CITY OF ENCINITAS CITY COUNCIL AGENDA REPORT Meeting Date: September 12, 2012

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1 CITY OF ENCINITAS CITY COUNCIL AGENDA REPORT Meeting Date: September 12, 2012 TO: FROM: MAYOR AND CITY COUNCIL CITY ATTORNEY SUBJECT: REPORT PURSUANT TO ELECTIONS CODE SECTION 9212 REGARDING AN INITIATIVE AMENDING THE ENCINITAS MUNICIPAL CODE TO AUTHORIZE AND REGULATE MEDICAL MARIJUANA DISPENSARIES IN ENCINITAS INTRODUCTION AND PURPOSE On August 15, 2012, the Encinitas City Council (the Council ) considered a ballot initiative entitled An Initiative Amending the Encinitas Municipal Code to Authorize and Regulate Medical Marijuana Dispensaries in Encinitas (the Initiative ) which qualified (proponents obtained ten (10) percent of signatures from registered voters in the City of Encinitas (the City ) as verified by the County Registrar of Voters) for placement on the 2014 ballot. Subsequent to hearing a related Staff report and public input, the Council directed staff to prepare a report analyzing impacts of the Initiative pursuant to Elections Code ( EC ) Section The following is such a report which focuses on significant concerns regarding the legality of the Initiative, along with various policy and implementation impacts on the City. The report does not address issues such as the merits and/or dangers associated with the use of marijuana, for medicinal purposes or otherwise, whether dispensaries cause or facilitate recreational use of marijuana, or whether marijuana possession and use should be legal. OPTIONS AVAILABLE TO THE COUNCIL PRE-PLACEMENT ON BALLOT Upon receiving this report the Council has several options pursuant to the EC as described below: 1. Adopt the Initiative (without alteration) This option requires a majority vote of the Council and it must be conducted within 10 days of the presentation of this report (not later than September 21, 2012). EC Section If the Initiative is adopted by the Council without submission to the voters (or if adopted by the voters), it may only be repealed or amended by the voters, unless the 09/12/2012 ITEM #11 1

2 language provides otherwise. EC Section Mobilepark W. Homeowners Ass n v Escondido Mobilepark W. (1995) 35 CA4th 32, 41. Based on the legal issues discussed below, the City Attorney does not recommend this option. 2. Place a competing Initiative on the ballot (2014) The Council may take action to place a competing (conflicting) initiative on the ballot in 2014 and the initiative receiving the highest number of votes prevails. EC Sections To do so, the Council would need to determine the contents of the initiative and direct Staff to prepare it. Based on the legal issues discussed below, and especially considering the unsettled nature of this area of the law, the City Attorney does not recommend this option. 3. Submit the Initiative to the voters The Council may direct the City Clerk to submit the Initiative to the voters for the 2014 ballot. It is important to note that if the Council does not take action to adopt the Initiative (option 1), the City has a ministerial duty to place the Initiative on the ballot provided no procedural defects exist (presently there is no evidence of procedural defects related to the Initiative). EC Sections City councils cannot refuse to place an initiative on the ballot due to perceived unlawfulness of the initiative s subject matter. See Save Stanislaus Area Farm Econ. v Board of Supervisors (1993) 13 CA4th 141 (registrar must put on ballot duly qualified initiative that complies with formal requirements for submitting initiative). OPTIONS AVAILABLE TO THE COUNCIL POST-PLACEMENT ON BALLOT After the placement of the Initiative on the ballot, the Council may consider either directing the City Attorney to 1) file an action to remove the Initiative from the ballot or 2) file a post-election challenge seeking a judicial determination of validity of the Initiative. Pre-election challenges are disfavored by the courts and require a higher standard of proof that post-election challenges. Costa v Superior Court (2006) 37 CA 4th 986. Due to the fact that the Initiative would be placed on the 2014 ballot, and the fact that other cities have similar initiatives scheduled for the 2012 ballot, it is prudent for Encinitas to monitor the status of the other cities initiatives and evaluate its options at a later date. 09/12/2012 ITEM #11 2

