California Cannabis lawsSince Proposition 64 passed last November, there has been a spike in reports of California dispensaries advertising their willingness to sell recreational cannabis to anyone 21 years and older “with only a valid ID” (i.e. physician’s recommendation not required). However, Prop 64 requires dispensaries apply for and obtain a state retailer license to sell recreational cannabis or face criminal and civil penalties for each day of illegal operations. Since the State of California has yet to issue such a license, any dispensary currently selling recreational cannabis in California is doing so illegally.

For marijuana consumers, your options are simple: (1) obtain a valid physician’s recommendation and purchase medical marijuana from a dispensary; (2) grow your own recreational marijuana at home by following local regulations; or (3) get home grown marijuana from other adults in California through a free, sharing economy.

For dispensaries, your options are even simpler: (1) sell medical marijuana legally by following local laws and securing any necessary permits or licenses; or (2) operate illegally and face severe penalties, raids, and criminal prosecution.

Dispensaries in California have been making illegal sales long before Prop 64 passed. But local law enforcement believe dispensaries have become “more emboldened” now that recreational cannabis is legal in the state. Some dispensaries might wrongly believe that any and all sales are allowed under a Prop 64 regime, but others clearly choose to operate outside of the law. This angers legal dispensary owners who pay the high costs of operating a legal business (including taxes, licensing fees, and security costs) while also waiting to profit on recreational sales after state licenses are issued.

Though Prop 64 makes clear that anyone making retail sales or deliveries of recreational cannabis must have a California state license, the challenge faced by local (and soon state) prosecutors is how to go about shutting down illegal businesses. Often when a city or county attempts to shut down an illegal dispensary, the dispensary owner just relocates the business and changes the name, resulting in an endless game of “whack-a-mole” for local authorities. But now that cannabis businesses are beginning to set their sights on state licenses, is it more important than ever to play nice with your local city and county officials as local authorization is a requirement for state licensing. Businesses caught operating illegally can be disqualified from receiving a local permit, and even if state and local authorities cannot prohibit these business from applying for a California cannabis license, past troubles with following the law will likely be a negative mark on your cannabis license application.

We also expect state and federal enforcement to pick up over the next few years. California state agencies do not currently have jurisdiction over illegal cannabis businesses, but once state licenses are issued they plan to work with local authorities to enforce the cannabis laws. Even worse, If illegal businesses continue to thrive in California, the federal government could challenge California’s entire regulatory system under the guidance of the Cole Memo. With a new federal administration coming in, and the possibility of an anti-marijuana Jeff Sessions as Attorney General, California could face even greater scrutiny. So by operating an illegal business not only do you risk your own chances at the legal market, you also risk undermining the legalization effort California strived so long to achieve.

As California transitions into a regulated legal market, the grey areas we have long been dealing with will soon shrink. In a post-Prop 64 world you can either follow the laws and obtain a license to make legal recreational sales or you can risk fines, jail time, and the loss of the chance to ever operate again.

Proposition 64California cannabis laws states that adults in California age 21 and older may legally possess, plant, cultivate, harvest, dry, or process up to six marijuana plants as well as possess the marijuana produced from those plants. Though cities and counties can completely prohibit personal outdoor cultivation (and some already do), Prop 64 does not allow them to prohibit personal cultivation indoors or in an outside structure that is fully enclosed and secure.

However, Prop 64 does grant California cities and counties the authority to reasonably regulate these activities and requires that all persons cultivating cannabis for personal use comply with any local ordinances. In addition, Prop 64 limits personal cultivation to six marijuana plants per private residence (regardless of the number of adults living in the residence) and requires any marijuana produced from the plants that is over the legal possession limit of 28.5 grams be kept within the residence or in a locked, outdoor space not visible to the public.

Some California municipalities have already started passing local ordinances to regulate personal cultivation. Prop 64 allows cities and counties to “enact and enforce reasonable regulations to reasonably regulate” personal cannabis cultivation activities. So now the question is just how reasonable are these new regulations?

In December, the City of Indian Wells passed an ordinance that requires residents to register for a permit from City Hall to cultivate marijuana at home. To receive the permit, residents must allow home inspections by city employees and pay an annual fee of $141. According to Erwin Chemerinsky, Dean of University of California, Irvine Law School and prominent constitutional law scholar, Indian Wells’ regulation “goes significantly beyond what state law allows local governments to do.” There is also concern that by requiring individuals to register to grow, the City’s regulation forces them to self-incriminate themselves under federal law and is therefore unconstitutional.

Last week, the City of Los Banos also considered an ordinance requiring its residents to first register with the City to cultivate marijuana indoors for personal use. The stated reason for requiring residents to register was so authorities could educate them on how to safely grow marijuana and avoid fire hazards. However, one City Council member did not support the ordinance because he was concerned about creating a public registry that could potentially expose home growers to “shaming, harassment or violence.” The Los Banos City Council later amended the proposed ordinance to provide greater privacy for registrants by avoiding collection of personal data. The modified ordinance was approved unanimously on January 4th.

