Commercial cannabis activity and its regulation have evolved tremendously since America’s founding, especially during the last fifty years. This evolution affects the ways of producing, manufacturing, transporting, dispensing, and even ingesting cannabis. Cannabis has generated enormous business opportunities for states and cities, and investors and operators. The cannabis industry now boasts professional certifications and endless resources for research and development—including scholarly books and articles.

Commercial cannabis was legal in the United States until the 20th century. The federal government still deems cannabis illegal, though its regulation falls to local governments with state-by-state variation. Sometimes cannabis regulations conflict.

Legal professionals serving the cannabis industry should have the ability to decipher the current law—federal, state, and local—and to provide legal advice to clients with confidence and decisiveness. This article discusses the evolution of the cannabis industry’s regulation and endeavors to provide some direction and insights for the legal practitioner in this political quagmire.

I. FEDERAL REGULATION

A. Commercial Cannabis Activity—Legal or Illegal…

In early 1619, King James I decreed that the American colonists of Jamestown must increase efforts to contribute their fair share towards supporting England; landowners were asked to grow and export 100 hemp plants. George Washington grew hemp at Mount Vernon as one of his three primary crops. By the 1850s, medicinal preparations of cannabis had become available in American pharmacies. In 1937, the Marihuana Tax Act effectively banned possession or transfer of marijuana throughout the United States.

This federal law imposed an onerous excise tax on all sales of hemp with exceptions only for medical and industrial uses. This act was overturned in 1969 and was repealed by Congress the next year.

In 1970, President Richard Nixon declared a national “war on drugs.” He signed the Comprehensive Drug Abuse Prevention and Control Act of 1970 (“Controlled Substances Act” or “CSA”). The CSA makes it unlawful to manufacture, distribute, dispense, or possess any controlled substance, even if based on medical necessity.

The CSA created five schedules (classifications) with varying qualifications for a substance to be included in each:
Schedule I: Ecstasy, LSD, Heroin, and Marijuana;
Schedule II: Cocaine and Morphine;
Schedule III: Anabolic steroids, Vicodin, and Marinol, for nausea caused by chemotherapy;
Schedule IV: Ambien, Xanax, and Valium; and
Schedule V: Lyrica and cough suppressants.

The CSA gave powers to the Food and Drug Administration and the then-newly created Drug Enforcement Administration, two federal agencies, to add or remove substances from the schedules. The CSA’s classification criteria include: (1) potential for abuse, (2) currently accepted medical use in treatment in the United States, and (3) international treaties.

The CSA listed marijuana as a “Schedule I” substance, meaning it has a “high potential for dependency and no acceptable medical use.” The possession, distribution, and cultivation of marijuana remain a federal offense.

B. Hands-Off Policy

In August 2013, the United States Department of Justice (“DOJ”) issued a document entitled “Guidance Regarding Marijuana Enforcement” (the “Cole Memo”). It stated that the federal government’s primary objectives are to prevent marijuana from being distributed to minors and thwart criminals from earning revenue from its sale. Accordingly, the DOJ has not prosecuted marijuana users and businesses, provided they comply with state and local laws. The Cole Memo was subsequently revoked, but the following laws were already in place, which made revocation a moot act.

The “Rohrabacher-Farr Amendment” passed the House on May 30, 2014, as an attachment to the Commerce, Justice, Science (CJS) Appropriations Bill; FY 2015, became law as a part of an omnibus spending bill, and was signed into law by then-President Barack Obama on December 16, 2014. The amendment’s passage was the first time either chamber of Congress had voted to protect medical cannabis patients, prohibiting the DOJ from spending funds to interfere with the implementation of state medical cannabis laws. It is viewed as a historic victory for cannabis reform advocates. The amendment does not change the legal status of cannabis and must be renewed each fiscal year to remain in effect. To this day, the Rohrabacher-Farr Amendment (now “Rohrabacher-Blumenauer Amendment”) remains in effect.

In August 2016, the Ninth Circuit, in United States of America v. McIntosh, held that the DOJ is prohibited “from spending funds … for the prosecution of individuals who engaged in conduct permitted by the State Medical Marijuana Laws and who fully complied with such laws.” McIntosh relied on the Consolidated Appropriations Act of 2016, which “prohibits the DOJ from spending funds to prevent states’ implementation of their medical marijuana laws.” The appellate court ruled that “the Appropriations Clause constitutes a separation-of-powers limitation that Appellants can invoke to challenge their prosecutions.” McIntosh is the leading case interpreting the Rohrabacher-Farr Amendment (a rider to the Consolidated Appropriations Bill).