3 SUMMARY OF THE INITIATIVE Under most zoning ordinances, land uses that are not explicitly listed as permitted uses are prohibited. Therefore, if a city s zoning ordinance does not explicitly permit medical marijuana dispensaries (dispensaries), the zoning ordinance may be interpreted to prohibit dispensaries. City of Claremont v Kruse (2009) 177 CA 4 th 1153; City of Corona v Naulls (2008) 166 CA 4 th 418. Locally, at least one Superior Court judge recently upheld a similar interpretation of the Vista Municipal Code regarding dispensaries. In that case, Judge Stern rejected the defendant s (North County Botanical) argument that Vista s lawsuit intended to shut down its dispensary should be dismissed. Similarly, the Encinitas Municipal Code (the Municipal Code ) does not explicitly list dispensaries as permitted uses and, therefore, dispensaries are prohibited in the City. The Initiative would amend the Municipal Code to repeal that prohibition and authorize dispensaries in non-residential zones appropriate for commercial, manufacturing, industrial or retail sales uses, including health care uses. The Initiative prohibits dispensaries from locating within 1,000 feet of another dispensary or within a 600 foot radius of a school or playground. The Initiative would also require City officials to issue an operating permit and business registration to any dispensary applicant that: (1) demonstrates compliance with location requirements, (2) presents a plan for compliance with operational requirements (see below) and (3) has no directors which have been convicted of a serious felony as defined in California Penal Code Section (c) in the past seven years. The initiative also prohibits law enforcement officials from arresting or seizing marijuana (including marijuana plants) from qualified patients, caregivers and dispensary personnel. The operational requirements imposed by the Initiative would include the following: (1) licensed security personnel on site during operating hours; (2) security cameras and alarms, (3) safety lighting, (4) secured storage of marijuana, (5) restricted hours of operation (between 8:00 a.m. to 10:00 p.m.), (6) no consumption or dispensing of alcohol on site, (7) no marijuana visible from the exterior of dispensary, (8) clearly label products containing marijuana of that fact, (9) prohibit provision of marijuana to any minor (18 or under) unless the minor is a qualified patient accompanied by a parent or guardian and (10) prohibit on-site medical evaluations for medical marijuana use. The Initiative further provides that dispensary sales shall be subject to a sales tax of two and one-half percent (2.5%) in addition to other state and local sales tax that may be applicable to sales transactions in the City. Lastly, the Initiative would provide that if any of its provisions are held to be invalid or unenforceable, that invalidity or unenforceability shall not affect the remaining provisions which shall remain in full force and effect. 09/12/2012 ITEM #11 3

4 STATE AND FEDERAL LAW POTENTIAL LEGAL ISSUES RELATED TO THE INITIATIVE Presently, the law concerning the operation of dispensaries continues to develop and various issues related to the regulation of these facilities remain unsettled. Although proponents of the Initiative argue that the California courts have upheld the legality of dispensaries and that federal law does not preempt municipal permitting and regulation, these arguments remain just that, arguments. The application of existing authority both at the state and federal levels (cases and statutes) present significant legal concerns related to permitting, regulating and taxing dispensaries as provided for in the Initiative. Furthermore, pursuant to EC Section 9217, if the Initiative is approved, it may only be repealed or amended by a vote of the people or otherwise invalidated by court order. Either instance may present significant complications and/or expense. The use, cultivation, transportation and sale of Marijuana is governed by a number of laws: the Compassionate Use Act of 1996 ( CUA ) (Health & Safety Code ( HSC ) Section ), approved by California voters as Proposition 215 in 1996, the Medical Marijuana Program Act ( MMPA or SB 420) (HSC Sections ), adopted in 2003 by the state legislature, and the federal Comprehensive Drug Abuse Prevention and Control Act of 1970 (Title II of which is the Controlled Substances Act ( CSA ) (21 USC Sections )). 1 a. Compassionate Use Act California law The CUA provides that certain state law criminal provisions relating to the possession and cultivation of marijuana shall not apply to a patient, or to a patient s primary caregiver, who possesses or cultivates marijuana for the personal medical purposes of the patient upon the written or oral recommendation or approval of a physician. HSC (d). The CUA defines a primary caregiver as the individual designated by the person exempted under this section who has consistently assumed responsibility for the housing, health, or safety of that person. HSC Section 11362(c). To be a primary caregiver, an individual must (1) consistently provide [] caregiving, (2) independent of any assistance in taking medical marijuana, (3) at or before the time he or she assumed responsibility for assisting with medical marijuana. People v Mentch (2008) 45 C4th 274, 283. A person does not qualify as a primary caregiver merely by having a patient designate him or her as such or by providing medical marijuana itself. 45 C4th at 283. See also People v Houchandel (2009) 176 CA4th 997, 1016 ( Individuals operating a marijuana-buying cooperative do not, by providing medical patients with medicinal marijuana, consistently assume responsibility for the health of those patients ). 09/12/2012 ITEM #11 4

