Author Archives: pbrody2015

So What Should California Do with On-Site Consumption?

In the 2016 election, California has important decisions to make regarding legal recreational marijuana beyond simply whether to allow it or not. Where and how consumers access the marijuana market is an equally important consideration that bill crafters and policymakers must give serious forethought to. Luckily, Colorado, Washington and the other legalized states have provided living laboratories for the different means of controlling and regulating a legalized recreational marijuana market.

My past have detailed the different legal and regulatory systems that Colorado, Washington, and other recreational marijuana states have implemented for their marijuana markets, specifically regarding on-site consumption businesses such as marijuana lounges, and how such businesses organize and operate themselves within the crisscrossing legal frameworks created by state anti-smoking laws, local ordinances and regulations, and the requirements of the marijuana bills themselves. From the patchwork of pros and cons observed from each regulatory system, patterns have emerged that can guide California policymakers and bill drafters to best craft sensible recreational marijuana laws that carefully balance the potential for state and business revenue against the perceived social costs and negative externalities of legalized recreational marijuana.

In this post, I will detail the recommendations for how California could craft sensible policy for the creation of on-site marijuana consumption businesses, including retail point of sale consumption (RPOSC) businesses, made throughout my previous blog posts. I will offer further guidance on how marijuana RPOSC businesses—distinct from the marijuana-lounge type enterprise which has been the predominant business form within the fledging marijuana hospitality market—can be used to redevelop areas within cities in a similar manner to the effect craft breweries, wine bars, and urban gastro-pubs have had in underdeveloped areas across the state. I will highlight the potential sales and business tax income that previously legalizing states have left on the table by not providing clear guidelines for the creation of businesses in the secondary marijuana hospitality market. Lastly, I will explain what can be done to best foster an environment where business, local government, and social health issues are all accommodated.

Increased tax revenue from new marijuana markets has been cited by advocates as an important reason to legalize recreational marijuana. Recent reports project the amount made in taxes for the last twelve months by the state of Washington at $44 million, while Colorado projects total revenue for the year since legalization at $69 million. Differences in the way marijuana is taxed in each state account for much of the differences in revenue, although experts still believe money is being left on the table by states who still allow relatively unfettered access to medical marijuana markets which aren’t subject to the same degree of taxation as recreational cannabis, and thus, sell at lower prices. The still substantial black market also still supplies a large share of the cannabis consumed in Colorado: a 2014 Colorado Department of Revenue report stated that of the roughly 130 metric tons of marijuana consumed in the state that year, only 77 tons of it was sold through medical and recreational dispensaries. As increasing data shines light on the potential state and local revenue lost to the black market, California can observe the patterns and better craft the laws governing its recreational marijuana market.

Indeed, in order to avoid many of the problems posed by the black market’s continued existence in recreational marijuana states, California must find a way to convince many of the growers and sellers in its black market to fold their historically illegal or quasi-legal (via the states barely regulated medical system) enterprises into the legal marketplace. This is represented most visibly by the Emerald Triangle in Northern California (Humboldt, Medicino, and Trinity counties), which has a long history with black market marijuana production. Allowing regions and cities to create tourist and entertainment destinations could be one way to convince otherwise reticent regions to join the legal market, especially if federal trademark law eventually allows marijuana entrepreneurs and regions to trademark particular “terroirs” or “appellations” as used in wine to differentiate growing regions, as well as marketing marijuana as specifically from the Emerald Triangle or grown through organic methods or by a particular grower. In fact, organizing the various growers in Humboldt County into a market resembling the wineries in Napa Valley is a goal of the Emerald Growers Association and the California Cannabis Voice-Humboldt, two industry advocacy groups for Northern California and the Emerald Triangle.

Experts such as Mark Kleiman from the University of California, Los Angeles, have also noted that if the increasing supply due to the newfound ease and legality of growing cannabis causes the retail price of cannabis to drop below the roughly $10-$20 a gram in current recreational markets, tax percentages tied to the value of sold marijuana would cause revenues to drop further. He offers two answers: a specific excise tax based on the quantity sold rather than the price, or a tax on the potency of the marijuana gauged via the THC content of the product, similar to the different taxation levels for beer and hard liquor. Taxes such as these could serve to simultaneously squeeze out the black market while reducing societal harms from increases in substance use disorder, similar to other “sin taxes” on cigarettes and alcohol.

While the question of how to correctly tax marijuana to balance the social costs and revenue for the state while maintaining a healthy market is a complicated one (see this series of blog posts by fellow classmate/blogger Alexa Quinn for an in-depth analysis of the tax issues related to marijuana), policymakers should also look for complementary means to generate revenue from the recreational marijuana market. This could be done by allowing the creation of entertainment/hospitality industries serving the marijuana market like the aforementioned RPOSC businesses from my other blog posts. These could be bud-pubs in the style of craft brewpubs, or cannabars attached to marijuana greenhouses like wine bars attached to vineyards in the Napa Valley which were mentioned above as potential industry models.