We’ve been working with plenty of cannabis companies in California on the local permitting and future state licensing processes, but this is the first time individuals are being asked to register to cultivate marijuana in their own homes for their own personal use. Ultimately, it may be up to a court to decide whether these new local regulations are indeed “reasonable,” as required under Prop 64. In the meantime, California residents should be aware that they cannot legally purchase recreational cannabis from any dispensaries and, if they happen to live in a city or county that has passed regulations on personal cultivation, they also may not be able to legally grow marijuana in their residences without first registering and complying with any new rules.

Yes, California has legalized recreational cannabis, but we still have a long way to go until it becomes widely available for all adults living in our state.

California cannabis

Proposition 64 (Prop 64 or the Adult Use of Marijuana Act), which passed last November and legalized recreational cannabis use throughout California, included stricter laws regarding driving while “high.” But California senators have proposed a new bill, Senate Bill 65 (SB 65), to close what they say is a loophole in the law that does not explicitly make it illegal to drive while consuming marijuana as long as you aren’t impaired.

One of the stated intents of Prop 64 was to maintain existing laws that make it illegal to operate a car (or other vehicle) while impaired by marijuana. Like driving under the influence of alcohol, it is illegal in California to drive or operate a vehicle under the influence of any drug. You are under the influence of a drug when your physical or mental abilities are impaired to the point where you can no longer drive with the caution of an ordinary, sober person under similar circumstances. However, there are no current state laws that address the legality of driving when not impaired but while still consuming marijuana or marijuana products.

Prop 64 provides that it does not permit any person to, among other things:

  • possess an open container or package of marijuana while driving, operating, or riding in the passenger seat of a vehicle
  • smoke or ingest marijuana or marijuana products while driving or operating a vehicle
  • smoke or ingest marijuana or marijuana products while riding in the passenger seat or compartment of a vehicle, except as permitted by a local jurisdiction

Note that even though Prop 64 does not permit these activities, it also does not prohibit them. However, it provides that any person with an open container of marijuana in a vehicle may be cited for an infraction and have to pay a fine of up to $250. For persons under the age of 18, drug education and community services will instead by required. In contrast, no penalties are included for smoking or ingesting marijuana while driving or riding in a vehicle, an oversight that the authors of Prop 64 simply forgot to include.

SB 65 would “remedy” this by making it illegal for a person to smoke or consume marijuana in any form while operating a vehicle, vessel, or an aircraft; and any violations could result in either an infraction or a misdemeanor. However, SB 65 would also prohibit consumption of CBD-only marijuana products while driving a vehicle, which could be a problem for many medical marijuana patients.

Though SB 65 would clearly allow police to ticket anyone caught smoking or ingesting marijuana red-handed, a challenge for the bill is how to test whether a driver who is pulled over for driving erratically recently consumed marijuana. There is currently no THC threshold for impairment established in California as well as no standard test for impairment (e.g. blood, saliva, breath). A separate bill, Assembly Bill 6, was recently proposed to allow law enforcement to perform saliva tests on drivers they suspect are impaired by marijuana use. But a similar proposal was rejected in 2016 because legislators were concerned about the dependability of field testing marijuana-induced drivers.

To address this problem, Prop 64 allocates some of the tax revenues that will be raised from recreational marijuana sales to the Department of California Highway Patrol to create protocols for determining whether a driver is impaired by use of marijuana. The state is currently exploring ways to test driver impairment, including the use of marijuana breathalyzers that have already been road-tested on California highways.

Finally, for those that are still unclear on California’s stance on using cannabis while driving, the state recently launched a $1 million anti-drugged driving campaign that uses television and digital ads to show the dangers of driving under the influence of marijuana. For California cannabis consumers, the state wants you to know “DUI doesn’t just mean booze” anymore. (You can watch the video here.)

Cannabis mortgages and bank loansMy law firm represents a large number of cannabis operators in Oregon, Washington and California. Some of these operators own the land they trade on; others simply lease. Whenever we are lucky enough to meet the client before the onset of cannabis activity, our first question is often whether the target property is mortgaged, or if it is owned free and clear. If the property is mortgaged, we ask “by whom?” If the answer is “a bank,” we tend to say, “let’s talk about that for a minute.”

Your standard institutional mortgage contains language allowing the mortgagee/lender to call the loan if the property is being used to conduct “illegal activity.” Lenders won’t budge on that provision: it relates back to federal lending guidelines, and attempting to pare back that language is impossible. If a borrower acquires a bank loan with the secret intention of operating or leasing to a cannabis business, that borrower is running a risk of foreclosure, to say nothing of allegations of fraud.

When a bank discovers that cannabis is being grown, processed, held or sold on its mortgaged property, it has the option, under contract, to call the loan. This means the bank can declare the entire mortgage balance due and owing on the spot. In practice, if a loan is in good standing it won’t always get called; but if a bank learns that cannabis is being traded on the property, a real possibility exists that the mortgage will get called. And refinancing with the lender will be all but impossible.

Although banks typically do not troll their commercial loans looking for pot merchants, many loans require borrowers to inform lenders about tenants and new leases on the property. When a bank decides to call a loan due to cannabis activity, the bank may give the mortgagor a limited window of time to cure the defect (stop the cannabis activities), or to find alternative lending. Given the realities of business investment and operations, the strictures of leases and the high cost of private lending, this can cause tremendous headaches.

There is no work-around for the “illegal activities” issue in institutional lending, but that hasn’t stopped some folks from trying. Among other creative ideas, we recently saw one owner give a second, unrecorded mortgage to a cannabis operator as “insurance” against the first loan getting called. Not only would this approach fail to prevent the first mortgage from getting called, it would typically allow the first mortgagee to declare the balance of its loan payable immediately, as “due on sale.” Such an action could wipe out the junior, unrecorded mortgage interest in any subsequent foreclosure.

Finding a cannabis property is not always easy, but it’s important to understand how the property is financed (or otherwise encumbered) before you sign a lease or begin operations. If you intend to purchase a cannabis property and cannot pay cash, seller financing is a popular option we have written about elsewhere. Otherwise, it’s hard money or trying to fool the bank. Neither of those is a good business plan.

California cannabis lawsA new California bill, Assembly Bill 64, is currently being considered by California legislators. AB 64 would amend the marijuana advertising rules under Proposition 64 (aka the Adult Use of Marijuana Act, or AUMA) to create stricter regulations for advertising on highway billboards. Though Prop 64 already bans marijuana ads on any billboards on California interstate highways or state highways that cross the border of any other state, AB 64 would extend that prohibition to exclude advertising on billboards on any highways within the state.

The sponsors of AB 64 state that the stricter regulations are meant to further enforce prohibitions against advertising cannabis to minors under the age of 21, who would be able to see ads on highway billboards even if the ads are targeted specifically at legal adult consumers and medical marijuana patients. In addition, the bill’s sponsors are concerned that cannabis businesses that have not yet received a state license to sell medical or recreational cannabis are already advertising on highway billboards across California.

AB 64 would prohibit not only licensed businesses, but any entities operating in California from placing marijuana ads on interstate and state highways. The bill would also extend all other restrictions under Prop 64 on marijuana advertising and marketing from licensees to all entities operating within the state; thus closing a loophole that currently exempts unlicensed cannabis businesses from new state advertising laws. What’s more, the bill would extend the prohibition on billboard ads to the marketing of medical cannabis and medical cannabis products.

Though the new advertising restrictions are already receiving pushback from the cannabis community, AB 64 is not all bad news for California cannabis businesses and license hopefuls. If passed, the bill will also provide clarification on major issues concerning many California cannabis businesses, specifically whether for profit businesses and delivery-only businesses will be allowed under new statewide regulation.

Under AB 64, the Medical Cannabis Regulation and Safety Act (MCRSA) would be amended to explicitly allow medical cannabis collectives and cooperatives to operate for profit. In order to operate for profit, these businesses will be required to obtain a valid California seller’s permit from the State Board of Equalization and a valid local license, permit, or other authorization from the city or county where the business operates.

AB 64 would also amend California law to specify that Type 10 dispensaries and Type 10A producing dispensaries under the MCRSA, as well as retailers (and by association microbusinesses) under the AUMA, may be either:

  1. a “storefront dispensary” for locations that have direct physical access for the public, or
  2. a “nonstorefront dispensary” for locations that do not have direct physical access for the pubic.

For the amendments under AB 64 to pass, two thirds of California legislators will need to vote in favor of the bill. This is California’s first attempt to consolidate the provisions of the MCRSA and the AUMA, which contain several conflicting provisions due to differing approaches on key issues under the two state initiatives. However, this will most likely not be the last attempt as the state prepares to license both medical and recreational cannabis businesses beginning as early as January 1, 2018. We will be closely following any changes to California cannabis laws throughout 2017 and those interested in securing a state license should be following along.

In our California Cannabis Countdown, Tiffany Wu (of our San Francisco office) regularly analyzes the various local city and county ordinances governing California’s ever-changing cannabis industry (see here, for example). Local cannabis laws have always been important in California, but they’ve become even more important now that the Medical Cannabis Regulation California Cannabisand Safety Act (“MCRSA“) requires local government approval before you can get a state medical cannabis license. And though you don’t need that local approval before getting a state license under Proposition 64, you will have to be in compliance with local law before you can open and operate your adult use cannabis business in California.

Some California cities and counties have gone back and forth for months over what their local marijuana market should look like, with some even banning marijuana businesses altogether. Mendocino County, part of the famous Emerald Triangle, is no different, though it is getting closer to some form of comprehensive regulation even if it only addresses medical cannabis cultivation for now.

