & FORMS ( “Acknowledgment of Receipt & Review” form -JUS-TOB5 Rev. 04/2004), or an equivalent notarized statement which has been approved by the Attorney General, filed with the Attorney General.

An NPM shall complete and file the Acknowledgment of Receipt & Review (JUS-TOB5 Rev. 04/2004) with the Attorney General within thirty (30) days of receipt. Thereafter, the NPM shall provide copies of the form, as filed with the Attorney General, to Wholesalers and Distributors before the NPM sells or ships its tobacco products to a Wholesaler or Distributor until the end of the first quarter year in which the NPM began selling in California, when it must file its first Certificate of Compliance (JUS-TOB3 Rev. 02/2011). The filed Acknowledgment of Receipt & Review (JUS-TOB5 Rev. 04/2004) shall constitute adequate written confirmation of compliance only until the end of the first quarter year in which the NPM began selling tobacco products in California. No deviation from the Acknowledgment of Receipt & Review shall be permitted without the prior written approval of the Attorney General.

(3) If an NPM fails to provide the requisite written confirmation of compliance, the Wholesaler or Distributor shall request the NPM to provide written confirmation of compliance prior to the manufacturer selling or shipping its tobacco products to the Wholesaler or Distributor. If the Distributor or Wholesaler does not receive any written confirmation prior to the NPM shipping or offering to sell its tobacco products, or receives inadequate confirmation, the Distributor or Wholesaler shall report the lack of prior confirmation or inadequate confirmation to the Attorney General (attention: Tobacco Litigation & Enforcement Section) within fourteen (14) business days after the failure to provide confirmation or the provision of inadequate confirmation. The report shall be in writing and include the name, address and telephone number of the NPM and details of the request for confirmation pursuant to this section and the inadequacies in the confirmation, or details of the failure to provide the requested written confirmation. The report shall also specify whether the failure to provide confirmation or inadequate confirmation may be because the NPM has not sold tobacco products in California.

(4) Upon request of the Attorney General, the Distributor or Wholesaler shall provide such further information as may be required by the Attorney General to confirm compliance by the Tobacco Product Manufacturer or to seek a court order barring the NPM from further sales of tobacco products pending proof of compliance or other enforcement action by the Attorney General.

(5) Tobacco Product Manufacturers shall provide such information as required by the State Board of Equalization ( “Board”), or requested by Distributors, Wholesalers, retailers or other intermediaries required to report to the Board, when the reports required by the Board are to assist the Board to determine the number of units sold in California. NPMs shall also provide such information as required by the Attorney General or requested by Distributors or Wholesalers, as required by this section, to confirm and enforce compliance with the requirements of Health and Safety Code sections 104555-104557 and prevent the unfair competition resulting from non-compliance. The information required by the Board and the Attorney General includes, but is not limited to:

(A) Brand names;

(B) Unit sales of each brand;

(C) Corporate or business name, and address of importer;

(D) Corporate or business name, and address of manufacturer;

(E) Whether the seller was the manufacturer, and;

(F) Whether the seller was the first importer for resale in the United States.

For the purposes of information reports required by the Attorney General, Distributors and Wholesalers shall deem any brand, which is not on the list of brands of participating manufacturers provided by the Board or the Attorney General, to be the brand of an NPM and provide the information and reports required of such NPM brands. The Board may also require such reports pursuant to Revenue and Taxation Code section 30454 or Health and Safety Code section 104556(j) or other authority.

HISTORY

1. New chapter 16 (sections 999.10-999.14 and Appendix A) and section filed 4-15-2002 as an emergency; operative 4-15-2002 (Register 2002, No. 16). A Certificate of Compliance must be transmitted to OAL by 8-13-2002 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 4-15-2002 order, including further amendment of section, transmitted to OAL 5-10-2002 and filed 6-19-2002 (Register 2002, No. 25).

3. Amendment of section and Note and repealer of Appendix A filed 4-26-2004 as an emergency; operative 4-26-2004 (Register 2004, No. 18). A Certificate of Compliance must be transmitted to OAL by 10-25-2004 pursuant to Revenue and Taxation Code section 30165.1 or emergency language will be repealed by operation of law on the following day.

4. Editorial correction of History 3 (Register 2004, No. 49).

5. Certificate of Compliance as to 4-26-2004 order transmitted to OAL 10-22-2004 and filed 12-6-2004 (Register 2004, No. 49).

6. Amendment of subsections (c)(1)-(2) filed 4-11-2011 as an emergency; operative 4-11-2011 (Register 2011, No. 15). A Certificate of Compliance must be transmitted to OAL by 10-10-2011 or emergency language will be repealed by operation of law on the following day.

7. Amendment of subsections (c)(1)-(2) refiled 10-7-2011 as an emergency; operative 10-7-2011 (Register 2011, No. 40). A Certificate of Compliance must be transmitted to OAL by 1-5-2012 or emergency language will be repealed by operation of law on the following day.

8. Amendment of subsections (c)(1)-(2) refiled 1-3-2012 as an emergency, including further amendment of subsection (c)(2); operative 1-5-2012 pursuant to Government Code section 11343.4(b) (Register 2012, No. 1). A Certificate of Compliance must be transmitted to OAL by 4-5-2012 or emergency language will be repealed by operation of law on the following day.

9. Certificate of Compliance as to 1-3-2012 order transmitted to OAL 3-26-2012 and filed 5-7-2012 (Register 2012, No. 19).

10. Change without regulatory effect amending subsections (a) and (b)(11) filed 2-19-2014 pursuant to section 100, title 1, California Code of Regulations (Register 2014, No. 8).

Note

Note: Authority cited: Section 30165.1(o), Revenue and Taxation Code; Sections 11110-11113, Government Code; Section 104557(c), Health and Safety Code; and Article 5, Section 13 of the California Constitution. Reference: Section 30165.1(a), Revenue and Taxation Code; and Sections 104555, 104556 and 104557, Health and Safety Code.