William Pelham Barr, serving as the 85th United States Attorney General, and a member of the Donald Trump administration since February 14, 2019, personally “supports a federal ban on marijuana.” However, in Senate testimony, at his January 15, 2019 confirmation hearing, presumptive Attorney General Barr committed to not use the limited resources of the DOJ to prosecute state-regulated and compliant marijuana businesses. He said, “I think the current situation is untenable and really has to be addressed . . . we either should have a Federal law that prohibits marijuana everywhere—which I would support myself because I think it is a mistake to back off on marijuana. However, if we want a Federal approach, if we want States to have their own laws, then let us get there and let us get there the right way.”

C. Pending Legislation

Essentially, Attorney General Barr supports the “Strengthening the Tenth Amendment Through Entrusting States” (“STATES”) Act, a proposed bill that would recognize legalization of cannabis and the state laws that have legalized it through their legislatures or citizen initiatives. The STATES Act was introduced by Representatives Blumenthal (D-Oregon) and Co-Sponsor, Joyce (R-Ohio) on April 4, 2019. It would amend the Controlled Substances Act of 1970 (“CSA”) to exempt from enforcement individuals or corporations in states who are following state, United States territory, the District of Columbia, or tribal law on cannabis. Representative Perlmutter (D-Colorado) in the House and Senator Merkley (D-Oregon) in the Senate have reintroduced the Secure and Fair Enforcement (SAFE) Banking Act of 2019, proposed legislation seeking to increase public safety by ensuring access to financial services to cannabis-related legitimate businesses and service providers and reducing the amount of cash at such businesses. These bills are still pending.

Then-United States Senator Kamala Harris (D-California) introduced Senate Bill (SB) 2227 on July 2, 2019. The “MORE Act,” as SB 2227 is called, seeks to de-criminalize and de-schedule cannabis, to reinvest in certain persons adversely impacted by the War on Drugs, and to expunge certain cannabis offenses, among other purposes. If the MORE Act were to leave committee, it would then move on to the full Senate where things get cloudy. Senate Majority Leader Mitch McConnell (R-Kentucky) is certainly no fan of cannabis; he has successfully blocked cannabis reform. He is well-connected politically.

D. Senator McConnell Supports CBD

Interestingly, however, Senator McConnell fully supports the hemp industry. As a senior member of the Senate Appropriations and Agriculture Committees, he has secured millions of dollars for research and development for industrial hemp and now CBD derived from hemp. From the late eighteenth and nineteenth centuries, industrial hemp was a major agronomic crop in Kentucky. Hemp became impractical as a crop in 1937 with the passage of the Marihuana Tax Act, through which the federal government attempted to reduce the production of cannabis. Since the passage of the “2014 Farm Bill,” hemp surged in the Bluegrass State, with strong financial support from the federal government (the “Hemp Pilot Programs”). Also, Senator McConnell was a fervent proponent of the “2018 Farm Bill,” which declassified hemp as a Schedule I Substance; CBD derived from hemp with 0.3 percent of THC, or less, is federally legal. Kentucky processors reported $193.9 million in gross product sales in 2019, $57.75 million in 2018, and $16.7 million in 2017. One estimate put the U.S. CBD world market at $2.3 billion to $23 billion by the 2020s—all enabled by the 2018 Farm Bill. This exponential growth will continue even in the midst of COVID-19.

E. No Representation Without Federal Taxation

Regardless of the status of federal legislation and enforcement against cannabis, the federal government has not missed out on the opportunity to tax this industry. Congress is authorized to “lay and collect taxes on income.” The cannabis industry remains obligated to pay federal income tax on its taxable income, which does not differentiate between income derived from legal sources and income derived from illegal sources. All cannabis tax is paid in cash.