5 Aside from possession and cultivation, the CUA does not alter the other state statutory criminal prohibitions related to marijuana, including those that bar transportation, possession for sale, and sale. People v Uriziceau (2005) 132 CA4th 747, 773. b. Medical Marijuana Program Act--- California law The uncodified provisions of the MMPA state its intent to: Clarify the scope of the CUA and facilitate the prompt identification of qualified patients and their designated primary caregivers to avoid unnecessary arrest and provide legal guidance to law enforcement officers; Promote uniform and consistent application of the CUA; Enhance the access of patients and caregivers to medical marijuana through collective, cooperative cultivation projects; and Address additional issues that were not included in the CUA. (Stats 2003, ch 875, Section 1(b)-(c)). The MMPA established a program to facilitate the identification of qualified patients and their designated primary caregivers via a voluntary identification card program, which counties are required to implement. HSC sections (b), It also provides that qualified patients and persons with valid identification cards, and their designated primary care givers who associate collectively or cooperatively to cultivate marijuana for medical purposes, will not be subject to state law criminal sanctions, including for sale of marijuana, on that basis. HSC section The MMPA expressly immunizes qualified patients, persons with identification cards, and primary caregivers who transport or process marijuana for the personal medical use of a qualified patient or person with an identification card. HSC section (b)(1)-(2). It also allows reasonable compensation for expenses incurred for services provided to qualified patients or persons with identification cards to enable them to use marijuana (HSC section (c)), but does not authorize collectives or cooperatives to be operated for profit (HSC section (a)). Finally, the MMPA required the Attorney General to develop and adopt appropriate guidelines to ensure the security and non-diversion of marijuana grown for medical use by patients qualified under the [CUA]. HSC section (d). The Attorney General did so five years later in The purpose of the guidelines is to 1) ensure that marijuana grown for medical purposes remains secure and does not find its way to non-patients or illicit markets, (2) help law enforcement agencies perform their duties effectively and in accordance with California law, and (3) help patients and primary care 1 The CUA and MMPA do not: 1) legalize marijuana, but provides for limited criminal defenses to qualified users or (2) preempt or limit local regulation of medical marijuana uses via land use authority. County of Los Angeles v Hill (2011) 192 CA4th 861; City of Claremont v Kruse (2009) 177 CA4th See (August 2008). 09/12/2012 ITEM #11 5

6 givers understand how they may cultivate, transport, possess, and use medical marijuana under California law. Guidelines at 1. c. Implications of CUA and MMPA for Local Land Use Authority state law preemption According to the League of California Cities, in California, 76 cities and 9 counties have adopted moratoria (temporary bans) related to dispensary uses, the zoning codes in 178 cities and 20 counties prohibit dispensary uses, and 46 cities and 10 counties authorize dispensary uses through permitting processes which impose various forms of requirements (e.g., location and operational). Recently, several lawsuits have been filed asserting that the CUA and MMPA preempt local zoning and business license requirements. Several court decisions have addressed that argument and rejected it ruling to the contrary, that neither the CUA nor the MMPA preempts cities from enforcing zoning and business license regulations related to marijuana dispensaries. City of Corona v Naulls (2008) 166 CA4th 418 (affirming the issuance of a preliminary injunction to close a marijuana distribution facility operating without a valid zoning designation); County of Los Angeles v Hill (2011) 192 CA4th 861 (denying the dispensary s owner s argument that the County s ordinances were preempted by and inconsistent with state law); City of Claremont v Kruse (2009) 177 CA4th (CUA did not preempt the City s enactment of a moratorium or the enforcement of its zoning laws and business license requirements); City of Riverside v Inland Empire Patients s Health and Wellness Center, Inc., (2011) 200 CA4th 885 (holding that local government can ban medical marijuana dispensaries altogether). However, at least one case recently held that the CUA and MMPA establishes that medical marijuana dispensaries are a matter of statewide concern and, therefore, may not be banned by local agencies. City of Lake Forest v Evergreen Holistic Collective (2012) 203 CA4th That court also concluded that pursuant to Civil Code Section 3482, local agencies may not find a dispensary to be a nuisance solely on the grounds of dispensary activities authorized in the MMPA. 3 In response, the California Supreme Court recently granted review of both the Inland Empire Center and Evergreen cases. Accordingly, at this time, it appears that local regulations, in the form of local zoning and business license requirements, related to dispensaries are not preempted by the CUA and MPPA. Therefore, the CUA and MPPA would not preempt the operating permit and business registration requirements of the Initiative, if adopted. The legality of a total ban of dispensaries is less certain and awaits the outcome of the California Supreme Court s review. 3 In the Evergreen case the court also noted that banning or prohibiting a dispensary is distinct from restricting or regulating the dispensaries consistent with the MMPA. 09/12/2012 ITEM #11 6