RPOSC businesses can also provide opportunities for the generation of state and local tax revenues beyond what is traditionally been generated by the cultivator-processor-seller cycle of the marijuana market. For instance, lawmakers could add another level of taxation by requiring taxes to be charged when the grower/processor sells to the RPOSC business like a budpub, and again when the budpub sells to the customer to be consumed on premises. This style of taxation would be similar to the way Washington state taxes its marijuana market, i.e. a sales tax for growers to processors, processors to retailers, and retailers to customers. This tax would be likely be passed onto the final price of the marijuana for the consumer, although if wholesale prices continue to fall as expected in recreational markets, the final price tag would only be slightly higher relative to the price when buying at a retail cannabis dispensary, analogous to the difference paid by purchasing a six-pack of beer or bottle of wine at a grocery store versus a pint of beer or glass of wine ordered from within a social bar setting. Whether the tax is based on a percentage of total sale price, quantity of product, or more sophisticated method like THC percentage would be up to policymakers and as noted above is its own complicated issue.

Fortunately, the organizations who are jockeying to craft the resolution that will be on the California ballot in 2016 have so far understood that the on-site consumption issue is a missing link to a complete and healthy marijuana market. The first submitted version of the proposed recreational marijuana bill for California’s 2016 election, titled “The California Craft Cannabis Initiative,” creates a new agency called the California Cannabis Commission which may develop a licensing system for retail locations where marijuana products “may be purchased, sold, served, consumed, and otherwise disposed of in a licensed premises in a manner similar to licensed premises serving alcoholic beverages,” i.e. RPOSC businesses. The bill also contains various zoning requirements banning craft and commercial marijuana grows from residentially zoned areas, while permitting municipalities to draft additional zoning laws for cultivation, processing, and on-site consumption businesses. This language shows the support and understanding from industry advocates not just for the development of a viable recreational marijuana market, but also for actual RPOSC businesses where cannabis is sold and consumed on premises. Future lawmakers should focus their efforts on the above mentioned form of RPOSC business, as opposed to on-site consumption business-types where customers are only allowed to bring and consume their personally acquired cannabis, rather than cannabis products sold from the cannabar, due to proprietors having to shoehorn their business model within conflicting marijuana laws not designed with on-site consumption enterprises in mind. Hopefully, other future recreational marijuana initiative proposals being written for California will also allow RPOSC businesses.

For municipalities and lawmakers, future RPOSC business forms have a number of advantages over the currently existing smoking lounge format seen in Colorado Springs and Nederland, Colorado. First, allowing the sale and consumption of marijuana on the premises allows for safe and easy monitoring of customer intoxication and age levels via carding and employee monitoring. This is augmented by providing opportunities for the business and consumer to be informed about the particular strains and form of the marijuana product (flower vs. concentrate vs. edible) through labeling and “menus”, and also how it will be consumed (vaporizing vs. concentrate/dab “rigs” vs. traditional smoking vs. eating) in a safe manner.

Second, by allowing these businesses to operate kitchens and/or other forms of entertainment like the pool tables, televised sporting events, parlor games, live music or DJs seen within currently existing lounge or pub-type establishments, the businesses could become profitable and desirable entertainment locations for 21 and up crowds outside of their attraction as cannabis consumption locations. This could reap additional taxes through food and drink sales and the corresponding corporate/income tax increase from a successful business. In addition, if considering the long term development of the area around a RPOSC business standing alone or as part of a larger marijuana tourism district, popular RPOSC businesses could increase property values and the economic activity of secondary businesses in the area (like other entertainment venues and restaurants/eateries) in a manner similar to the revitalization seen caused by new craft breweries in under-developed urban areas within California cities like San Diego, San Francisco and Oakland.

Third, legalizing recreational marijuana into a system similar to how California regulates alcohol and providing social settings for marijuana consumption via RPOSC businesses­ that only allow certified-legally grown marijuana—similar to the manner alcohol is sourced, purchased, and consumed at bars and entertainment venues—would create larger demand for marijuana grown and produced within the legal system. In this system, it is likely that user preference between different marijuana products in the marijuana market would necessitate patented, trademarked or otherwise certified strains, varietals, terroirs, appellations and marijuana business copyrights to handle the vast proliferation of products within the new marketplace.

For various reasons, the current smoking lounges existing in Colorado have not spurred this described proliferation of commercialized marijuana strains and brands. One reason could be because the marijuana smoking lounges in Colorado generally operate by requiring customers to bring their own marijuana products in order to maintain their anti-smoking exemption as “social clubs” under a state’s Clean Air Act (explained in greater depth in Additionally, some businesses that allow on-site cannabis consumption decline to personally sell recreational cannabis products due to local ordinances banning recreational marijuana sales. Although important for black market concerns, business owners have no easy way to determine whether the cannabis products their customers are consuming originate from legal growers, and likely don’t want to know. Thus, cannabis lounges that don’t sell marijuana products would seem to be less effective at stimulating overall tax growth and compliance with the legal scheme for recreational marijuana than RPOSC businesses because the marijuana consumed within is not guaranteed to come from the legal market. The equivalent access to social marijuana lounges, along with the lower prices, provides an continuing disincentive for consumers to purchase marijuana from the legal recreational market; conversely, RPOSC business in California that only sell legally grown and sourced bud, and do not allow in outside products similar to bars, could be a constructive tool for communities to reduce their black market grower and seller populations.

As noted above, future RPOSC businesses should be required to stock marijuana products grown from sellers operating within the legal market as certified by an agency responsible for monitoring that market.  As examples, the previously legalized states have often tasked their agencies controlling alcohol or revenue with the additional marijuana responsibilities. Colorado created the Marijuana Enforcement Division out of its Department of Revenue, while Washington expanded the mandate of its Liquor Control Board to also handle marijuana licensing and enforcement. Oregon vested its Oregon Liquor Control Commission with the authority to implement and enforce its new recreational market. What agency will take the lead in California is unknown, though the concept is clearly in play as evidenced by the California Craft Cannabis Initiative’s aptly named California Cannabis Commission. Whatever agency ends up with lead enforcement should be capable of monitoring simultaneously the production, processing, and retail sale aspect of the recreational marijuana market, and will likely need funding from the state’s budget in addition to a specific percentage of funds allocated from marijuana tax revenues.

Additionally, California’s federal lawmakers should make every possible effort in lobbying the IRS and major banks for changes to the way the financial system treats cannabis businesses. Currently, most business done by marijuana businesses in Washington and Colorado is conducted in cash due to reticence by banks to accept deposits from an industry that is still federally illegal. The IRS does its part in Section 280E of the federal tax code by denying tax deductions from marijuana businesses other than for costs of goods sold even for dispensaries operating within the law in legalized states. As Forbes notes, this means deductions can be taken on “wages, rents, and repair expenses attributable to production activities,” but not for wages, rents or repair expenses related to general business or marketing activities such as the actual maintenance of a storefront for the direct sale and consumption of cannabis products. If RPOSC businesses eventually settle into business and revenue cycles similar to bars and restaurants, they will need access to deductions from their state and federal taxes to remain viable investment and business opportunities.

Lastly, the interaction between RPOSC businesses and California’s Clean Indoor Air Act must be legislatively clarified to provide clear guidelines to future businesspeople who seek to invest in the cannabis entertainment and hospitality industry. The California Craft Cannabis Initiative’s language makes no mention of how the Clean Air act affects the potential business forms taken by RPOSC businesses, just that the Commission “may” create licenses for a business where cannabis is consumed onsite.

As I mentioned in my previous blog post, current guidelines (PDF) issued by the California Attorney General at the end of 2011 indicated that serving food or drink relegates the “primary purpose” of smoking-related business away from “smoking,” which previously qualified them for the workplace exemption to the Clean Indoor Air Act. This provision could be an issue for RPOSC businesses seeking to allow marijuana smoking inside their business, as they could not qualify for the same exemption that hookah bars and cigar lounges receive. This could be solved via a simple legislative amendment, though holding the California legislature to the same level of political cooperation and proactivity displayed by the Colorado and Washington legislatures in legislating fixes to their respective recreational marijuana markets seems an unsafe bet at best. It would be easier to write the amendment into the final initiative’s language, although this would make future efforts to amend it difficult due to the vagaries of the California initiative system.

All in all, California has a number of options about how to create a viable marijuana market in 2016 that addresses issues raised by the states that have previously fully legalized marijuana. However, it will require political will and cooperation between the various interested factions within the California marijuana market, from southern California storefront retailers to Bay Area intellectual property entrepreneurs on up to Emerald Triangle growers and cultivators to properly create a uniquely Californian market that best serves California’s varied regions and constituents, while simultaneously providing a successful example for recreational legalization efforts across the country. Along with many other important decisions in the 2016 election, California’s voters will get an opportunity to collectively choose their state’s future and relationship with legal recreational marijuana: hopefully, this blog has educated you, the reader, be you citizen, policy maker and/or entrepreneur with a stake in the market, about the efforts being undertaken now and in the past to shape the form and nature of the nascent marijuana market by California and her sister states, and what relationship we, as citizens, want our state to have with recreational marijuana.

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The Creation of an On-site Cannabis Consumption Business

In my last post, I described the different laws and regulations that governed the creation and existence of nascent marijuana businesses allowing on-site consumption in states that have recently legalized marijuana for recreational use. As mentioned before, my goal is to highlight the pros and cons of each state’s regulatory efforts for on-site consumption businesses in order to provide an informed vision for California citizens and policymakers on what forms our state’s future marijuana market could take. In this article, I will describe the specific types of businesses currently allowing on-site consumption in Colorado and Washington with an emphasis on the legal processes they went through to gain approval, and, briefly, introduce how similar businesses could exist within California’s current regulatory system.

As highlighted in my previous article, a combination of specific statutory prohibitions on on-site consumption and inherent difficulties in establishing compliance with clean indoor air acts has largely prevented the creation of businesses allowing on-site marijuana consumption in Washington and Colorado. In addition to a number of marijuana-friendly hotels and private tour services, Colorado has made the most progress along this front, with bona-fide on-site consumption locations in Nederland, Denver and Colorado Springs. Washington offers a few similar marijuana-friendly hotels, alongside a small but growing number of private tour bus services.

So how exactly have these businesses gone about navigating the changing and oftentimes unclear laws governing these new types of marijuana businesses?

In Colorado, the majority of all storefront on-site marijuana consumption businesses could aptly be described as private “marijuana lounges/clubs,” where customers bring their own marijuana products to consume socially, but marijuana is not sold on site. In this form of on-site consumption businesses, the clubs charge a small fee or “dues” to become a member, which then provides access to a “private” club area where cannabis can be consumed socially with either the lounge’s or an individual’s personal smoking/vaporizing devices.

The structure of this type of business is important in two ways. First, by ensuring the business complies with legal requirements classifying it as “a place of employment that is not open to the public and that is under the control of an employer that employs three or fewer employees” under section 25-14-205(h) of Colorado’s Clean Indoor Air Act, they fall under an exception to the smoking restrictions. This was the initial legal pathway taken by Club Ned in Nederland, CO. Club Ned’s attorney, Jeff Gard, noted in an article published about the club in Boulder, Colorado’s Daily Camera that he found inspiration for how Club Ned could comply with state and local laws by modeling its business model off of Veteran of Foreign Wars posts that allowed members to smoke tobacco products inside. This included additional requirements imposed by the local municipal zoning code to qualify as a private “club,” such as having a certain percentage of their revenue come from member dues, a very small number of employees, and having members bring their own cannabis products.

An important reason why Club Ned bills itself “America’s first legal cannabis club” is the steps it took keeping city, fire, and local law enforcement officials informed and in the loop during the entire development of the business. “We went to the town. We went to the Marshal. We went to Jeff Gard, our attorney. He talked with the (district attorney) and we basically got everybody’s approval,” co-owner Cheryl Fanelli said in an interview to 9News Colorado.

Indeed, part of the Fanelli’s efforts to get Club Ned approved by local authorities involved having Mr. Gard lobby to amend the Clean Indoor Air Act to add marijuana to its covered provisions. These amendments were passed in Senate Bill 13-283 in section 13 and 14, along with a number of others related to the legal marijuana market. This effectively brought marijuana lounges like the ones the Fanelli’s sought to create into compliance with the Clean Indoor Air Act as long as they could properly qualify for an exception within the code.

How a business is structured and operated is also important for compliance with local zoning ordinances: designing a private club-style on-site consumption business that is exempt from the state’s clean indoor air act is all well and good until your municipalities local zoning code doesn’t allow for private social clubs, or requires additional indicia of a social club that your business doesn’t possess. Because zoning ordinances are important tools for municipalities to control the nature and character of their communities, future on-site consumption lounges will likely have to navigate disputes with local city councils and Planning/Code Enforcement boards.

This was the regulatory hurdle experienced by StudioA64 owner K.C. Stark in Colorado Springs, CO. Mr. Stark, as explained by his attorney Charles Houghton during an initial appeal with the City of Colorado Springs Planning Commission (PDF of Planning Commission Record of Decision), opened StudioA64 as a private social club for enjoying discussion, art classes, and listening to live music and comedy while selling non-alcoholic beverages and allowing the on-site consumption of marijuana, with the on-site consumption of marijuana noted to be  “ancillary” to the other activities at the membership club. The City issued StudioA64 sales tax licenses when he opened in February 2013, and left Mr. Stark to his own devices until he was issued a Cease and Desist order from the Code Enforcement division of the Colorado Springs Police Department. The order stated that “a marijuana smoking establishment is not an identified use within the City of Colorado Springs Zoning Regulation nor is the use recognized as a permitted or a conditional use within the Zoning District.” Later testimony from the City clarified their position that they did not believe StudioA64 was within the definition of a “social club” defined in the “Civic Use Types” of the Colorado Springs City Code Section7.2.302.D.3. Instead, city staff defined the business as a “marijuana-smoking facility” which they argued had not been defined, permitted or conditionally permitted under the City code or the Downtown Colorado Springs Form-Based Code.

After the City Planning Commission granted Mr. Stark’s appeal, the City of Colorado Springs administration exercised its authority via its city planning division to appeal the decision.  The City cited the erroneous decision by the Planning Commission to classify the business as a “civic use” under the zoning code, and, as they had argued before, insisted it was a “marijuana smoking facility” not defined, permitted or conditionally permitted under the city code. Additionally, they further clarified that because StudioA64’s primary purpose (in their view, smoking marijuana) was not “one that could be described as strongly vested with public social importance” such as other educational, recreational, cultural, medical, protective, utility or governmental purposes, within which private social clubs usually fall. By pointing out that the city regulates and has established additional standards for medical marijuana facilities, liquor sales, and bars within the city, the city argued that the intent of the zoning code was clear in regards to facilities that contain or sell marijuana products, as specific use definitions and standards had already been promulgated for those types of businesses.