II. STATE REGULATION

A. The Compassionate Use Act: Still Good Law

The police power grants the power to the states (and cities) to regulate the health, safety, and morals of the population, subject only to the constraints imposed through the United States Constitution and Congressional override. In 1996, California voters adopted Proposition 215 (Compassionate Use Act of 1996 (“CA-CUA”)). It was the first medical marijuana ballot initiative passed at the state level, and created a conflict in the United States between states’ rights advocates and those who support a stronger federal presence. Proposition 215 allowed medical cannabis patients, with a valid doctor’s recommendation, and the patients’ designated primary caregivers, to possess and cultivate marijuana for personal medical use.28

B. State Legislation

Thereafter, in 2003, the California State Legislature adopted the Medical Marijuana Program Act (“MMP”),29 it sought to clarify the scope and application of the CA-CUA, and granted further limited immunity from criminal prosecution for distribution, [collective] cultivation, and use of medical marijuana.30 “[T]he MMP is more broadly intended to protect a qualified patient ‘who transports … marijuana for his or her own personal medical use.’”31 Under the MMP, the Department of Public Health (“DPH”) is required to maintain a voluntary program for issuing identification cards to qualified patients entitled to protection and who are diagnosed and documented by a medical provider as having a “serious medical condition” as defined in the CA-CUA.32 With this card, a patient may use medical marijuana, and his or her legally designated primary caregivers may obtain access to medical marijuana on the patient’s behalf.33

In keeping with this pioneer spirit, in 2015, former Governor Edmund G. Brown signed three bills, which are collectively referred to as the Medical Marijuana Regulation and Safety Act (“MMRSA” or “MERSA”).34 The MMRSA overhauled California law relating to the cultivation, processing, and distribution of medical marijuana to patients and caregivers; it granted regulatory and licensing authority to the Department of Food and Agriculture (“DFA”) for cultivation sites.35 The MMRSA also regulated environmental impacts associated with cannabis cultivation and unlawful water diversions in coordination with the State Water Resources Control Board.36 In addition, it granted the Department of Pesticide Regulation (“DPR”) the power to monitor appropriate pesticide tolerances on cannabis crops intended for human consumption.37 Further, as it relates to “edibles,” the Department of Public Health (“DPH”) developed standards for the production and labeling of edible medical cannabis products.38 Additionally, it created the “MMRSA Fund” to receive fines and civil penalties for specified violations to be appropriated by the Legislature in the future.39

The MMRSA requires the issuance of both a state and local license, or dual licensing, to cultivate medical marijuana.40 A license is valid for twelve months from the date of issuance.41 The MMRSA also created a Bureau of Medical Cannabis Regulation (“BMCR”)—now the Bureau of Cannabis Control (“BCC”)—within the Department of Consumer Affairs.42 The BMCR had oversight of all regulatory schemes and established minimum health and safety and testing standards.43 MMRSA also required the Board of Equalization (“BOE”), in consultation with Department of Food and Agriculture (“DFA”), to adopt a system for reporting the movement of commercial cannabis and cannabis products.44At the minimum, “transporters” must be bonded and insured, and they must adhere to minimum security requirements for the commercial transportation and delivery of medical cannabis products.45

The MMRSA also set forth criteria for licensing medical marijuana businesses, regulating physicians and their recommendations of medical cannabis, and recognized local authority to levy taxes and fees under a unique identifier and “track and trace” program.46 The BMCR began issuing licenses on January 1, 2018.47

C. The Adult Use of Marijuana Act

On November 8, 2016, California voters approved Proposition 64 or the “California Marijuana Legalization Initiation” (“Adult Use of Marijuana Act” (“AUMA”)), 57 percent to 42 percent. The AUMA permits possession of one ounce of marijuana for recreational use, as well as the cultivation of up to six plants per residence and possession of the marijuana the plants produce, for adults 21 or older. The AUMA became effective on January 1, 2018. All plants and harvest exceeding one ounce must be kept in a locked space not in public view at one’s residence. Local governments may still forbid cultivation outdoors, but must allow it inside a private residence or accessory structure that is “fully enclosed and secure.”

The AUMA does not intend to interfere with the ongoing implementation of the CA-CUA. Medical marijuana patients retain their existing rights under the CA-CUA to possess and cultivate as much as they need for personal medical use if they have a doctor’s recommendation, irrespective of the AUMA limits for adult users.

The AUMA designates the California Bureau of Cannabis Control as the lead agency in regulating commercial cannabis licenses for medical and adult-use cannabis in the state. The BCC is responsible for licensing retainers, distributors, testing laboratories, microbusinesses, and temporary cannabis events. Generally, the BCC should be able to carry out its functions without any influence by elected public officials at the state level, but cannabis businesses are hiring well-seasoned lobbyists in droves; likewise, cannabis businesses make political campaign contributions to state and local public officials to support or oppose state and local cannabis initiatives in efforts to influence legislation.