7 d. Implications regarding Inconsistency with CUA The main purpose of the Initiative is to authorize dispensaries to locate within the City. The basis of this purpose is the CUA, MMPA and other laws that proponents claim support the use of medical marijuana. As noted above, under the CUA, only two categories of persons may possess medical marijuana 1) a qualified patient that has medical permission from a physician or 2) a primary care giver who has consistently assumed responsibility for the housing, health or safety of the qualified patient. Merely providing or selling marijuana to a qualified patient does not qualify a person or an organization as a primary caregiver. The Initiative is arguably inconsistent with the CUA (which provides protection from prosecution only for patients and primary caregivers) because it appears to allow the permitting of dispensaries which do not meet the definition of primary caregiver. The Initiative cites People v. Hochanadel, 176 Cal. APP. 4 th 997 (2009) as upholding the legality of dispensaries under state law. That court, however, found that although a dispensary may qualify as a primary care giver under the CUA in some circumstances, the dispensary at issue did not meet the definition of a primary caregiver because it did not have any ongoing relationship of providing for patients housing, health or safety needs independent of providing them with marijuana. Id. at In fact, the California Supreme Court (in a criminal case) interpreted the CUA and MMPA to state that the immunities found therein only apply to a caretaking relationship directed at the core survival needs of a seriously ill patient, not just one single pharmaceutical need. People v Mentch, 45 Cal. 4 th 274, 278 (2008); see Health and Safety Code Sections , (immunities from criminal prosecution apply only to card carrying patients and designated primary caregivers for cultivation, possession, transportation, delivery and administration of medical marijuana). Similarly, the Initiative does not require a dispensary to provide for any housing, health or safety needs of patients. Complicating matters further, the CUA and MMPA do not define the phrase dispensary. Health and Safety Code Sections , et seq. The MMPA merely regulates and provides for restrictions on marijuana cooperatives, collectives, dispensaries, operators, establishments or providers. Health and Safety Code Section The MMPA did not create any affirmative right to mandate the establishment of any cooperatives or dispensaries. 420 Caregivers, LLC, 2012 WL at *21. The MMPA (via AB 1300) affirms that cities may adopt local ordinances that regulate the location, operation or establishment of a medical marijuana cooperative or collective, however, it does not define those terms. Health and Safety Code Section (a). Furthermore, the Initiative only addresses dispensaries for 10 or more patients, without any reference to the characteristics of a primary caregiver. And finally, it is silent as to whether cooperatives of less than 10 individuals are a permitted use without obtaining a permit. As such, a strong argument can be made that the Initiative is inconsistent with the requirements of the CUA because: 1) it requires 09/12/2012 ITEM #11 7

8 the City to issue permits for dispensaries (referenced in the definition section of the Initiative as Compassionate Use Dispensary or CUC ) without any qualification as to whether they are primary caregivers and 2) it appears that cooperatives of less than 10 may be unregulated and at liberty to dispense marijuana irrespective of primary caregiver status. Accordingly, at this time, for the reasons stated, the City Attorney s opinion is that the Initiative appears to be inconsistent with the CUA. e. Controlled Substances Act federal law Under the CSA marijuana is categorized as a Schedule I substance. Notwithstanding any state law or court interpretation, Congress expressly found that the drug has no acceptable medical uses. Moreover, there is no medical necessity defense to the CSA prohibitions. U.S. v Oakland Cannabis Buyers Coop. (2001) 532 US 483, 491. See also Gonzales v Raich (2005) 545 US 1, 14. One of the recitals to the Initiative states California courts have ruled that federal law does not preempt municipalities from regulating compassionate use dispensaries under California and local law citing Qualified Patients Assoc. v City of Anaheim (2010) 187 CA4th 997; and County of San Diego v. San Diego NORML (2008) 165 CA4th (federal law making marijuana illegal did not preempt MMPA s identification card program). However, In light of the unique facts and circumstances involving these cases, this statement appears overly broad. f. Implications regarding Inconsistency with CSA In the Qualified Patients case, involving a city ordinance banning dispensaries, the court ruled that the CSA did not preempt the CUA because the CUA does not mandate conduct that is prohibited by federal law or pose an obstacle to federal enforcement or federal law. The court applied the reasoning in the San Diego NORML case that the CSA s objectives are to combat recreational drug use, not to regulate a state s medical practices. However, in a more recent case involving the City of Long Beach, the court determined that the CSA preempted the City s ordinance regulating a collective s location and operation; and, that the CSA criminalizes the manufacture, distribution and possession of marijuana with the only exception being for federally funded research on the use of marijuana. Pack v. Superior Court (2011) 199 CA4th 1070, While the court determined that the CSA did not preempt simple criminalization as provided for in the CUA, it held that Long Beach s ordinance went beyond decriminalization and authorized collectives by determining which ones are permissible and collected fees from the permitted collectives. Furthermore, the court held that the Long Beach ordinance was preempted because it constituted an obstacle to the CSA s objective that all use of marijuana is recreational drug use and thereby criminal. Id at The court did not address whether the restrictions that were independent of the permitting process could stand alone because they did not authorize conduct in violation of the CSA. Interestingly, the court also admonished local authorities of potential criminal liability for aiding and abetting a violation of the CSA by permitting marijuana 09/12/2012 ITEM #11 8

9 cooperatives. Id. at 1070 n. 27. The California Supreme Court recently granted review of the Pack decision. The CSA presents the most significant threat to the viability of the Initiative if it is adopted by the voters. Not only does the Initiative purport to permit dispensaries, its terms expressly prohibit law enforcement from arresting patients, caregivers or dispensary personnel, or seizing medical marijuana all of which pose a significant obstacle for enforcement of the CSA. Therefore, it appears that the CSA would preempt the very core purposes of the Initiative including permitting dispensaries and immunizing patients, caregivers and dispensaries from arrest. And, if the Pack decision is upheld at the California Supreme Court, and the Initiative adopted by the voters, the great likelihood is that it would be invalidated. Nevertheless, whether a higher court addresses the CSA preemption issue or not, under existing federal law, it is illegal to manufacture, distribute, or possess marijuana. Furthermore, it is illegal under the CSA to open, use, lease or maintain any place for the purpose of manufacturing, distributing or using any controlled substance (such as marijuana) U.S.C. 856(a)(1). Consequently, the United States Attorney for the Southern District of California, Laura Duffy, issued a letter (dated July 17, 2012) to the City of Del Mar in response to citizen drafted City of Del Mar Compassionate Use Dispensary Regulation and Taxation Ordinance that states the following: Although the Department does not offer advisory opinions enterprises engaged in the cultivation, manufacture, and sale of marijuana directly violate federal law. Accordingly, individuals and organizations that participate in the unlawful cultivation and distribution of marijuana could be subject to civil and criminal remedies. State and City employees who conduct activities mandated by the Ordinance are not immune from liability under the CSA. The United States Attorney s Office (USAO) will evaluate all potential civil and criminal enforcement actions on a case-by-case basis in light of the priorities of the Department of Justice and the USAO s available resources. 4 4 On September 5, 2012 the Union Tribune reported that the only remaining permitted medical marijuana collective, operating as Mother Earth Healing Alternative Cooperative in an unincorporated area near El Cajon, closed its doors amid a lengthy legal battle. According to the report, the collective was forced to shutter after its landlord received a letter from the U.S. Attorney s Office threatening fines and seizure of property. 09/12/2012 ITEM #11 9