Mendocino County codifies its current medical cannabis regulations under Section 9.31 of its county code, which it amended in May of this year with an urgency ordinance. The County basically has two standards for current growers: growers cultivating no more than 25 plants per parcel, and growers cultivating more than 25 plants per parcel because they are authorized to do so by the County and/or the Sheriff as a result of having registered with the County by June 3 of this year.

Section 9.31 may end up being moot though since the County is looking to pass two new ordinances: one having to do with regulations and permitting for cannabis cultivation sites and the other having to do with zoning for the same. Copies of both proposed ordinances can be found here. Let’s start with the Medical Cannabis Cultivation Ordinance (“MCCO”).

Under the MCCO, should it pass, to be considered by the Agricultural Commissioners Office for a cultivation site MCCO permit, you will need to prove to the County that you had an existing, Proposition 215 and Section 9.31-compliant medical cannabis cultivation site prior to January 1, 2016. To prove the existence of such a site , the County will require the following:

  1. Photographs of any cannabis cultivation activities that existed on a legal parcel prior to January 1, 2016, including: ground level views of the cannabis cultivation activities and aerial views from Google Earth, Bing Maps, Terraserver, or other comparable services showing the entire legal parcel and the cultivation area in more detail. The date these images were captured must be noted.
  2. Photographs of any cannabis cultivation activities that currently exist on a legal parcel, including: ground level views of the cultivation activities from at least three different vantage points, and aerial views from Google Earth, Bing Maps, Terraserver, or other comparable services showing the entire legal parcel and the cannabis cultivation area in more detail. The date these images were captured must be noted.
  3. At least one additional document demonstrating proof of cannabis cultivation prior to January 1, 2016. A list of examples of the type of documentation that will meet this requirement are found in Appendix B to the application. Any reliable documentary evidence similar to that found in Appendix B which is deemed satisfactory to the Agricultural Commissioner, which establishes that medical cannabis was planted and grown on a parcel to be permitted prior to January 1, 2016, will likewise be accepted.

You can also re-locate your existing cannabis cultivation site if you can prove the above, but you will then be treated as a “new” grow, which really just means increased property setback restrictions. In addition to proof of a prior grow (and a bevy of other regulations relating to fencing, security, grow lighting, and track and trace requirements), MCCO permit applicants will be limited to two cultivation permits, one per legal parcel. There are ten different types of cannabis cultivation permits that vary by size and growing medium, including a nursery permit.

For all MCCO permit applicants, the following will be required by Mendocino County as part of the MCCO permit application:

  1. The name, business and residential address, and phone number(s) of the applicant.
  2. If the applicant is not the record title owner of the legal parcel, written consent from the actual owner allowing cultivation of medical cannabis on their property by the applicant with original signature of the record title owner.
  3. Written evidence that each person applying for the permit and any other person who will be engaged in the management of the collective is at least twenty-one (21) years of age.
  4. A site plan showing the entire legal parcel, including easements, streams, springs, ponds and other surface water features, and the location and area for cannabis cultivation on the legal parcel, with dimensions of the area for cultivation and setbacks from property lines. The site plan shall also include all areas of ground disturbance or surface water disturbance associated with cultivation activities, including: access roads, water diversions, culverts, ponds, dams, graded flats, and other related features. The site plan must include dimensions showing that the distance from any school, youth oriented facility, church, public park, or residential treatment facility to the nearest point of the cultivation area is at least 1,000 feet.
  5. A cultivation and operations plan which includes elements that meet or exceed the minimum legal standards for the following: water storage, conservation and use; drainage, runoff and erosion control; watershed and habitat protection; and proper storage of fertilizers, pesticides and other regulated products to be used on the legal parcel. Any fuel, fertilizer, pesticides, or other substance toxic to wildlife, children, or pets, must be stored in a secured and locked structure or device. The plan must also provide a description of cannabis cultivation activities including, permit type, cultivation area, soil/media importation and management, the approximate date(s) of all cannabis cultivation activities that have been conducted on the legal parcel prior to the effective date of this ordinance, and a schedule of activities during each month of the growing and harvesting season.
  6. A copy of the statement of water diversion, or other permit, license or registration filed with California Water Resources Control Board, Division of Water Rights, if applicable.
  7. An irrigation plan and projected water usage for the proposed cultivation activities, as well as a description of its legal water source.
  8. A copy of a Notice of Intent and Monitoring Self-Certification and any other documents filed with the North Coast Regional Water Quality Control Board (NCRWQCB), demonstrating enrollment in and compliance with (or proof of exemption from) Tier 1, 2 or 3, North Coast Regional Water Quality Control Board Order No. 2015-0023, or any substantially equivalent rule that may be subsequently adopted by the County of Mendocino or other responsible agency.
  9. If any on-site or off-site component of the cultivation facility, including access roads, water supply, grading or terracing impacts the bed or bank of any stream or other water source, you must show proof that you have notified the California department of Fish and Wildlife pursuant to Section 1602 of the Fish and Game Code and provide a copy of the streambed alteration permit obtained from the Department of Fish and Wildlife.
  10. If the source of water is a well, a copy of the County well permit, if available.
  11. A unique identifying number from a State of California Driver’s License or Identification Card for each person applying for the permit and any other person who will be engaged in the management of the cultivation operation.
  12. Evidence that the applicant or any individual engaged in the management of, or employed by, the cultivator has not been convicted of a violent felony as defined in Penal Code section 667.5 (c) within the State of California, or a crime that would have constituted a violent felony as defined in Penal Code section 667.5 (c) if committed in the State of California and is not currently on parole or felony probation. A conviction within the meaning of this section means a plea or verdict of guilty or a conviction following a plea of nolo contendere.
  13. A statement describing the proposed security measures for the facility sufficient to ensure the safety of members and employees and protect the premises from theft.
  14. If the applicant is organized as a non-profit collective, the applicant shall set forth the name of the corporation exactly as shown in its Articles of Incorporation, and the names and residence addresses of each of the officers and/or directors. If the applicant is organized as a partnership, the application shall set forth the name and residence address of each of the partners, including the general partner and any limited partners. Copies of the Articles of Incorporation or Partnership Agreement shall be attached to the application.
  15. The applicant shall provide proof of either a physician recommendation that the amount of cannabis to be cultivated is consistent with the applicant’s medical needs, the needs of the patients for whom the applicant is a caregiver, or a written agreement or agreements, that the applicant is authorized by one or more medical marijuana dispensing collectives or processors to produce medical marijuana for the use of the members of said collective(s) or processor(s).
  16. The Agricultural Commissioner is authorized to require in the permit application any other information reasonably related to the application including, but not limited to, any information necessary to discover the truth of the matters set forth in the application.
  17. Apply for and obtain a Board of Equalization Seller’s Permit and collect and remit sales tax to the Board of Equalization if applicant intends to sell directly to qualified patients or primary caregivers.
  18. Written consent for an onsite pre-permit inspection of the legal parcel by County officials at a prearranged date and time in consultation with the applicant prior to the approval of a permit to cultivate medical cannabis, and at least once annually thereafter.
  19. If applicable, clearance from CalFire related to compliance with the requirements of Public Resources Code Section 4290 and any implementing regulations.
  20. For activities that involve construction and other work in Waters of the United States, that are not otherwise exempt or excluded, include a copy of a federal Clean Water Act (CWA) Section 404 permit obtained from the Army Corps of Engineers and a CWA Section 401 water quality certification from the NCRWQCB.
  21. For projects that disturb one (1) or more acres of soil or projects that disturb less than one acre but that are part of a larger common plan of development that in total disturbs one or more acres, are required to obtain coverage under the State Water Resources Control Board General Permit for Discharges of Storm Water Associated with Construction Activity Construction General Permit Order 2009- 0009-DWQ. Construction activity subject to this permit includes clearing, grading and disturbances to the ground such as stockpiling, or excavation, but does not include regular maintenance activities performed to restore the original line, grade, or capacity of the facility.

If the Agricultural Commissioners Office approves you for an MCCO permit, you’ll then be kicked over to the Department of Building and Planning Services for zoning compliance. Under the County’s proposed zoning ordinance, cannabis cultivation of varying parcel and canopy sizes will be allowed in the following zones: RR 2, RR 5, RR 10, AG, UR, RL, FL, TPZ, I1, I2, and PI. And all permissible zoning will require either a zoning clearance, an administrative permit, or a minor use permit. Further, depending on the MCCO permit type, there are minimum lot size restrictions ranging from 5 to 10 acres. And also depending on whether you’re an existing cannabis grow or a “new” grow (based on whether you’re moving your existing grow), there are various property setback requirements you will have to follow to achieve compliant zoning.

Right now, the County is still deciding on whether to adopt these proposed ordinances, and they’re talking public comment on them until January 4, 2017. I list all of the above though just to emphasize how difficult and time consuming and expensive it will be to operate a cannabis cultivation business in Mendocino County. But the bad news is that we expect many other California counties to initiate similar requirements.

Stay tuned to see if Mendocino County will embrace the heavy regulations set forth above or go back to the drawing board on cultivation.

Nevada County CannabisCalifornia has 58 counties and 482 incorporated cities across the state, each with the option to create its own rules or ban marijuana altogether. In this California Cannabis Countdown series, we plan to cover who is banning, who is waiting, and who is embracing California’s change to legalize marijuana — permits, regulations, taxes and all. For each city and county, we’ll discuss its location, history with cannabis, current law, and proposed law to give you a clearer picture of where to locate your cannabis business, how to keep it legal, and what you will and won’t be allowed to do.