The City Council, sitting as a quasi-judicial body, held the appeal at an open City Council meeting on April 22, 2014. (Video of city council meeting). With no citizens supporting the appeal besides the city attorney tasked with defending the administration’s position, the City Council rejected the administration’s appeal by a vote of 5-3 with one abstention, and subsequently directed city staff to draft an amendment to the City Code for standards and regulations for similar businesses of this type. At the heart of the decision was the city’s agreement with Mr. Stark and Mr. Houghton that StudioA64 was a social club serving a civic use and purpose(PDF of City Council decision), further evidence by Mr. Stark and the long line of supporters for A64 that noted its importance as a center for political debate, peaceful assembly, and social interaction beyond simply consuming cannabis (video of march to city council meeting and StudioA64 owner KC Stark speaking to the Colorado Springs City Council during the appeal ).

With that City Council decision, the landscape for on-site consumption businesses in Colorado Springs was solidified, and today, there exist multiple smoking lounges within the city. Some of the lounges, such as the Lazy Lion, now even provide cannabis and cannabis products through complicated membership schemes to members who “redeem” their tracked “donations” to the club via a point system, making that lounge as close to the envisioned RPOSC business as this author has yet found.  While this development is again raising eyebrows among Colorado Springs lawmakers and administrators, no new progress has been made drafting revised regulations to control and monitor the operation of these new businesses.

So what can California learn from all this? For one, it’s that entrepreneurs seek hard and fast rules for their businesses, but will not necessarily be stopped by unclear or non-existent rules.

Second, requiring a cannabis club to conform to regulations guiding private social clubs rather than allowing them to operate more like cigar or tobacco bars creates artificial barriers to profits that marijuana lounges are required to follow in order to remain in compliance with local anti-smoking ordinances and municipal zoning requirements. If California wants to allow on-site consumption businesses, especially as a tool for a community’s economic redevelopment, policy makers should craft regulations specifically for their existence, alongside clarifying that exemptions to California’s Clean Indoor Air Act for tobacco related businesses would also apply to similar businesses serving marijuana as well. This would enable businesses seeking to allow on-site consumption to operate as retail point of sale consumption (RPOSC) locations that could sell locally grown and sourced marijuana, all properly taxed and regulated by the local municipality.

Policymakers should also relax current requirements applied to tobacco bars, hookah bars, and smoke shops that indicate serving food or drink relegates the “primary purpose” of smoking-related business away from “smoking,” which qualifies them for the workplace exemption the Clean Indoor Air Act (PDF of California Attorney General Opinion). This would allow for the creation of other on-site consumption business forms that wouldn’t currently be exempted from workplace anti-smoking laws, like gastro-budpubs pairing particular cannabis strains with gourmet menu offerings in a manner similar to current alcohol/food pairings. This would allow greater freedom for entrepreneurs as to what form their business allowing on-site consumption would take, including making it easier for a pure RPOSC business to exist without the legal hula-hoops of rationalizing “membership points” and “donations” to sell a legal product to consenting adults.

These, among other possible ideas I will discuss in my next post, are good starting points for managing and regulating a nascent on-site consumption industry in California. In my next post, I will go into detail about the specific things California lawmakers can do to best prepare our state’s regulatory system for on-site and RPOS consumption, including potentially creating additional enforcement agencies like the Colorado Department of Revenue’s Marijuana Enforcement Division, or adding additional enforcement jurisdiction to the California Department of Alcoholic Beverage Control to monitor future RPOSC businesses.

Current Regulation of On-Site Marijuana Consumption in Other States: What can California learn?

With the legalization of marijuana in four states and the District of Columbia, policymakers and citizens have had to address the important question of where we should allow adults to consume legal marijuana. Within a legalized state, where marijuana possession and consumption is a commercial act rather than a criminal one, it is important that potential marijuana smokers have clear rules delineating where they may and may not consume marijuana. How policymakers have and will address this question says a lot about how a state’s relationship with marijuana will develop, what forms its legal marijuana market will take, and if retail point of sale consumption businesses (RPOSC) will be allowed within the new marketplace.

Current municipal medical marijuana regulations in California, and the vast majority of Colorado and Washington municipalities, expressly ban on-site marijuana consumption at dispensaries and cannabis clubs. As I’m highlighting with this article, this has created issues both for adults who come from out of state and are staying at hotels or other multi-unit buildings, and citizens of the state who do not own single-family dwellings that are exempt from state anti-smoking ordinances (see, e.g., Colorado’s Clean Indoor Air Act and its medical marijuana amendment, and Washington’s Inititative 901 which extended the state’s smoking ban to indoor locations like bars and restaurants).

Such state and municipal smoking bans, originally aimed at tobacco smokers, have largely been interpreted to also cover medical and legal marijuana smoke, although a few municipalities in California, like San Francisco, have passed resolutions strengthening the smoking bans while clarifying that valid medical cannabis dispensaries are exempt. Indicating further progress, Anchorage, Alaska recently became the first U.S. municipality to expressly allow “hash cafes” by regulation, alongside the group of “cannabis lounge/bars” that have popped up in Colorado Springs, Colorado.