10 LOCAL SALES TAX IMPOSED ON MEDICAL MARIJUANA INVALIDITY AND JEOPARDIZES COLLECTION OF TAXES The Initiative establishes a two and one-half (2.5) percent sales tax imposed on every transaction involving medical marijuana in the City. California law mandates that cities collect a sales tax of no more than one (1) percent on the sales of goods. Rev. & Tax. Code Sections 7202, If the City imposes a sales tax rate greater that that authorized by state law, the State Board of Equalization ( the BOE ) is required to cease collecting all sales taxes in the City. Id. Section In State Board of Equalization, 78 Ops. Cal. Atty Gen. 26 (1995) (Opinion No ), the City of Ontario adopted a sales tax in excess of one (1) percent on car rentals. The California Attorney General determined that this violated the one (1) percent limit on local sales taxes authorized by the state. Consequently, the Attorney General directed the BOE to cease collecting sales taxes for the City of Ontario. Id. 5 The fact that the Initiative would impose a tax only on marijuana is also problematic. As a general law city, Encinitas only has the authority granted to it by the state to impose excise taxes. No state law authorizes general law cities to approve an excise tax on particular products. Presently, the state has authorized excise taxes on products such as alcohol and tobacco; however, no such authorization exists for medical marijuana. To the extent the taxation scheme of the Initiative is inconsistent with state law it is invalid. See, for example, Debottari v City Council of the City of Norco (1985) 171 CA3d The City Attorney s opinion is that the tax component of the Initiative is invalid and jeopardizes the collection of all sales taxes in Encinitas. CALIFORNIA COASTAL COMMISSION REVIEW It should be noted that if the Initiative is adopted it may be subject to review by the California Coastal Commission. The Solana Beach report raises this subject and it is worthy of consideration in light of the authority cited (California Public Resources Code Section et seq.; San Mateo County Coastal Landowners Ass n v County of San Mateo (1995) 38 CA 4th 523 (involving an initiative amending the local coastal program subject to Coastal Commission Approval)). Since the Initiative would impact the Coastal zone, it is unclear as to whether the Initiative would become effective without Coastal Commission approval. The Solana Beach report notes that in 2011, the City of Laguna Beach submitted an amendment to its LCP banning marijuana dispensaries in all zones to the Coastal Commission and it rejected the ban (6-5 vote). It also notes, however, that in March 2012, the Commission approved the County of Humboldt s LCP 09/12/2012 ITEM #11 10

11 amendment that would allow for indoor residential cultivation of medical marijuana without requiring a permit. My office will continue to monitor this topic as appropriate. CONCLUSION AND MISCELLANEOUS OBSERVATIONS For the reasons discussed above, this report concludes that the Initiative in its present form presents significant legal concerns including: 1) inconsistency with state law under the CUA due to the fact that it appears to require the City to permit dispensaries irrespective of their primary caregiver status, which involves consistent assumed responsibility for housing, health and safety of patients; 2) inconsistency with federal law under the CSA due to the fact that it appears to authorize the cultivation, possession and dispensing of marijuana all of which directly violate the CSA; and 3) purports to establish an illegal sales tax which could potentially jeopardize the collection of all sales tax in the City by the BOE. Other observations related to the initiative include: 1) felons may obtain a permit to operate a dispensary, 2) there are no identified enforcement tools to ensure compliance with operational requirements, 3) City employees administering the Initiative may be subject to criminal actions by the U.S. Attorney, and 4) no provisions exist to revoke permits issued when necessary to do so because of violations. Staff will be available at the meeting to address any impacts related to finances or land use. As described above, the City may challenge the Initiative before or after the election if it deems it necessary or appropriate. Depending on what happens with the neighboring cities initiatives in the 2012 election and the continuing battles in court, the City will likely be in a more favorable position at a later date to determine what actions are appropriate, if any. CC: City Manager 5 We are aware that the BOE informed the City of Del Mar that if the same 2.5 tax measure passed in Del Mar, it is probable that the Attorney General would apply the same analysis as in the Ontario case resulting in the same consequences. 09/12/2012 ITEM #11 11

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