Our last California Cannabis Countdown post was on the City of Lynwood, and before that, the City of Coachella, Los Angeles County, the City of Los Angeles, the City of Desert Hot SpringsSonoma County, the City of Sacramento, the City of BerkeleyCalaveras CountyMonterey County and the City of Emeryville.

Welcome to the California Cannabis Countdown.

Nevada County has long been a popular spot for cannabis cultivation due to its location and climate, but many longtime growers in the area were displaced in 2012 when the County passed restrictive cannabis regulations. In early 2016, the County banned all outdoor cannabis cultivation but it has since repealed the ban and adopted less restrictive, though still very limited regulations for indoor and outdoor cultivation that have not been well-received by local growers.

Location. Nevada County is located in the Sierra Nevada region of Northern California, bordering the state of Nevada. It was once home to the California Gold Rush of 1849 and it lays claim to many firsts and historic moments, including the first long-distance telephone, the only railroad in the West that was never robbed, and the historic Holbrooke Hotel. The County itself has stated that its “unique geographic and climatic conditions, which include dense forested areas receiving substantial precipitation, along with the sparse population in many areas of the County, provide conditions that are favorable to marijuana cultivation. Marijuana growers can achieve a high per-plant yield because of the County’s favorable growing conditions.”

History with Cannabis. On May 8, 2012, the Nevada County Board of Supervisors passed Ordinance No. 2349, which created regulations for medical cannabis cultivation.

On November 4, 2014, voters in Nevada County rejected Measure S, an initiative from the Nevada County branch of Americans for Safe Access designed to overturn the County’s ordinance and replace it with less restrictive provisions.

On January 12, 2016, the Board adopted emergency Ordinance No. 2405, banning all outdoor cultivation and limiting indoor cultivation to 12 plants per property. At the same time, the Board passed Resolution No. 16-038 to submit Measure W to the voters of the County.

On February 9, 2016, the Board passed Resolution No. 16-082, which clarified that if Measure W was not approved by a majority of Nevada County voters, the Board intended to repeal the ban on outdoor cultivation and adopt other regulations at the next available meeting after the election.

On June 7, 2016, voters in Nevada County rejected Measure W, an initiative proposed by the Board of Supervisors to ban all outdoor cultivation, commercial cultivation, and all other commercial cannabis activities. As a result, the emergency ordinance from January 12th remained in place.

On July 26, 2016, to follow through on the Board’s intention to repeal the ban on outdoor cultivation, the Board approved urgency Ordinance No. 2416 to allow limited outdoor cultivation in the County.

Current Cannabis Laws. Under Ordinance No. 2416, cultivation is permitted in residential and agricultural zones in Nevada County in very limited amounts.

In residential zones:

  • Indoor and outdoor cultivation is prohibited in all R-1, R-2, and R-3 zones
  • In areas designated as residential and estate and zoned R-A:
    • On parcels of 5 acres or less, indoor and outdoor cultivation is prohibited
    • On parcels greater than 5 acres and up to 10 acres, a maximum of 12 plants may be cultivated indoors only; outdoor cultivation is prohibited
    • On parcels greater than 10 acres and up to 20 acres, a maximum of 16 plants may be cultivated indoors, outdoors, or a combination of both; a maximum of 12 plants may be cultivated indoors; outdoor cultivation must be on one contiguous staked grow area not exceeding 800 square feet
    • On parcels greater than 20 acres, a maximum of 25 plants may be cultivated indoors, outdoors, or a combination of both; a maximum of 12 plants may be cultivated indoors; outdoor cultivation must be on one contiguous staked grow area not exceeding 1,000 square feet

In agricultural zones (e.g., AG, AE, FR, TPZ, and areas designated as rural and zoned R-A):

  • On parcels 2 acres or less, indoor and outdoor cultivation is prohibited
  • On parcels greater than 2 acres and up to 5 acres, a maximum of 6 plants may be cultivated outdoors only; cultivation must be on one contiguous staked grow area not exceeding 300 square feet
  • On parcels greater than 5 acres and up to 10 acres, a maximum of 12 plants may be cultivated indoors, outdoors, or a combination of both; outdoor cannabis cultivation must be on one contiguous staked grow area not exceeding 600 square feet
  • On parcels greater than 10 acres and up to 20 acres, a maximum of 16 plants may be cultivated indoors, outdoors, or a combination of both; a maximum of 12 cannabis plants may be cultivated indoors; outdoor cultivation must be on one contiguous staked grow area not exceeding 800 square feet
  • On parcels greater than 20 acres, a maximum of 25 marijuana plants may be cultivated indoors, outdoors, or a combination of both; a maximum of 12 plants may be cultivated indoors; outdoor cultivation must be on one contiguous staked grow area not exceeding 1,000 square feet

In addition, all indoor and outdoor marijuana cultivation must comply with the following setbacks, as measured in a straight line from the nearest border of the grow area to the property line of any adjacent, separately owned parcel:

  • On parcels greater than 2 acres and up to 5 acres: 100 feet
  • On parcels greater than 5 acres and up to 10 acres: 150 feet
  • On parcels greater than 10 acres and up to 20 acres: 200 feet
  • On parcels greater than 20 acres: 300 feet

Proposed Cannabis Laws.