D. How Initiatives Work

Legal practitioners in the cannabis industry should know and understand how state initiatives and propositions become law, and how to challenge them if necessary. The California Code of Regulations (“CCR”) implements all state initiatives (i.e., Propositions 215, 64, etc.) pursuant to a comprehensive rule-making process that gives all interested parties the opportunity to comment before final adoption. The California Office of Administrative Law (“OAL”) is responsible for reviewing proposed CCRs for all California state agencies to ensure compliance with the California Administrative Procedure Act (“APA”), which contains the statutes governing the rulemaking process. Beware: the time frames for declaratory relief challenge to proposed CCRs are very short, and great deference is given to the APA process.

E. No Representation Without State Taxation

The AUMA also imposes excise and cultivation taxes that the state controller will collect and then distribute to cities for law enforcement, fire protection, or other local programs addressing public health and safety associated with the AUMA, but only if the city has not banned commercial cannabis activity. As of May 15, 2019, California’s cannabis excise tax generated $61.4 million in revenue reported on the first quarter 2019 returns due by April 30, 2019, and the cultivation tax generated $16.8 million. Sales tax from cannabis businesses totaled $38.4 million in reported revenue for the same period. Retail sales of medicinal cannabis and medicinal cannabis products are exempt from sales and use taxes when the purchaser provides a valid Medical Marijuana Identification card.

The cannabis industry altogether reported total tax revenue of $116.6 million for first-quarter returns due by April 30, 2019. Previously reported revenue for the fourth quarter 2018 returns was revised to $111.9 million, which included $55.6 million in excise tax, $17.2 million in cultivation tax, and $39.1 million in sales tax. As of August 16, 2019, California’s cannabis excise tax generated $74.2 million in revenue reported on the 2nd quarter 2019 returns due by July 31, 2019.

F. CBD Looks Promising

Under current California rules, the sale of hemp as the source of CBD is still prohibited in California but enforcement is lax. California AB 228, which was held in suspense under the California Senate Appropriations Committee, sought to create a regulatory framework for industrial hemp products. The bill proposed to clarify that hemp-derived CBD in food, drinks, and cosmetics is legal to sell. This push to regulate CBD in food, through a last-minute amendment to an unrelated bill, died in the California Legislature in 2020, despite promising negotiations with Governor Gavin Newsom’s administration. Hopefully, the California Legislature will resolve this matter in their next session.

G. Cannabis and the California State Bar

Attorney Sanctuary – The Los Angeles County Bar Association Professional Responsibility and Ethics Committee (“PREC”) has opined that: “a member does not violate the California Rules of Professional Conduct or the California State Bar Act by advising or assisting clients who wish to engage in medical marijuana and related business activities.”

III. CONFLICTS BETWEEN FEDERAL AND STATE LAW

A. Cornerstone Principles of the American Structure

Cannabis industry regulations highlight cornerstone principles of the American political structure; these principles strictly support the plan of the original Constitution. The Supremacy Clause, enshrined in the United States Constitution, represents one such principle.

This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding.

Under it, the federal government sets the “law of the land.”71

Another cornerstone principle is the political doctrine of checks and balances. The United States Constitution separated the legislative, executive, and judicial branches of the federal government. As separate and distinct branches, they each serve as a check on any abuse of power by the other branches.

Federalism is yet another cornerstone principle of the American political structure. Under it, the federal government has broad powers to create, regulate, and enforce the laws of the United States; however, it possesses only those powers the Constitution has delegated to it. All remaining powers are reserved to the states or the people. “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

Finally, the preemption doctrine relates to both the Supremacy Clause and federalism. It provides that Congressional legislation on a subject matter controls over conflicting state laws and/or precludes states from enacting laws on the same subject when Congress declares it has “occupied the field.” States are bound by the Supreme Law; in case of a conflict, federal law prevails.

B. First Federal Challenge to State Law

The first United States Supreme Court case to challenge the CA-CUA was Gonzales v. Raich. Raich raised the issue of whether Congress exceeded its authority under the commerce clause when it used the CSA to categorically prohibit the manufacture and distribution of marijuana despite intrastate regulation—the CA-CUA—that authorized the use of medical cannabis. The specific question presented was “whether the power vested in Congress includes the power to prohibit the local cultivation and use of marijuana in compliance with California law.”

