Stay Tuned – It May Be in Your Best (Financial) Interest

In the State of California there are 58 counties and 482 incorporated cities; currently there are 144 cities and counting that permit cannabis businesses of some type. As a jurisdiction permits cannabis business they are doing more than simply allowing personal use (which is a right of every California resident who is either 21 years of age or 18 years of age and has a valid medical recommendation), it means that the jurisdiction has implemented a process for awarding business licenses for commercial cannabis business operations within their jurisdiction. A cannabis business license, sometimes in the form of, or supplemented by, a conditional use permit, allows the owner to operate a cannabis business legally and transparently under California Law. This law, also known as the Medicinal and Adult-Use Cannabis Regulation and Safety Act (dubbed the “MAUCRSA”), provides a framework for 12 types of commercial cannabis licenses. Generally speaking the categories are: retail, distribution, cultivation, laboratory, and manufacture. These licenses are designated either “M” for medical, “A” for adult-use or “MA” for both medical and adult-use. Most importantly, for the purposes of this article, the MAUCRSA explicitly grants local deference. There are a myriad of laws and regulations implicated by California’s cannabis program, but simply stated incorporated cities and unincorporated counties have authority to permit or prohibit cannabis businesses as they see fit. But it is far more complicated than a “thumbs-up or thumbs-down” matter. Each jurisdiction that introduces cannabis business licensing goes through a process of deciding what types of licenses it will permit, where these licenses must operate, and what the application procedures/requirements will be. This makes it increasingly difficult and confusing for prospective cannabis businesses owners and/or property owners to know which cannabis businesses will be allowed in their jurisdiction as well as where they will be allowed to be located.

For example, the City of X may issue licenses under the following framework: Medical only; four Cultivation licenses in the Agricultural Zone; four Manufacture licenses in the Industrial Zone; four Distribution licenses in the Industrial (I) and Commercial (C) Zone; and two Storefront Retail licenses in the Pedestrian Commercial (PC) Zone. Juxtapose this with the City of Y, which introduces the following program: City of Y permits all types of cannabis business, both Medical and Adult-Use, but no cannabis retail business may be within 1,500 feet of another cannabis retail business – licenses are awarded in the order they are submitted. For a prospective applicant these differences have numerous implications; for a property owner the parameters of the licensing program may have a significant impact on property value.

Property Owners Should Not Wait Until Licensing Begins. When a city or county is contemplating its licensing program, the administration will typically allow for public commentary and feedback on its proposed scheme. Some of these suggestions and ideas, believe or not, are seriously considered. In some cases, the licensing program that is officially introduced is substantively different than the initially proposed program. If you own commercial, industrial or agricultural property in a city or county that is in the early phases of considering cannabis business licensing, or is nearly finalizing its application process, it behooves you to pay attention and possibly engage in legislative decisions/processes regarding cannabis in your community. It will be imperative that everyone wishing to enter the industry, including property owners looking to lease their land, keeps updating themselves on the zoning and application process information provided by the jurisdiction their business will be in.

Unincorporated Riverside County provides an illustration of the complications and confusion that may arise from the complex process of legalizing commercial cannabis in one’s jurisdiction. In early June 2018 the Board of Supervisors hosted a public hearing, and one of the more contentious issues was the zoning regulations for cultivation operations. The proposed regulations allow commercial cultivation in agricultural zones, but not in rural residential zones. Several residents who own property in the rural residential zones complained, and rightfully so. There are many property owners in the rural residential zones who have substantial acreage and are surrounded by agricultural uses. One of the county’s purported reasons for not allowing cultivation in the rural residential zones is that it would produce “noxious odors”. Ironically, there are several ranch-oriented businesses located on properties in the area and residents are regularly exposed to the smell of manure.

Variations of this theme continue to unfold up and down the state and many people are missing out on opportunities they may have been able to capitalize on. It is not just agricultural uses impacted by these considerations; properties that may be well suited for retail, manufacturing, and/or distribution operations, may or may not be viable commercial cannabis spaces dependent on where the jurisdiction draws its lines. Further, there are several buffer considerations – jurisdictions have the authority to mandate how much distance is required between a commercial cannabis property and specified uses: churches, schools, parks, daycare centers, and possibly a handful of others as the jurisdiction deems necessary. Pleading your case to your respective city council or county board of supervisors may ultimately determine whether your property is a viable option or not. And as the regulated market unfolds, this determination may ultimately cost you hundreds of thousands of dollars in lost revenue over the next several years, whether it be as a landlord to a cannabis business or as a prospective cannabis business operator. So if you or anyone you know is trying to get involved in the arduous process involved in the commercial cannabis industry make sure they constantly monitor what is happening in their jurisdiction.