November 16, 2017

As we head into 2018 and state permitting, many aspiring cannabis business operators remain stalled. They are not stalled for lack of effort, desire, or even funding. What delays them is the lack of a local permit for their cannabis business, for without a local permit, one cannot begin state permitting.

California is a vast state, with 58 counties and 482 municipalities – and they can all set their own rules for local cannabis businesses. Each of these jurisdictions can decide whether to allow cannabis businesses, which license types, where, under what conditions, medical versus adult-use…. Though every month more jurisdictions pass regulations or consider them, much of California remains, and will remain for at least some of 2018, without local cannabis licensing.

Clearly, for the industry to thrive in 2018 and onward, more local laws must change. Ultimately, there are three paths to local regulation.

Option One: Your local government decides to draft its own ordinance. The City of San Diego is an example of a local jurisdiction that has passed ordinances on its own. These include the City’s 2014 ordinance for medical cannabis dispensaries and its recent one for marijuana production facilities, which is for cultivation, manufacturing, and distribution (the City is also allowing testing, but under less stringent permitting rules).

From a distance, it may look like magic or that the state’s second largest city sensibly decided to pass regulations of its own accord. In truth, the City’s ordinances followed nearly a decade of lobbying, working groups, task forces, and too many stops, starts, and false starts to detail here. In San Diego, lobbying came in many flavors: grassroots, individual, organized groups, relatively high priced, cannabis-focused, industry-based…basically, everyone pitched in.

Fortunately, encouraging a local government to pass an ordinance seems is now taking less than a decade. Since the California Legislature passed laws to set up state licensing for medical and Proposition 64 passed, many jurisdictions have formed ad hoc committees to discuss local ordinances. Examples in and near San Diego County have included Encinitas, Oceanside, Imperial Beach, and the City and County of Riverside. Ad hoc committees can produce wonderful recommendations and often, the local representatives who serve on such committees become strong advocates of regulating cannabis businesses. Unfortunately, the transition from recommendations to an actual local ordinance can take years, and sometimes, require more than one try.

Despite these challenges, having a local government draft and embrace an ordinance is the best path. By the time a local government passes an ordinance, they have accepted cannabis regulation as a good for their community. As a result, they will be somewhat more prepared than jurisdictions facing an initiative to implement the ordinance, and they will not seek to actively dismantle the ordinance as it is implemented.

Option Two: The voters pass a local initiative. Local initiatives are intended to be democracy in action. Local government will not pass a law? Let the voters decide at the ballot box. And, local ordinances have brought regulation to jurisdictions governed by reluctant politicians. Recent examples include Long Beach and Lemon Grove. Advocates of initiatives will point out that the initiative gives advocates the chance to propose the ordinance that they want, not just the one that they can convince a council or board of supervisors to pass.

But, initiatives are far from perfect. One, it is harder to draft an ordinance than you would think (take it from someone who has written several). Two, you must gather verified signatures in a number equal to 15 percent of the voters who participated in the last election to qualify an initiative for a special election, or in a number equal to 10 percent to qualify for the general election ballot. This takes time and money. Many have told me they plan to gather signatures with volunteers. This rarely works. Gathering signatures is detailed, challenging work. Voters must fill out and sign petitions properly, and it is nearly impossible to run a successful initiative campaign without professional help.

If you gather enough signatures, the local government has two choices: one, adopt the initiative as is, and as law; or two, put it on the ballot. Frequently, the local government puts the initiative on the ballot, and then, those behind the initiative must run a campaign. Do not make the mistake of assuming people just want to regulate cannabis and will vote yes on anything related to cannabis. Do not make this mistake even if the local populace overwhelmingly supported Proposition 64. You must run a campaign and convince people why local regulation is good for their local community. This will also take time and money – and yes, you can lose at the ballot box. It is becoming rarer, but it can still happen.

You might think your struggles would be over if your initiative passes. Usually, that is true. Most jurisdictions will accept the will of the voters and implement an initiative fairly – but occasionally, a jurisdiction will bend over backwards to dismantle an initiative. They may interpret it too narrowly, drag their feet, seek to eliminate as many properties as possible from eligibility, or implement absurd operating or application requirements.

Option Three: Negotiate a development agreement. A development agreement is a contract between a local jurisdiction and the owners or developers of certain tracts of land for specific cannabis conduct. Development agreements are complex, but put simply, the city says operators can conduct cannabis businesses at specific sites, regardless of the local zoning laws. In exchange, an operator may promise extra benefits to a local jurisdiction, such as very high fees or taxes. Development agreements are more common in small jurisdictions. Motivated and well-funded business operators and local landowners who want to maximize the value of their property often shop development agreements to the local jurisdiction.

Development agreements can sound wonderful for an operator: a contract means control and potentially, less public controversy as the jurisdiction and the operator hammer out the details. In practice, operators can wind up paying even more in taxes and fees than they would in a jurisdiction with an ordinance. Jurisdictions can also shy away from development agreements because development agreements can limit how much a government can change the rules for an operator. Other jurisdictions fear the accusation that development agreements are backroom deals. Compared to developing an ordinance, crafting a development agreement is more private and less examined by the public until it is complete. Development agreements are poor choices for large jurisdictions or for allowing numerous cannabis businesses. They are simply not built for land development on a large scale.

In sum, local ordinances will not change by magic. Changing them will require time, work, and repeated effort. Whether one encourages a local jurisdiction to pass its own ordinance, pursues a ballot initiative, or promotes a development agreement, the path will have speed bumps.

Disclaimer: This article has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice.