It’s no secret that California’s cannabis operators are currently in a regulatory and business environment where red tape, the illegal market, and significant taxes make life hard. At the same time, the state is trying to protect, promote, and grow the industry in a variety of ways, one of which is fighting off cities and counties to ensure that retail cannabis home delivery is allowed in every city and/or county no matter what.
As a brief history primer, California is a very strong local control state when it comes to cannabis. Pursuant to the Medicinal and Adult-Use Cannabis Regulatory and Safety Act (“MAUCRSA”), before you can secure a state license for your cannabis business you must first obtain local approval from the city or county in which you plan to operate. And the majority of cities and counties still ban commercial cannabis activity; the ones that do allow it tend to lean towards medical-only sales and/or there can be some serious barriers to entry depending on the city or county. Further, Proposition 64 (which co-exists with MAUCRSA) has clear promises and directives to maintain local control and a city’s or county’s ability to ban any kind of commercial cannabis activity outright (with the exception of the transport of cannabis between licensees via public roads).
Currently, according to MAUCRSA:
“[MAUCRSA shall] not be interpreted to supersede or limit the authority of a local jurisdiction to adopt and enforce local ordinances to regulate businesses licensed under this division, including, but not limited to, local zoning and land use requirements, business license requirements, and requirements related to reducing exposure to secondhand smoke, or to completely prohibit the establishment or operation of one or more types of businesses licensed under this division within the local jurisdiction.”;
“A local jurisdiction shall not prevent delivery of cannabis or cannabis products on public roads by a licensee acting in compliance with [MAUCRSA] and local law. . . .”; and
“Licensing authorities shall not approve an application for a state license under this division if approval of the state license will violate the provisions of any local ordinance or regulation [. . .] The licensing authority shall deny an application for a license under this division for a commercial cannabis activity that the local jurisdiction has notified the [Bureau of Cannabis Control (“BCC”)] is prohibited [. . .].”
In January of this year, pursuant to the final MAUCRSA regulations, and despite the foregoing, the BCC determined–seemingly based on the “use of public roads” language above–that home delivery does not require any city or county local approval under MAUCRSA. Therefore, BCC explained that retailer licensees can undertake home delivery in any jurisdiction in the state– even in those that completely ban delivery. Specifically, the BCC adopted Rule 5416(d), which says that “A delivery employee may deliver to any jurisdiction within the State of California provided that such delivery is conducted in compliance with all delivery provisions of this division.”
As a result of BCC’s action, 24 cities sued the BCC in Fresno County court earlier this year to overturn the new delivery rule. Here’s the complaint for your viewing pleasure. The crux of the fight is whether the new delivery rule is consistent with Proposition 64 and MAUCRSA and whether the BCC has the authority to adopt and implement the rule. The cities argue the new delivery rule is completely inconsistent with both, and that the BCC has gone beyond its rulemaking authority under MAUCRSA. The cities also allege that if the BCC wants statewide delivery without any kind of local control the California Assembly is the body to lawfully make that call via a change to the statute.
While the cities and the BCC duke it out over interpretations of MAUCRSA and the BCC’s regulatory authority (with a calendared trial date of April 20 next year), a new litigation matter has developed where a cannabis operator (East of Eden) is suing Santa Cruz County to enforce its rights under the new delivery rule. Earlier this month, the BCC (via the State Attorney General) filed a motion to join the local lawsuit to protect the new delivery rule. The BCC is otherwise staying mum for any other strategic reasons it has for joining the local beef. We’ll know by January 2 whether or not the BCC will get to be a party in the Santa Cruz lawsuit. And we fully anticipate that this may not be the last local fight over the new delivery rule.
The bottom line is that in the wake of the BCC and the cities fighting it out over the new delivery rule, cannabis operators hang in the balance yet again. Risk tolerant businesses will no doubt try to take advantage of the new delivery rule, but they do so at significant risk where cities and counties are still taking the position that the rule is invalid anyway. In turn, unless and until we have a final decision from a court on the matter, cannabis retailers would be wise to pump the brakes on delivery into cities and counties that explicitly ban it.