However, placing limits on where to consume cannabis is an ongoing issue for the vast majority of the municipalities in Washington and Colorado since their marijuana laws went into effect. While Colorado allows anyone 21 and older to purchase marijuana at licensed retail stores, they simultaneously ban the on-site consumption of marijuana or marijuana byproducts on dispensary grounds, while also providing authority via the Colorado Constitution Article 18 Section 16-6(d) for landlords and other property owners to ban/regulate marijuana usage and possession on their private property.

Colorado’s legislation also left room for cities and municipalities to craft specific regulations for their area. For example, both the city of Denver, in section 24-408 of its municipal Health and Sanitation code, and Boulder,  in section 6-16-8(a) of its Health, Safety, and Sanitation code, promptly took the opportunity to clarify Colorado’s ban of public consumption to extend to specific on-site consumption bans for retail locations. Washington also bans on-site consumption at licensed marijuana retail locations (section 14(5) of the enacting legislation).

The result of the already existing smoking bans, plus the ongoing battles around official definitions of “public consumption” written into regulations drafted by local municipalities, have led to cannabis consumption being largely restricted to private single dwelling homes, even in states that have legalized marijuana’s possession and consumption. The lack of places to consume cannabis has even been reported to lead to an increase in negative outcomes for marijuana users: without a place to smoke or vaporize cannabis, they instead eat an edible, which for inexperienced users can be problematic.  (An article on the difference between smoking marijuana and eating marijuana edibles notes that onset of effects can take anywhere from a half to two hours versus the near instant impact of smoking or vaporizing). But should consumption be limited to the privacy of a specific type of home, to the exclusion of people who don’t have similar access? For the marijuana market, what does that mean for adults who wish to travel into the state for potential “marijuana tourism” and for individuals who don’t live in or have access to places where they can consume cannabis products legally?

In Colorado, tourists travelling into the state to engage in cannabis tourism are limited as to where they may consume their newly purchased marijuana. A secondary market has sprung up offering “marijuana tours,” where a tour van or limo drives paying customers from dispensary to dispensary in a manner similar to a wine tour, thereby allowing the passengers to enjoy their purchases in between destinations within the “privacy” of the vehicle.

For a marijuana tourist, the question of where to sleep after such a tour is important. As noted above, the Colorado Constitution allows private property owners to ban marijuana use and possession on their properties. This includes hotel owners who may wish to prohibit individuals who are merely in possession of marijuana from staying on their premises, not just those who wish to consume it there. The Colorado Clean Indoor Air Act limits smoking in hotels to 25% of the available rooms, so even if entrepreneurial business owners wanted to establish a marijuana-friendly hotel, they would still be limited in their ability to do so. Washington has a similar 75% for rooms in a hotel under their smoke-free requirement in its Clean Air Act, although the Washington Lodgers Association, a trade association for the states hoteliers, has made no additional recommendations besides suggesting that hotels promulgate a clear marijuana policy for their guests. Despite the lack of clear rules, online searches for hotel rooms in legal marijuana states have soared close to 50% as more and more people see marijuana-friendly states as viable vacation sites, providing willing and entrepreneurial hoteliers a growing market to cater to.

In addition to the current businesses mentioned above, it seems there are opportunities to alleviate these consumption issues through the responsible development of businesses allowing on-site consumption. RPOSC businesses such as “budpubs”, “cannabars”, and “vape lounges” that I mentioned earlier in the article and in my first post could simultaneously alleviate public-use issues, generate additional tax revenue for the state, and serve as lynchpins for economic redevelopment.

Currently, in legalized states and for California’s medical system, municipalities may lawfully restrict the locations where dispensaries exist. For Colorado, the combination of local zoning restrictions prohibiting dispensaries within residential and main street zoning areas, plus a required 1000 feet separation from schools, childcare and rehab facilities, has resulted in dispensaries usually being located in the outskirts of urban areas generally zoned for commercial and industrial uses. Some observers, like Professor Jeremy Németh from the University of Colorado Denver, have pointed out this often means dispensaries are located in socio-economically disadvantaged areas, whose residents are unable to mount the “not in my backyard” campaigns to local civic and economic leaders in order to have the dispensary located elsewhere (Read the full paper . While retail point of sale consumption businesses will no doubt face similar outcries, being able to elucidate the beneficial elements of redevelopment through “green” entertainment districts with RPOSC locations to these areas will certainly help create a positive response. Already, elected officials have realized the value of retail medical marijuana facilities in their localities: Professor Németh’s paper mentions Oakland Councilwomen Rebecca Kaplan, who cites medical marijuana businesses as a key driver of revitalization of the Uptown neighborhood in Oakland that had previously been vacant and underdeveloped. This same value, if properly regulated, can be derived from RPOSC businesses as well.

For the creation of RPOSC businesses to be beneficial to the quality of life and economic health of a community, there must be a comprehensive system for zoning and regulating where these businesses can exist. This must include plans in advance for limiting the potential negative side effects such as public over-consumption, smell, and increased loitering and foot/vehicle traffic, and maximizing the positive benefits they can bring to a community through increased land values, increased economic activity continuing into secondary markets like entertainment venues and restaurants, and  more  jobs.

