Cannabis Regulation Is the New Frontier in Real Estate and Land Use Control
| Publication year | 2018 |
| Author | Whitney Hodges and Rachel Keeney |
Whitney Hodges and Rachel Keeney
Whitney Hodges is a senior associate in Sheppard Mullin Richter & Hampton LLP's Real Estate, Land Use and Environmental Law practice group. Her practice focuses on advising developers, investors, sellers and public agencies in land use and environmental law. Whitney's practice includes obtaining federal, state and local agency approvals, defending litigation, and securing community and political support for complex development projects, including renewable energy facilities, urban infill, master planned communities, and other mixed-use, retail, industrial and commercial projects. She is based out of the firm's San Diego office.
Rachel Keeney is an associate in Sheppard Mullin Richter & Hampton LLP's Real Estate, Land Use and Environmental Law practice group. Her practice focuses on commercial and residential real estate transactions, including the acquisition, development, leasing, and disposition of various types of real estate assets. Rachel also works extensively with residential and commercial developers in connection with the drafting and preparation of CC&Rs, disclosures, easements and other agreements associated with common interest developments. Rachel is based out of the firm's San Diego office.
California has positioned itself as a leader on emerging cannabis policy. While federal law, including the Comprehensive Drug Abuse Prevention and Control Act of 1970,1 still prohibits cannabis-related activities within the State's borders, several largely progressive laws in California permit the possession, cultivation, transportation, and distribution of cannabis. Some of these laws are the first of their kind. These state laws, collectively referred to as the "Cannabis Laws" in this article, include the following:
- Compassionate Use Act of 1996 ("CUA");2
- Medical Marijuana Program Act ("MMPA");3
- Medical Cannabis Regulation and Safety Act ("MCRSA");4
- Certain provisions of the California Uniform Controlled Substances Act;5
- Control, Regulate and Tax Adult Use of Marijuana Act ("AUMA");6 and
- Medicinal and Adult-Use Cannabis Regulation and Safety Act ("MAUCRSA").7
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In addition to this blend of federal prohibitions and the myriad state authorizations, California has afforded local governments discretion to further regulate cannabis production and distribution for both medical and nonmedical, also known as recreational, uses. California's early authorization of medical cannabis use did not preempt or limit local land use regulation related to cannabis activities.8 AUMA propelled the principle of preserving "local control," and soon thereafter it MAUCRSA retained this doctrine as well.9 Interpretation of the Cannabis Laws continues to evolve as local governments experiment with various land use approaches, including licensing schemes and outright bans, resulting in responses by the California courts such as County of San Diego v. San Diego NORML which held such bans can violate certain Cannabis Laws.10
In the first section of this Article, we address the history of cannabis regulation currently prevailing within the state. Secondly, we examine various local land use approaches to cannabis production and distribution, and the legality of previously enacted land use restrictions and authorizations. Lastly, we discuss some of the nuances a property owner should consider when negotiating a commercial lease with cannabis cultivators, manufacturers, testing laboratories, retailers, microbusinesses, or distributors.
The conundrum that everyone who deals with cannabis encounters is that despite the progressive Cannabis Laws in California and a handful of other states, the possession, cultivation, and distribution of cannabis remains illegal under federal law unless performed in conjunction with federally approved research. Under the federal regime outlined in CSA, cannabis has "no currently accepted . . . use at all."11 While several state courts have determined that federal restrictions do not preempt a state from implementing state-specific cannabis-related laws,12 it is imperative to note that any cannabis-related activity authorized under state law remains a violation of federal law.13 For the sake of brevity and scope, this Article will not address federal issues related to cannabis cultivation and distribution, including issues associated with banking and credit.14
Cannabis laws are complex and constantly evolving. This Article provides a broad overview of a few considerations that a real property owner may encounter when contemplating whether to establish cannabis facilities or whether to lease space to a cannabis cultivator, manufacturer, testing laboratory, retailer, microbusiness or distributor which in this Article, we will collectively refer to as "Cannabis Operator." It does not address every nuance associated with land use controls and regulations and/or negotiating a lease with a Cannabis Operator.