Raich held (6-3) that Congress’s authority under the commerce clause includes the power to prohibit the local cultivation and use of marijuana, regardless of whether these activities comply with California law. “Congress has power to regulate purely local activities that are part of an economic ‘class of activities’ that have a substantial effect on interstate commerce.” The Court determined that the production of cannabis has a substantial effect on supply and demand in the national market for that commodity.

Raich did not address whether federal law preempted the CA-CUA. Raich “neither declared [the CA-CUA] invalid on preemption or any other grounds nor gave any indication that California officials must assist in the enforcement of the CSA.” On the contrary, the United States Supreme Court stated that “in enacting the CSA, Congress made it clear it did not intend to preempt the states on the issue of drug regulation. Indeed, ‘[t]he CSA explicitly contemplates a role for the States in regulating controlled substances.’” The goal of Congress, in enacting the CSA, was to “combat recreational drug abuse and curb drug trafficking … it was not to regulate the practice of medicine, a task that falls within the traditional powers of the states.”

IV. LOCAL REGULATION

Cities are municipal corporations, created as instruments of local self-government; and they have certain constitutional authority to govern “local affairs.” Cities are classified as either (1) charter, or (2) general law cities. General law cities derive their corporate powers from general laws enacted by the California State Legislature. Whereas, charter cities derive their corporate powers directly from the California Constitution, subject to limitations of their respective charters and enactments of the Legislature on matters of statewide concern.

Cities may make and enforce, within their jurisdiction, all local, police, sanitary, and other ordinances and regulations not in conflict with general laws. The California Constitution limits the power of the Legislature to interfere with the governance of cities.

A. Ethics Laws

Understanding how cities operate, how cities are governed, and how ethics laws aim to hold cities accountable may help commercial cannabis business-owners and operators. Ethics laws seek to bring “sunshine” to public meetings, the conduct of local elections, and related political campaign contributions, and they regulate the mandatory release of public records.

The Ralph M. Brown Act (“Brown Act”) requires meetings of “legislative bodies” of local agencies to be open and public. The Brown Act governs times, type, and location of public meetings and provides that all congregations of a majority of the members of a legislative body to discuss, deliberate, or take action on a matter within their subject matter jurisdiction must be duly noticed and provide the public with the opportunity to speak on any matter of public concern and/or on the agenda. The general rule is that the city council may not take action on any matter not on the posted agenda; an exception applies if immediate action is necessary. This necessity is established by the city council, by two-thirds (2/3) vote of the members present at the meeting (or a unanimous vote if less than two-thirds of the members are present), that both of the following requirements exist: (1) the need exists to take action immediately; and (2) the need for action came to the attention of the agency after the agenda was posted. However, matters for which the need to take action were known to staff before the agenda was posted, but that were not known to the legislative body, are precluded from being discussed or acted on under this exception.

Most meetings of the city council are open and public; however, there are exemptions that may apply—especially to commercial cannabis activity. If the applicant for a license or license renewal has a criminal record, the city council may discuss and determine, in closed session, whether the applicant is sufficiently rehabilitated. Also, the city council may meet in closed session to discuss threatened or anticipated litigation (this is the pseudo-attorney/client privilege). “Litigation” is broadly defined to include “adjudicatory proceeding … before a court, administrative body exercising its adjudicatory authority, hearing officer, or arbitrator.” Therefore, do not be surprised if the city council excludes you from their deliberations related to your license application.

The California Public Records Act (“PRA”) provides for the right to inspect and copy certain public records. The PRA’s purpose is to provide access to information that enables the public to monitor the functioning of their government. The PRA’s general policy favors disclosure, and a public agency must justify any refusal to disclose public information under the exemptions enumerated in the PRA. Courts have consistently held that exemptions must be narrowly construed.

The Political Reform Act of 1974 addresses financial conflicts of interests of public officials. It requires public officials to disclose their economic interests and prohibits the official from participating in making decisions that the official knows or has reason to know will result in a material financial effect on one of the official’s economic interests. The Fair Political Practices Commission (“FPPC”) has also adopted regulations implementing the Political Reform Act and issues formal opinions and advice letters on the application of the Act to particular situations.

The Political Reform Act requires individuals, businesses, and other organizations that make or receive payments to influence governmental decisions—such as advocating for or against legislative bills and state agency regulations—to register as lobbyists and submit periodic reports of their lobbying activity. The public can readily access these reports through California’s statewide campaign finance and lobbying database.

Candidates, and ballot initiative proponents and opponents, usually form general purpose committees or political action committees (PACs) to fund campaigns for public office or to support or oppose state and local initiatives (including cannabis initiatives); there are limitations on expenditures and contributions. Since PACs seek to influence California elections, the Political Reform Act requires them to identify the true sources of contributions received, and to identify how the contributions are spent. The Political Reform Act also regulates general purpose committees, PACs, and state and county political party committees.

Each local agency is required to comply with the PRA, the Brown Act, and the Political Reform Act, as well as with any successor statutes or amendments to either Act.

B. Land Use Regulations—Legislative or Quasi-Judicial Act?

In California, the basis for all land use regulations is the police power. The term “police power,” in its original and most comprehensive meaning, denotes the power of government in every sovereignty to govern persons and things.

California’s Planning and Zoning Law is the framework for local land use regulation. Every city must have a comprehensive, long-term general plan for its physical development. Typically, all local land use decisions must be consistent with the general plan. Generally, a planning commission is a standing advisory committee of citizens appointed by a city council to review matters related to planning and development, zone changes, and land use entitlements (conditional use permits, etc.).

In zoning matters, a city council may serve in a legislative capacity or a quasi-judicial capacity. This distinction is especially important to recognize in matters of land use entitlements. Commercial cannabis applicants must know and understand which capacity the local governing body is acting in to determine how and when to challenge any governmental action taken.

Legislative acts of the city council involve the adoption of generally applicable laws or basic policies and include adoption and amendment of general and specific plans and zoning ordinances; it is the legislative body’s “use of discretion.” The city council need not adopt “findings” that support its action as a legislative act.

Sometimes the city council takes action in the capacity of “quasi-judicial acts” (adjudicatory), which involve the application of preexisting laws or standards to a specific project. They include conditional use permits, variances, subdivisions, and locally adopted approvals such as design and site plan approval. Certain procedural and due process requirements apply to quasi-judicial approvals; they are not subject to referendum. However, the city council and/or planning commission must adopt “written findings” in support of its decision on a quasi-judicial matter. Further, the city must provide reasonable notice and an opportunity to be heard before a lead agency makes an adjudicatory land use decision that constitutes a substantial or significant deprivation of a landowner’s property rights. This includes notice to affected landowners who are not city residents. Notice must adequately describe the action under consideration to satisfy the right to due process, and it must include the date, time, and place of a public hearing; the identity of the hearing body or officer; a general explanation of the matter to be considered; and a general description, in text or by diagram, of the location of the real property, if any, that is the subject of the hearing. The quasi-judicial act must be taken in open session and provide all interested parties an opportunity to be heard before any action is taken.

Typically, local zoning law provides a list of permitted uses allowed in each zoning district as a matter of right; it will also spell out uses that are not allowed as a matter of right, but for which a conditional use permit (“CUP”) may be obtained. These permits are a necessary and appropriate zoning flexibility device. A use permit may be denied if substantial evidence supports any reason to deny the permit.

Because CUPs are quasi-judicial actions applying standards to a particular project, the zoning ordinance must establish criteria or standards for issuance. A city may grant a CUP if the proposed use is desirable for the public convenience and is not detrimental to the public welfare. The “general welfare” standard for granting or denying a CUP is sufficient. The general welfare standard is sometimes imposed in the negative form—that is, the permit will not be issued if the proposed use would create noise, dust, odors, or other undesirable effects.125

If the CUP is granted, staff generally recommends that certain conditions be attached to the CUP, such as hours of operation, signage, parking requirements, right of entry for inspection, review and revocation rights, hold harmless, and other conditions. Once granted, the CUP “runs with the land”—the city cannot condition a use permit on its nontransferability.126 The conditions, however, need not strictly relate to the use of land; courts have upheld use permit conditions that required a certain number of adult employees and security guards to be present on the business premises during certain hours.127

Some cities do not use the CUP process and instead use a development agreement process; some cities have designated land use zones for commercial cannabis, where applications may proceed without the CUP process. But generally, cities use the CUP process for commercial cannabis permits.

