Marijuana LitigationOn December 2, 2014, the City of Los Angeles filed a lawsuit against Nestdrop, LLC and its founders, alleging they had violated Proposition D (the City’s medical marijuana regulations) by facilitating medical marijuana deliveries.

The City contended Proposition D prohibits all medical marijuana businesses from delivering marijuana by vehicle because the criminal immunity provided under Proposition D is necessarily tied to a “location,” meaning a “physical parcel of land” and “immunity cannot accompany the marijuana when it leaves the location to be delivered elsewhere.” The City further argued defendants’ delivery services would “unfairly detract from the quality of life of the areas where marijuana is delivered” and unjustly enrich defendants so as to constitute unfair competition prohibited by California Business and Professions Code section 17200, et seq. The City sought preliminary and permanent injunctions, as well as civil monetary penalties. Defendants argued that Proposition D “ties the immunity to a medical marijuana business at the location, not to a location,” meaning that once a business is entitled to immunity at its “location” (i.e., a parcel of land), the scope of the immunity would permit the business to make vehicle deliveries from that location to other areas of the City.

The trial court ruled in favor of the City and issued an injunction to stop Nestdrop from delivering cannabis. Defendants appealed that decision, arguing to the California Court of Appeals that “the City failed to demonstrate a likelihood of success on the merits of its complaint.” Defendants’ argument for reversal turns on whether “Proposition D, which City voters enacted in 2013 to regulate medical marijuana businesses, generally prohibit[s] the delivery of marijuana by vehicles.”

The only lawful medical marijuana businesses in the City of Los Angeles are those that meet the very specific criteria under Proposition D which, among other standards, requires a medical marijuana business to have been in operation since September 2007 and registered with the City since November 2007. Proposition D’s definition of a “[m]edical marijuana business” comprises two distinct elements according to the Court of Appeals:

(1) any location, meaning a “parcel of land,” and

(2) any vehicle or other mode of transportation “. . . which is used to transport, distribute, deliver, or give away marijuana to a qualified patient, a person with an identification card, or a primary caregiver.”

Proposition D also states that “vehicles used by a qualified patient, a person with an identification card, or a primary caregiver as specified are not medical marijuana businesses,” and that “medical marijuana businesses, including vehicles otherwise used to transport marijuana to a lawful recipient, are banned.”

Ultimately, the Appeals Court ruled as follows:

To avoid operating illegally under Proposition D, a medical marijuana business must qualify for limited immunity, which a business can do only if it meets each and every condition set forth in [Proposition D]. The plain text of these various conditions demonstrates the drafters of Proposition D, and the voters who enacted it, contemplated that only fixed establishments, not vehicles, would be permitted to assert the ordinance’s immunity defense.

The Court further determined that the use of the term “premises” in five out of the fifteen conditions set forth in Proposition D for a lawful medical marijuana business, and according to its everyday use, means “land or structures built on land–not vehicles.” The Court also ruled that in at least two sections, Proposition D “. . .ties a medical marijuana business’s ability to assert the ordinance’s limited immunity to its operation at the ‘location’ identified in its business tax registration certificate, and as we have already seen, Proposition D defines a ‘location’ to exclude vehicles.” The Court also points out that it would be nearly impossible for a delivery vehicle to comply with Proposition D’s buffer restrictions and that the measurement of those buffers hinges on the distance between property lines from physical and fixed “lots,” not from vehicles. And, perhaps most importantly, since vehicles cannot get immunity under Proposition D, delivery is not permitted within the City of Los Angeles. The Court, in turn, dismissed all of defendants’ arguments that any “derivative immunity” stemming from a Proposition D-compliant dispensary should extend to any delivery vehicle on its behalf.

On the public policy front, the Court ruled that prohibiting medical cannabis deliveries within the City of Los Angeles also comports with the “purpose” of the ordinance:

The intent of Proposition D was not to make medical marijuana obtainable in more areas of the City than existed before its enactment, which permitting vehicle delivery would surely do, but rather to limit the number of businesses in operation and to minimize the “negative impacts and secondary effects” of such businesses by tightly regulating their locations and avoiding close proximity to sensitive areas like schools, churches, residential neighborhoods, and places where drug abusers go seeking help to fight their addiction. Allowing the medical marijuana businesses that may assert Proposition D’s limited immunity to deliver anywhere in the City would subvert that fundamental purpose.

Finally, defendants tried to argue that “. . .sections 21 and 22455 of the California Vehicle Code preempt Proposition D to the extent that the ordinance bans vehicular deliveries by medical marijuana businesses.” The Court ruled that it would not hear this argument because defendants failed to raise it with the trial court. However, the Court also opined that even if it were to hear the preemption argument, it would rule against it, writing that, “[s]uffice it to say that the Vehicle Code does not address medical marijuana or deliveries of medical marijuana, and there is therefore no conflict between state and municipal law triggering preemption.”

The Court of Appeals upheld the State Court’s preliminary injunction against Nestdrop.

The People ex rel. Michael N. Feuer, as City Attorney, etc. v. Nestdrop, LLC, et al., Case no. B262174.

NOTE: The above is part of our plan to summarize all cannabis civil cases with a published court decision. By civil case, we mean any case that involves cannabis or the cannabis industry that is not a strictly criminal law matter. These cannabis case summaries are intended both to keep you up to date on cannabis laws as interpreted by the courts and also to serve as a resource for anyone conducting cannabis law research. We also will seek to provide key unpublished cannabis law decisions as well, when available.