In 1996, Californians passed Proposition ("Prop.") 215, the first statewide ballot initiative to legalize medical cannabis that was approved at state level. Upon the passage of Prop. 215 (CUA),15 California became the first state to legalize cannabis for medical uses, thereby causing a nationwide conflict between states' rights advocates and those who support a more federalist approach.16 CUA allowed patients, or a patient's "Primary Caregiver,"17 with a valid doctor's recommendation, to possess and cultivate cannabis for personal medical use.18
Senate Bill ("SB") 420 (MMPA), passed in 2003, expanded CUA to expressly authorize the growing medical marijuana distribution system comprised of collectives and cooperatives.19 Among other things, MMPA established a program to facilitate the documentation of qualified patients and their designated primary caregivers via a voluntary identification card program, which MMPA required counties to implement.20
In 2013, the California Legislature added Health & Safety Code section 11362.768 to MMPA, inserting the term "dispensary" to the regulatory vernacular, as it was not previously defined in the Cannabis Laws. This inclusion was crucial for the implementation of the law's land use requirement prohibiting the location of medical cooperatives, collectives, and dispensaries within a 600-foot radius of sensitive receptors likes schools and residential neighborhoods.21 Section 11362.768 also directly authorized local authorities to regulate medical cannabis facilities.22
The state legislature then passed a trio of bills further regulating medical cannabis, effective January 1, 2016 and collectively referred to as MCRSA.23 The first bill, Assembly Bill ("AB") 266 authorized commercial medical cannabis businesses to cultivate, test, manufacture, label, dispense, deliver, and transport medical cannabis upon issuance of both state and local licenses.24 AB 266 also set the framework for the licensing and regulation of medical cannabis activities.25 Lastly, AB 266 created the Bureau of Medical Cannabis Regulation,26 which is charged with administering, enforcing, and promulgating rules under the MCRSA.27 Like the MMPA, AB 266 expressly preserved local government constitutional land use and regulatory authority.28
The second bill, AB 243, required various state agencies29 to develop regulations for the indoor and outdoor cultivation of medical cannabis, including specifications related to pesticide use, edible medical cannabis preparation, and labeling.30 From this legislation, the Medical Cannabis Cultivation Program within the Department of Food and Agriculture was born.31 Additionally, AB 243 required cannabis cultivation by licensees be conducted in accordance with state and local laws relating to land conversion, grading, electricity usage, water usage, agricultural discharges, and similar issues.32 Similarly, AB 243 required state agencies to coordinate with cities and counties in addressing the environmental impacts of medical cannabis cultivation.33 Lastly, should a licensee fail to comply with the licensing requirements, this bill provided for the assessment of civil and criminal penalties.34
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The last bill in the trio, SB 643, established standards and regulations for physicians and surgeons recommending or prescribing medical cannabis, and mirrored the dual licensing system required under AB 266.35
On November 8, 2016, Californians passed the AUMA, or Prop. 64, legalizing the recreational use of cannabis.36 This law allows adults twenty-one years of age and older to: (i) ingest cannabis; (ii) grow up to six plants in their home; and/or (iii) possess, process, purchase, obtain, or give away, without compensation, up to one ounce of cannabis.37 AUMA creates a comprehensive regulatory and licensing scheme governing commercial nonmedical cannabis activities from "seed to sale," including the commercial cultivation, testing, manufacturing, and distribution of nonmedical cannabis. 38
Voter-approved Prop. 64 resulted in two separate licensing and regulatory schemes under MCRSA and AUMA for medical and recreational cannabis use, respectively. To remediate this dichotomy, Governor Jerry Brown signed SB 94, a trailer bill for the Budget Act of 2017, formally repealing MCRSA and consolidating MCRSA and AUMA into a single system for administering cannabis laws in California encompassing both medical and nonmedical uses. This consolidated bill is known as MAUCRSA.39
Local governments may regulate what they deem the appropriate use of land within their jurisdictions.40 This authority stems from a local government's police power—the inherent power of government to provide for the peace, order, health, morals, welfare, and safety of its citizens.41
Specifically, land use regulations are a manifestation of the local police powers conferred by the article XI, section 7 of the California...
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