If California legislators and city government officials look to the already prosperous examples of craft breweries, wineries, wine bars and brew pubs, they may realize a successful model already exists, currently overseen by the California Department of Alcoholic Beverage Control, to regulate future on-site consumption businesses. However, future RPOSC establishments in California must confront another regulatory hurdle besides zoning: our state and local indoor smoking bans.

As mentioned above, Colorado and Washington both ban the indoor smoking of tobacco through their state clean indoor air acts. Additional amendments later extended these provisions to also cover marijuana. However, within both acts are a few exceptions. For instance, Colorado has exemptions for “cigar-tobacco bars” and workplaces not open to the public with 3 or fewer employees in section 25-14-205 of their Clean Indoor Air Act, while Washington provides almost no exemptions beyond that for private residences and certain private workplaces under section 70.160.060 of their Clean Indoor Air Act.

In Colorado, this exemption for workplaces not open to the public has been used by at least one private marijuana lounge, Club Ned in Nederland, Colorado. According to Club Ned’s attorney Jeff Gard in an article published about the club, the major hurdle to opening a cannabis café was the state’s Clean Air Act. But he found inspiration from the way Veterans of Foreign Wars posts allowed members to smoke indoors: if they could structure their business as a private, members –only club, with restrictions such as membership dues, having a certain percentage of their revenue coming from those dues, few employees, and members bringing their own cannabis, they could operate within the Clean Indoor Air Act. After working out additional zoning issues with the town of Nederland, the club opened in April 2014 and has operated successfully ever since.

Because similar restrictions on indoor smoking exist within California’s Clean Air Act, along with similar exemptions for tobacco shops and smokers’ lounges, any RPOSC businesses in California would have to fall under existing regulations or seek to have additional exemptions created for them. In order to qualify as a smoker’s lounge or tobacco shop under the California Indoor Clean Air Act, the business’s “primary purpose” must be the smoking or sale of tobacco products. The California Attorney General in 2011 issued an opinion on this meaning by clarifying that food or alcohol cannot be served at a smoker’s lounge or tobacco shop, or it alters the primary purpose of the establishment away from tobacco sales or consumption, thus losing its exemption under the Clean Air Act. Similarly, the California Attorney General also found that bars and taverns with 5 or fewer employees were not exempt from the Act and thus could not allow smoking within the building. Unless new exemptions are created for any potential marijuana RPOSC businesses, the above restrictions provide tough but not insurmountable restrictions on creating and running a potential marijuana lounge.

Another potential avenue for a marijuana RPOSC business comes from the idea of a “vaporizer lounge,” which could potentially avoid the restrictions on smoking inside businesses. However, with the rising popularity of e-cigarettes, California has been wrestling with the idea of banning their use entirely. A recent bill in the California Senate by Senator Mark Leno of Sacramento would seek to broaden the definition of “tobacco product” in the current anti-smoking laws to include electronic cigarettes in order to ban them in bars, restaurants, hospitals and other workplaces. However, there appears to be an exemption for medical marijuana, as the bill states that its “provisions do not affect any law or regulation regarding medical marijuana.” What effect this would have on the potential for legal marijuana on-site consumption businesses is unknown, but either way, requiring that RPOSC businesses only allow vaporizing of marijuana would be a possible compromise clarified by the legislature and/or a loophole in the law for businesses to exploit.

In my next article, I will focus in-depth on the growing handful of RPOSC businesses in legalized states that are currently dealing with similar zoning and regulatory issues, and what lessons can be learned by future similar businesses and municipalities in California as to where and how to zone where such RPOSC businesses can exist for the betterment of both the business and municipality.

Let’s Go to the Cannabar: On-site Cannabis Consumption in California

Once only a distant dream of social activists and enthusiasts, the reality of completely legal marijuana in California now appears to be a distinct possibility with the upcoming 2016 election. (Recent polls here and here) If California goes the route of an increasing number of Western states, whose ranks swelled to four with the recent 2014 midterms (adding Alaska and Oregon to Colorado and Washington, who officially legalized in 2013), Californians will be able to legally purchase, grow, possess and consume marijuana without the doctor’s prescription currently required under Proposition 215.  Many important questions regarding the specifics of commercial marijuana cultivation and processing have been addressed by the legislatures of those previously enacting states, with more tweaking no doubt in store for California’s bill writers and legislators.

Fortunately for California, Colorado and Washington started their experiments with legalized marijuana markets first. This allows us glean important lessons and determine shortcomings within their regulatory schemes that California can improve upon if it votes to legalize. Specifically, the question of where to consume legal marijuana has dogged citizens and legislators alike in those first two enacting states. This presents an important opportunity for California to make its own mark on the progress of marijuana legalization, or more specifically, to determine the relationship California’s citizens want our state to have with legal marijuana consumption.

