Background

Since commercial cannabis operations became legal on January 1^st of this year, California cannabis businesses have been required to comply with the regulatory requirements of both state and local governments. Within the developing regulatory structure, local municipalities have the control to further regulate and tax, or alternatively, ban all commercial cannabis activity within their jurisdiction. The requirement of local government approval in addition to state licensure leaves cannabis operators hoping to build statewide businesses at the discretion of the municipalities in which they operate.

One particular cannabis business model allowed by the state is the non-store front retailer, otherwise described as a delivery service. Under state law, a cannabis delivery service must have a physical brick and mortar location that does not serve customers at that location. That physical location is the situs for the local cannabis business permitting jurisdiction—that is if the municipality is willing to issue a local permit for the business. California has also made it clear that local jurisdictions cannot prevent the delivery of cannabis or cannabis products on public roads as long as the licensee complies with the applicable state and local laws (California Business and Professions Code § 26090 (e)).

Current Controversy

The majority of California municipalities have either banned commercial cannabis businesses or have remained silent. The remainder of local governments have forged ahead, regulating cannabis at their own discretion, which has created a conflicting patchwork of local laws. As an example of the differences between California municipalities, the City of Sacramento allows delivery into the city as long as that business is licensed at another locality and by the state. However, the County of Sacramento does not allow any type of cannabis delivery into the county (or any other type of cannabis activity). The County of Contra Costa does not allow cannabis businesses but does expressly allow delivery into the county. The City of San Francisco allows delivery businesses to open shop in the city but does not allow businesses licensed in other localities to deliver into its boundaries.

Now, in the most recent round of draft regulations, the California Bureau of Cannabis Control (the “Bureau”) seeks to narrow the ability of cities to effectively regulate cannabis at the local level. The regulation at the center of the recent controversy, Section 5416(d) of the draft regulations, would authorize cannabis delivery anywhere in the state regardless of conflicting local regulations or bans. In essence, cities would have no power to prohibit the delivery of cannabis within their city limits if the cannabis delivery business has a state license to operate.

Earlier this year, Senator Ricardo Lara (D-Long Beach) introduced Senate Bill 1302 to accomplish the same goal as the current draft regulations—mainly to allow cannabis delivery businesses licensed in any local jurisdiction and by the state to deliver cannabis products to consumers across the state. However, that bill was killed under intense pressure from California cities and counties. It appears that by implementing the rules by way of the regulatory process, the Bureau is able to bypass the need for legislative approval of a controversial measure, impacting local municipalities.

Future of the Regulations

The Bureau is currently accepting comments on the draft regulations. The deadline for written public comments is 5:00 p.m. on August 27, 2018. The Bureau will hold one more public hearing on August 27, 2018, from 10:00 a.m. to 12:00 p.m. @ Tsakopoulos Library Galleria, 828 I Street, Sacramento, CA 95814, where the Bureau will also accept oral comments.

Supporters of the failed bill and the current draft regulations, including cannabis businesses, industry trade associations, and even Board of Equalization Member Fiona Ma (who supported the failed legislation), argue that the intent of the bill is to provide safe access to consumers who might not otherwise have the ability to purchase cannabis because they live in jurisdictions that have banned cannabis businesses.

The opposition, which includes the Police Chiefs Association, the League of California Cities, and labor groups, argues that the regulation is an infringement on local control of municipalities, a central component of the overarching cannabis legalization legislation.

As the discussion unfolds, the issue of taxation is a subject that still looms large in the context of the proposed language. In evaluating the regulations, the state and local agencies must be able to determine whether sales tax revenues should be collected at the point of delivery or at the brick and mortar location where the delivery service is locally licensed.

Churchwell White will continue to monitor the rulemaking progress. If you have further questions on the proposed regulations, or if your city wishes to engage in the development of the regulations by submitting comments for the Bureau of Cannabis Control’s consideration, please do not hesitate to reach out to Douglas White at (916) 468-0950 doug@whitebrennerllp.com, Nubia Goldstein at (916) 468-0946 nubia@whitebrennerllp.com, or Josiah Young at (916) 468-0623 josiah@whitebrennerllp.com.