The regulations under Ordinance No. 2416 were passed amidst criticisms and protests from Nevada County residents, but the Board has said the ordinance is meant to be temporary in order to buy time to draft permanent regulations.

On November 8, 2016, the same day as the passage of Proposition 64 in California, the Nevada County Board of Supervisors formed a subcommittee to develop a permanent cultivation ordinance. The County is currently seeking stakeholder and community input on the ordinance and is also seeking proposals for consulting and facilitation services for their Marijuana Regulation Community Advisory Group.

Prop. 64 permits adults in California over age 21 to cultivate up to six plants for personal recreational use. While cities and counties can still ban outdoor cultivation, Prop. 64 does not allow cities and counties to ban indoor personal cultivation though they are allowed to regulate it. In response, the Nevada County Board of Supervisors introduced an amendment to Ordinance No. 2416 on December 13, 2016, to allow indoor personal cultivation of up to six plants per private residence. The Board will consider adopting the amendment at its meeting on January 10, 2017.

California cannabis bankingNow that California will have significant regulation of both its medical and adult use cannabis industries under the Medical Cannabis Regulation and Safety Act and Proposition 64 (the Adult Use of Marijuana Act), respectively, questions are turning to what will happen with California cannabis banking. As the largest state, it’s hugely important California cannabis businesses be able to secure bank accounts (at a minimum). But will they be able to given the federal illegality of cannabis? Despite what we don’t know regarding how California will regulate cannabis businesses, if the FinCEN guidelines from 2014 hold up and if there are some enterprising financial institutions willing to experiment, we think the answer will be yes.

Because cannabis is federally illegal most banks and financial institutions want nothing to do with it. Not only is there potential criminal liability for banks under the federal Controlled Substances Act for aiding, abetting, and conspiracy for taking cannabis money, there may also be liability under the Bank Secrecy Act for money laundering. Until 2014, there was no real banking solution for the cannabis industry because of these federal criminal law issues; if you didn’t lie to get a bank account, it was likely only a matter of time before the bank would shut down your account after discovering that you were engaged in state-sanctioned cannabis cultivation, manufacturing or distribution.

Once Colorado and Washington legalized adult use cannabis in 2012 and the Department of Justice issued the Cole Memo in 2013, the DOJ and FinCEN finally provided some relief for cannabis businesses by developing guidelines for financial institutions wanting to bank the cannabis industry. Those guidelines essentially give a green-light to banks opening accounts for cannabis businesses in state-legal and highly regulated marijuana states so long as they conduct necessary due diligence and monitoring of their cannabis clients and file a Suspicious Activity Report whenever opening such an account.

Since California will have a ton of cannabis regulations under both the MCRSA and Proposition 64, we are confident some California financial institutions will take advantage of the 2014 FinCEN guidelines and open accounts for cannabis businesses. This means that if you receive a California cannabis license under either the MCRSA or Proposition 64 (or both), you will likely be a good candidate for getting a bank account in California.

The main obstacle right now is that bank regulators like FinCEN, the FDIC, and the NCUA will likely withdraw even silent acceptance of cannabis banking if potential U.S. Attorney General Jeff Sessions or President-elect Donald Trump orders the nullification of the Cole Memo. Without support from FinCEN and other federal regulators, state-legislated resolutions on cannabis banking will likely fail. Colorado already tried this with a state-mandated banking cooperative and failed and we do not expect the courts to help on this issue either because of the federal law conflict. And “solutions” like Bitcoin still face a ton of hurdles.

On December 2, California’s State Treasurer, John Chiang, wrote to President-elect Trump, seeking guidance on California cannabis and banking:

Conflict between federal and state rules creates a number of difficulties for states that have legalized cannabis use, including collecting taxes, increased risk of serious crime and the inability of a legal industry under state law to engage in banking and commerce . . . We have a year to develop a system that works in California and which addresses the many issues that exist as a result of the federal-state legal conflict . . . Uncertainty about the position of your administration creates even more of a challenge.

Chiang also wrote in his letter that California may “exacerbate” the banking problem because California’s cannabis economy is going to be so large.

The Department of Treasury has done a commendable job of preserving and defending its marijuana banking guidelines; Treasury Secretary Jack Lew has defended the guidelines to Congress based on public safety and transparency. But Lew isn’t going to be around much longer and last month Trump announced Steven Mnunchin as his nominee for Treasury secretary. I couldn’t find any quotes from Mnunchin on marijuana banking or the FinCEN guidelines, so it’s hard to know whether Mnunchin will support the cannabis banking status quo or not.

Like everything when it comes to Trump’s administration and cannabis, California will just have to stay tuned on the banking front.