C. Challenging Land Use Decisions

The initial denial of a CUP is subject to judicial review under the substantial evidence standard because denial of a permit does not affect vested rights.128 Denial of an application to renew an already-issued use permit receives a higher standard of judicial review than a denial of an application for a new use permit.129 In other words, once a permittee has incurred substantial expense and acted in reliance on the CUP, the courts may consider the permittee to have acquired a fundamental vested property right.130 When the permittee has acquired such right, the CUP may be revoked or modified, following due process, only if the permittee fails to comply with reasonable terms or conditions in the permit, if the operation of the business is deemed to be detrimental to public health, safety, or welfare, or if a compelling public necessity is at-issue.131 The substantial evidence standard applies unless a fundamental vested right is implicated.132 The denial, revocation, or suspension of a permit that involves expressive conduct is subject to expedited judicial review.133 When acting in an adjudicatory capacity, a city must support its determination by written findings.134 Those findings must “bridge the analytic gap between the raw evidence and ultimate decision or order.”135 The findings must be “sufficient both to enable the parties to determine whether and on what basis they should seek review and, in the event of review, to apprise a reviewing court of the basis for the board’s action.”136 The findings are not sufficient if the reviewing court must “speculate as to the administrative agency’s basis for decision.”137

D. Traditional or Administrative Writ?

Legislative or quasi-legislative acts are reviewable by traditional mandamus.138 Whether an act is legislative or adjudicatory is not always clear.139 Generally, a legislative act is the formulation of a rule to be applied in all future cases, and an adjudicatory act is the application of legislative rules to a specific set of existing facts.140 An award of a public contract, and all the acts leading up to the award, have been found to be legislative in character.141 Actions or decisions for which the agency was not required to hold an evidentiary hearing may also be reviewable under traditional mandate.142 Rezoning of property is generally a quasi-legislative act.143 However, matters that might otherwise appear to be quasi-legislative sometimes have been found to be adjudicatory.144

Courts use administrative mandamus to review quasi-judicial or adjudicatory decisions that involve application of a rule or set of rules to a specific project or a set of existing facts or circumstances.145 Administrative mandamus is appropriate to review a public agency’s determination, finding, or decision, made as a result of a proceeding in which by law a hearing is required, evidence is required to be taken, and discretion in the determination of facts is vested in a public agency.146 When an adjudicatory decision is challenged on the basis that the decision-making body has abused its discretion, because the findings are not supported by the evidence, the standard of review is normally the substantial evidence test; however, the independent judgment test applies when the decision substantially affects a fundamental vested right.147

Judicial inquiry in an administrative mandamus action is limited to:148 (1) whether the agency has proceeded without, or in excess of, jurisdiction; (2) whether there was a fair hearing; and (3) whether there was any prejudicial abuse of discretion. Abuse of discretion is established when:149 (1) the agency has not proceeded in the manner required by law; (2) the order or decision is not supported by the findings; or (3) the findings are not supported by the evidence.150

Under the substantial evidence test, the court must determine whether: (1) substantial evidence supports the administrative findings; and (2) the findings support the decision.151 Substantial evidence exists when the administrative record provides any reasonable factual basis for the findings.152 Courts do not decide if there is evidence that might have supported a contrary decision, but instead whether the record as a whole contains substantial evidence supporting the decision.153 Substantial evidence may be found in staff reports, opinions, and agency members’ comments;154 and may include statements of neighbors if based on relevant personal observations or nontechnical issues.155 These determinations are made in light of the whole administrative record, including evidence that detracts from the decision.156 Thus, the court engages in a “limited” weighing process, reversing the administrative decision only if a reasonable person could not have reached the agency’s conclusion.157

The independent judgment test is used only when a statute explicitly authorizes independent review or when a vested or fundamental right is involved (e.g., revocation of a cannabis business license, termination of welfare benefits, or public employment).158 Under this test,abuse of discretion is established if the court determines that the findings are not supported by the weight of the evidence.159 Weight of the evidence is synonymous with preponderance of the evidence.160

Even under the independent judgment test, there is “a strong presumption of correctness concerning the administrative findings, and the party challenging the administrative decision bears the burden of convincing the court that the administrative findings are contrary to the weight of the evidence.”161

Beware: The statute of limitations for traditional and administrative writs of mandamus in land use decisions is very short. The public policy behind this short time frame is so that property owners and local governments can proceed with projects; every challenge to land use decisions has a “chilling effect.” Legal actions or proceedings filed to attack, review, set aside, void, or annul a decision of a city can prevent the completion of much-needed public projects that have received required government approvals.162

E. Limitations to Challenging Land Use Decisions
Not only is the cannabis industry subject to all the rules, laws, deadlines, and standards of review set forth above, public officials are entitled to absolute immunity when acting within the course and scope of their legislative and quasi-judicial capacities.163 It is not easy to sue city councilmembers when they are acting within the course and scope of their duties; generally, they are “shielded from liability for civil damages insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known.”164 Qualified immunity shields officials “from civil damages liability as long as their actions could reasonably have been thought consistent with the rights they are alleged to have violated.”165 Qualified immunity applies when the law was not clearly established at the time of the alleged wrongful conduct; or if the law was clearly established, a reasonable official could have believed the conduct was lawful.166 This is an objective standard.167 Evidence of an official’s subjective intent is irrelevant to the determination of whether qualified immunity attaches.168

F. Cities Have the Power to Ban Commercial Cannabis Activity
While California voters and legislators support the limited use of medical cannabis, many local governments object to its use and have adopted bans based on their authority to regulate land use.169 The California Supreme Court has ruled that “[t]he inherent local police power includes broad authority to determine, for purposes of the public health, safety, and welfare, the appropriate uses of land within a local jurisdiction’s borders, and preemption by state law is not lightly presumed.”170 The California Legislature imposes a “minimum of limitation in order that cities and counties may exercise the maximum degree of control over local zoning matters.”171 In analyzing whether local bans on dispensaries are preempted by state law, the California Supreme Court stated that “local legislation that conflicts with state law is void.”172 Courts have held that the CA-CUA and the MMP do not preempt local bans.173 On the contrary, no express conflict existed between the state’s medical marijuana statutes and a city’s action to ban.174 In that situation, the California Supreme Court has held:
[T]here appears no attempt by the legislature to fully occupy the field of medical marijuana regulation as a matter of statewide concern or to partially occupy this field under circumstances indicating that further local regulation will not be tolerated.175

In most cases, a commercial cannabis applicant must not only obtain a CUP, but also must obtain a business license. These should be two distinct applications, and generally they should be independent of each other. The issuance of a business permit is usually a ministerial act; the city council is not necessarily engaged in this process. Occasionally, however, public policy makers do interact with staff for or against a project. The issuance of a CUP is a discretionary permit, which, as set forth above, must undergo political review at the local level.
The commercial cannabis application is time-consuming and can be very expensive for the applicant. Generally, an applicant must provide background checks, live scans, business plans, financial records, owner/operator expertise, purchase or lease agreements, site plans, security plans, reasons for community benefit, and more. Since site selection is usually required to apply for a commercial cannabis permit, and the site typically must be a certain distance away from sensitive uses (i.e., churches, schools, parks, etc.), the applicant will have “holding costs” pending the exhaustion of the regulatory process and the issuance of the permit. Sometimes, the application process is challenged in court, or for many and sundry reasons, the city guts the existing process and starts anew.

G. No Representation Without Local Taxation
And last, but not least, cities have the power to impose a tax on commercial cannabis activity. However, the California Legislature has preempted the field of sales and use taxation in the name of statewide uniformity,176 which imposes significant constraints on a city’s power to tax. Not only are cities restricted by the “State Preemption” in taxation, they are confronted with a panoply of voter initiatives that restrict their power to tax: Proposition 13,177 Proposition 26,178 Proposition 218,179 among others. And more to come.

Cities may, however, impose “any other substantially different tax” otherwise authorized by law,180 but they must impose sales taxes in accordance with state law.181 Subject to applicable constitutional requirements for voter approval, a city may levy business license taxes for revenue purposes and business license fees for regulatory purposes.182 Cities have authority to impose fees, charges, and rates, provided they are reasonable and serve a regulatory purpose.183

V. CONCLUSION

Commercial cannabis activity is directly affected by politics at the federal, state, and local level. Money and influence are necessary and useful in our democratic politics. Land use decisions, especially, have a direct impact on the landscape—literally and politically. Even though commercial cannabis activity is governed by a plethora of rules, laws, and time frames, there is always room to influence decision-makers. A commercial cannabis license is a political license. Do not be left out. Do your homework, research the “lay of the land,” know who is calling the shots at city hall. Is it the mayor, the planning director, the chief of police, or the dog catcher (i.e., animal control officer)? Sometimes, it can be the local chamber of commerce or another nonprofit that is funded by the city. Also, keep an eye on those public employee unions and those PACs. This should not be earth-shattering news; the reality is that politics is part of daily life, especially when we are engaging in discretionary permits, land use entitlements, and commercial cannabis. Best of luck!