City May Regulate Number of Cannabis Dispensaries Based on Adherence to Previously Established Requirements

October 9, 2017 | Bulletin No. 127414.1

In City of Vallejo v. NCORP4, Inc. (2017) – Cal.Rptr.3d-- ("NCORP4"), the court of appeal held that a city may use compliance with previous regulations as a basis to decide which marijuana dispensaries are allowed to operate in that city.

Facts

In July 2015, the City of Vallejo ("the City") enacted Ordinance No. 1715 (the "Ordinance"), regulating medical marijuana dispensaries. In order to limit the number of dispensaries operating in the city, the City sought to encourage dispensaries to register with the City by granting a limited immunity to the City's zoning restrictions prohibiting medical marijuana dispensaries. In order to obtain immunity, the dispensary operator was required to prove the dispensary was issued a tax certificate, operated before 2013, and paid the quarterly business tax previously imposed on medical marijuana dispensaries. The Ordinance declared every existing dispensary that did not receive immunity to be an illegal public nuisance.

In May 2016, the City sued to enjoin the operation of the dispensary operated by NCORP4, Inc. ("NCORP4") because it  had not paid previous taxes as required by the Ordinance, and thus could not receive immunity. The trial court issued a temporary restraining order ex parte, but later dissolved that order, finding that the Ordinance was in essence an ex post facto law. The trial court found that the Ordinance, by declaring disqualified dispensaries a public nuisance, applied a new and different type of penalty in 2015 to businesses who failed to pay the tax in 2012 and 2013.

The City appealed the trial court's decision.

Court's Decision

The Court of Appeal ("Court") reversed the trial court's ruling. The Court agreed with the City's characterization of the Ordinance: an attempt to limit the number of medical marijuana dispensaries to a manageable number by preferring those who had previously demonstrated a willingness and ability to comply with local law by paying the previous business tax. The Court noted that the City had full legal authority under state law to regulate operation of medical marijuana dispensaries, even to the point of preclusion. Using past compliance to make regulatory decisions is a natural extension of that authority.

The Court rejected NCORP4 and the trial court's interpretation of the Ordinance as an ex post facto law. First, it noted that the ex post facto clauses applied only to criminal statutes, not to regulations on the operation of medical marijuana dispensaries. Moreover, the Court found that the Ordinance did not amend the previous business tax's penalties; it was a separate ordinance that used compliance as one of the factors granting immunity from enforcement as a public nuisance.

The Court compared the Ordinance to a similar ordinance enacted by the City of Los Angeles. The Los Angeles ordinance limited medical marijuana dispensaries to those that were already in operation and that had registered under a previous ordinance. The Court called this "essentially a grandfather provision with an added gloss of a prior registration requirement." That ordinance was upheld by an appellate court in 420 Caregivers, LLC v. City of Los Angeles, and this Court saw no basis to distinguish the Ordinance at issue in this case.

What This Means For Cities and Counties

As a result of this ruling, cities and counties retain an important regulatory tool in their efforts to manage cannabis businesses. For jurisdictions fearing an overconcentration, cities and counties may limit the number of cannabis businesses by allowing only those businesses that can demonstrate compliance with its laws to continue operations.

Questions?

If you have any questions concerning this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult:

Mona Ebrahimi
mebrahimi@kmtg.com | 916.321.4597

Maggie Stern
mstern@kmtg.com | 916.321.4541