California Cannabis
       California Cannabis: possibly delays.

Though California officially legalized cannabis last month, those hoping to walk into a dispensary and legally purchase recreational cannabis will have to wait until state licensing begins. Proposition 64 requires licensing authorities to start issuing licenses by January 1, 2018, however there are now reports licensing could be delayed until 2019. A significant challenge faced by California rule makers are the two conflicting legalization initiatives passed under the Medical Cannabis Regulation and Safety Act (MCRSA) and the Adult Use of Marijuana Act (AUMA).

These challenges were recently discussed at a California cannabis event by Lori Ajax, the Chief of the Bureau of Medical Cannabis Regulation, which is the agency in charge of running both the medical and recreational systems. Assemblyman Jim Wood (who helped to author the MCRSA) also pointed out that the Acts take different approaches to issues ranging from ownership and residency requirements to timelines and license categories. The question then is whether the two systems should run in parallel, like they do in Colorado, or be combined into a single system, like in Washington.

In addition, the two Acts differ on state-level taxes. Both apply a retail tax to sales by dispensaries, however the AUMA also creates a new cultivation tax on licensed growers. California growers argue that the tax could apply to excess plant material that is never sold in market and request the law be changed, but to change a voter-approved initiative in California requires a two-thirds vote of the legislature, which could cause further delays.

Statewide licensing for both medical and recreational cannabis businesses, as well as the implementation of a track and trace system under the AUMA, will also require developing new technology platforms that currently do not exist. If they must be built from scratch, we can again expect further delays in the issuance of state licenses.

Finally, President-elect Trump’s nomination of Senator Jeff Sessions as Attorney General has many in the industry fearing a federal crackdown on marijuana that could slow legalization efforts not only in California, but across the United States. Moreover, cities and counties in California may be weary of moving forward with local licensing in case the federal government begins raiding local cannabis businesses. Since California operates under a dual license system, requiring local compliance before a state license can be issued, delays in local licensing could also lead to delays in the ability of cannabis businesses to apply for and obtain state licenses.

There are many elements at work here and though there is still a chance for everything to run smoothly towards state licensing in 2018, it is starting to look like it is going to be a bumpy ride to statewide regulation in California.

Cannabis lawyerWe have run quite a few real estate deals in Oregon, Washington and California cannabis. No two deals are the same, and as we previously have written, buying and selling land for pot ventures is a trip. An obvious reason for this is the lack of banking services, but another big reason is lack of certain title company services, like escrow. If you are hoping to enlist a title company as escrow in your cannabis property sale, we say to you, “good luck.”

Typically, title companies handle all of the paperwork to close a standard real estate transaction. It is probably easiest to think of these services in three distinct parts: (1) receiving, holding and sending money and key documents (escrow); (2) providing a spot for the parties to iron out details toward the end of a deal (including deeds and other formal documents (closing)); and (3) issuing title insurance. By providing this suite of services, a title company can serve as a “one stop shop” for closing most real estate deals.

Pot deals, of course, are different.

In our experience, title companies generally will close a cannabis deal, and they will even provide title insurance in most cases. However, they generally will not facilitate the exchange of funds. This seems strange initially, but it relates back to banks, and the fact that many banks refuse to service businesses even indirectly involved with cannabis. That includes title companies. Thus, title companies often have formal policies against serving as escrow in cannabis deals, especially where the land already is being used for a pot-related purpose.

Fortunately, it is possible to close a real estate sale without a title company performing escrow services. In those transactions, the buyer and seller will usually engage an attorney to serve as escrow, and the attorney will take instructions on how and when to distribute funds. Though attorneys tend to be more expensive than title companies for this purpose, they are safer than fringe operators offering escrow services, and an attorney worth her salt should be able to run the exchange efficiently.

With respect to title insurance, title companies generally will issue these policies on the rationale that the insurance product relates to land ownership, rather than to the activities taking place thereon. Of course, most title insurance policies in marijuana-related transactions will expressly exclude coverage for governmental actions, including civil and criminal forfeiture under the federal Controlled Substance Act. Before purchasing title insurance, we strongly recommend that the buyer disclose their intended use of the land. Otherwise, the title company has an argument not to pay on claims.

In the coming months, we expect to handle more and more real estate deals for pot businesses and also sellers. The California land grab will heat up in that state’s pot friendly counties, and our Oregon office has seen another spike in land deals from November’s local election results. Our Washington cannabis lawyers are also seeing an increase in land sales, mostly attributable to growers who got in early, but now wish to sell.

Ultimately, the laws around the purchase and sale of commercial real estate tied to cannabis are complicated, and vary state by state. An experienced cannabis attorney with commercial real estate chops will be able to facilitate the purchase or sale of real estate for pot commerce, from title examination through recording the deeds. The attorney will know how to work with the parties’ chosen title company to push the deal through, and how to navigate the unusual aspects of these transactions, like escrow.