With this blog series, I will seek to shine light on the important issues behind that where question. I’ll detail the concept of what I call “retail point of sale consumption” (RPOSC), e.g. the consumption, smoking or otherwise, of cannabis on the site of a commercial venue created to socially enjoy marijuana. What potential forms those commercial entities eventually take is largely dependent upon how California crafts our regulatory schemes for marijuana, and what effects our current state and local anti-smoking ordinances will have on any potential RPOSC businesses; however, we can look to similar business entities (or the lack thereof) in Colorado, Washington (no longer operating as on site consumptions locations), and Amsterdam to gain a feel for what RPOSC could look like in California.

As mentioned, inherent to the where to consume legal marijuana question comes the important discussion of how California’s citizens envision their state’s relationship with marijuana. Do we see it as a “sin” product to be taxed and regulated similar to alcohol and tobacco? Or is there something socially or physically dangerous about marijuana consumption that warrants removal from the social/public sphere to a degree greater than alcohol or tobacco? While my classmates may dig deeper into those particular tax or moral questions, they are salient to addressing the utility versus social cost of allowing marijuana consumption to be brought out of the privacy of the home and into specific use lounges and social establishments.

If Californians decide that RPOSC is a good idea, what forms will it take? California could copy its current commercial marijuana entity, the medical dispensary, and perhaps expand currently existing exemptions for tobacco lounges (under state and local anti-smoking ordinances like AB13 enacted by the CA legislature in 1995) to allow marijuana consumption (via smoking, vaporizing, or eating) on those sites.

Marijuana businesses similar to actual cigar lounges could also be feasible, and do not depart far from currently existing business models. By age restricting access, and maintaining a closed venue with proper ventilation, marijuana enthusiasts could purchase marijuana buds or pre-rolled joints similar to a purchase made at a tobacco or cigar store, and stay to enjoy their purchase.

If Californians desire, they could embrace more commercially advanced forms of RPOSC. Marijuana “lounges” like “The Lazy Lion,” a lounge/social club in Colorado Springs, CO, sell daily or monthly “memberships” to access the private interior of the lounge. Inside, enthusiasts  have access to multiple video games systems and TV’s, an expansive selection of bongs and pipes, a DJ, different marijuana strains available for purchase, and a sophisticated concentrate (“dabs”) bar offering “happy hour” prices from four to five every day. Replace the marijuana sales with craft beer, and the above description could very well be about a well-appointed bar currently found in a California urban area where an individual may go to enjoy an alcoholic beverage.

To extend the bar example, the hypothetical California “cannabar”/ “budpub” could sell marijuana that they or those in their local area grew, noting to customers the particular flavors and production process for different strains in a similar manner as the vintner, brewer, or bartender may do for a wine, beer, or spirit. The “craft” model of beer in California and other states has created a lucrative and growing industry of breweries, gastro-pubs, and restaurants that has revitalized formerly undesirable areas in Oakland and San Diego, usually zoned for industrial/commercial uses; why can’t this same model be applied to marijuana production and sales, with a new generation of “bud-pubs” serving the same upscale, organic, locally-sourced food and marijuana from reputable local farmers and marijuana cultivators (or even the business’s personal grow) that current craft beer breweries and pubs tout?

Questions on the forms and functions that businesses offering RPOSC could take are important to answer if and before we legalize, as having a well-planned legalization scheme can benefit the state by providing firm rules for entrepreneurs and investors to rely on if they intend on investing any sums of money into RPOSC and other cannabis related businesses.

Finally, despite our state’s long social history with marijuana, including the aforementioned Prop. 215, California was not in the first group of states to fully legalize. While placing out of the top four is not ideal if looking for Olympic medals, in California’s case, slow and steady could indeed win the race. But how can California win the race when starting years behind? The answer: create business-savvy marijuana laws that provide the greatest benefit to our state and local communities, while identifying and minimizing social costs. If RPOSC is balanced correctly and intelligently, our regulatory model could serve as an example for states and communities around the country to allow the safe, effective and lucrative operation of retail point of sale marijuana consumption businesses.

-Philip Brody for the Drug Law and Policy Blog

California’s Retail and Commercial Future with Legal Marijuana

If California legalizes marijuana in 2016, her citizens will have to decide a number of important questions as to the nature of marijuana sale and consumption within her borders. To address this, my writing will focus on questions regarding the potential future existence and regulation of retail point of sale cannabis consumption. Will marijuana be sold exclusively in the classic “dispensary,” with actual consumption of the marijuana allowed only within the privacy of the home, or will there be commercial establishments where cannabis can be bought and consumed socially on premises, similar to a bar serving cigars or alcohol? I will explore contemporary examples of point of sale consumption in Colorado and Washington, and how the interplay between local zoning laws and state and municipal smoking bans could affect the existence of similar businesses in California. All told, I intend my writing to illuminate the difficult choices Californians will need to make about their state’s future societal and commercial relationship with legal marijuana.

My name is Philip Brody, and I’m a current 3L at Santa Clara University School of Law. More importantly, I’m a native Californian who loves and cares about the future of my state. We Californians will have a number of very important electoral decisions to make in 2016, with marijuana legalization being among them. Through the Drug Law and Policy Project, I hope to provide a practical envisioning of what forms a future California could take with safe, legal marijuana.