Oct 01, 2017
September Event Recap
Cannabis: A Bird's-Eye View of the Wild, Wild West
Oct 01, 2017
By Craig Cox
With voter-approved recreational marijuana use rolling into California and other states, the legal landscape has become as hazy as the inside of a 1980s casino.
To help Marin County Bar Association members navigate the rapidly changing field of cannabis law, attorneys Habib Bentaleb and Lauren Vazquez provided a bird’s-eye view of the current status and answered inquiries from a room full of members on Wednesday, September 27, 2017, during the CLE luncheon “Growing Like Weeds: What You Need to Know about Expanding Cannabis Laws.”
The basic takeaway from the luncheon: uncertainty plagues the field of cannabis law, and it could be quite some time before we receive clarity. With a current lack of state regulations, coupled with conflicting Federal laws and divergent approaches by local municipalities, attorneys venturing into the field of cannabis law must take extra care to monitor developments on both a local and national level. Furthermore, cannabis law will overlap with other legal realms, such as real estate law, business law and tax law, so attorneys in other fields might very well be forced to monitor and address the emerging tide of cannabis cases.
In California, where Proposition 64 has legalized the possession, cultivation and sale of cannabis, the world of criminal law is being turned on its head. All but a few crimes, such as those involving harm to minors or the environment, are being reduced or eliminated, and people with criminal records involving cannabis may now seek to have their records expunged to reflect the current state of the law. Further, as cannabis becomes more prevalent, police are being presented with new and evolving challenges. For instance, activities that are being made legal under Proposition 64 will no longer serve as probable cause to search or arrest individuals. Police must also find new ways to spot and address driving under the influence of cannabis, which currently lacks reliable and scientific methods of testing for impairment.
As California figures out how to best manage and regulate the vast cannabis industry, from cultivation, manufacturing, distribution, and of course, use, it is relying on three separate departments: the Bureau of Cannabis Control, the Department of Food and Agriculture, and the Department of Public Health. Each department will be responsible for regulating specific aspects of the industry and will be responsible for licensing the respective aspects. For instance, the Department of Food and Agriculture will issue licenses for cultivators, and the Department of Public Health will issue manufacturing licenses for products such as edibles. In order to obtain licenses, owners must meet certain requirements, such as not having felonies involving minors, violent crimes or moral turpitude. Further, the aspiring licensees must have obtained any necessary approvals from their local municipalities to address issues such as zoning.
California is expected to begin issuing licenses in January 2018, and the current cannabis players (such as growers and manufacturers) will have one year to either obtain a license or stop their activities. Along with the license requirements, California will implement stringent operating procedures. For instance, businesses will be required to track and trace every plant from seed to sale using bar code systems. Testing and packaging requirements will ensure products are not tainted with contaminants and are not outside of established and/or ordinary potency ranges. Businesses will also be subject to inspections and must renew their licenses on a scheduled basis.
On a Federal level, there remains even more uncertainty. Currently, cannabis is a Schedule I drug, which is the most stringently regulated drug category, for drugs deemed to have "no currently accepted medical use.” With the recent changes in the Executive Branch leading to little to no predictability, individuals participating in the marijuana industry continue to face the risk of asset forfeiture and the inability to obtain national banking loans and accounts. Current tax laws are unfavorable to cannabis businesses, which are unable to deduct business expenses pursuant to Internal Revenue Service Code Section 280E, which provides that persons participating in illegal activities cannot deduct the expenses.
Attorneys involved in commercial lease preparation in particular should keep an eye on the cannabis industry. For instance, standard commercial leases may not sufficiently address concerns with exactly what the permitted uses are. An owner/lessor may face third-party or government legal action if a cannabis lessee fails to operate within a proper permitted use. Additionally, if a lease fails to provide clear arbitration and/or choice of law provisions, the lease could potentially end up being litigated in Federal court or in states that do not allow cannabis use. Often, these courts will refuse to enforce contracts dealing with illegal activities for public policy reasons. Fortunately, on a Federal level, some courts are starting to enforce cannabis contracts because the Federal government is not currently enforcing cannabis laws. However, this may change, so it is important to address these issues ahead of time.
Throughout the nation, courts are hearing cases of first impression that may affect the future of cannabis in California and Marin County. There are two cases in Colorado and Oregon in which adjacent property owners are suing cannabis businesses under RICO for purportedly lowering their property values. While no similar RICO cases are pending in California, they may very well follow suit. Another case being litigated involves the question of whether hemp should be regulated as cannabis. Litigation involving cannabis has also entered the realm of attorney-client privilege in a case in which an attorney, Jessica McElfresh, e-mailed a cannabis client about an inspection, and a question has been raised as to whether this email fell under the fraud/crime exception to the privilege.
While there is mass confusion as to the future of cannabis laws, we know from other states that have allowed recreational marijuana use that California can expect tax revenue of about $1 billion per year from the sale of marijuana, and much of this money will be distributed to organizations including the California Highway Patrol to study DUI testing mechanisms, the University of California for research, and in grants to youth programs and communities affected by cannabis prohibition. For more information concerning the current status of cannabis laws, one can visit www.cannabis.ca.gov.
Craig Cox is an associate attorney in Tyson & Mendes’ San Francisco office. His practice focuses primarily on personal injury, premises liability, and general liability litigation. Mr. Cox graduated from the University of Florida Levin College of Law in 2012 and is admitted to practice law in California and Florida.