Tag Archives: marijuana

280E and Recreational Cannabis: It Keeps Coming Back to This

As California nears a ballot vote on legalizing recreational cannabis, the Ninth Circuit has ruled on the very important issue of whether cannabis businesses may deduct their business expenses. While the case, Olive v. Comm’r, dealt specifically with a medical cannabis business, it has far-reaching implications for future cannabis businesses (regardless of whether they’re medical or recreational). Deductions allowed for business expenses are the keystone tax benefits and incentives for taxpayers to run their own businesses. Without these deductions, running and owning a business becomes an even more cumbersome and costly endeavor. This, in turn, diminishes incentive for current black-market participants to enter the legal sphere. (See my previous post for a discussion on why these consequences should matter to all Californians, proponents and opponents of legalization alike).

On July 9, 2015, the Ninth Circuit affirmed a previous Tax Court decision denying a medical cannabis dispensary the typical tax deductions afforded for ordinary and necessary business expenses. Petitioner, herein referred to as Taxpayer, owned a medical marijuana dispensary and was denied deductions for his business expenses because his particular business fell under one very consequential exception of the Federal Tax Code: section 280E. Despite months of speculation as to whether Section 280E applies to cannabis businesses, it is now clear that it does apply to medical cannabis businesses, and, based on the rationale of the Court, will apply to recreational cannabis businesses as well.

For those unfamiliar with section 280E, it specifically prohibits deductions for business expenses incurred where the  “trade or business” consists of trafficking controlled substances prohibited by federal law. The Controlled Substances Act classifies cannabis as such a substance and federally prohibits its use or sale. Marijuana businesses are required, like all other businesses, legal or illegal, to adhere to both state and federal tax laws. 280E changes liability substantially: cannabis businesses have to capitalize the cost of the business expenses and have to wait until the product is off the shelves to report the “Cost of Goods Sold” (COGS). The items that constitute COGS are much more limited than the plethora of expense types typically allowed under the business expense deduction. COGS, for example, include the cost of purchasing inventory (or product such as cannabis flower), and storage. In contrast, the business expense deduction includes rent, employee wages, and insurance, among others.

In Olive v. Comm’r, Taxpayer argued that 280E should not apply and he should be allowed to deduct his business expenses. His argument relied on recent federal directives (e.g., the Cole Memorandum, 2015 Appropriations Act (128 Stat. 2217), etc.), which cumulatively give states the latitude to implement legalized cannabis systems without federal interference. The Court disagreed and pointedly explained that the applicability of section 280E to cannabis businesses is wholly separate from recent federal directives regarding the enforceability of federal preemption of statewide legalized cannabis systems. The Court’s opinion rested on the statutory interpretation and authority within section 280E, and the meaning of “trade or business” as used in the tax code.

First, the Court opined that recent federal directives regarding cannabis do not preempt or reverse the current statutory law governing tax deductions for business expenses. The determination of whether section 280E applies to cannabis businesses is a matter of statutory interpretation of section 280E and the Controlled Substances Act (CSA). To date, Congress has not amended or repealed the CSA. Thus, the sale and use of cannabis remains prohibited by the CSA, i.e., federally prohibited. And, as mentioned above, section 280E specifically precludes deductions for businesses whose “trade or business” consists of activities that are federally prohibited. The language of both federal provisions is simple and easy to interpret. The Court found that the first prong, as to whether the “trade or business” was federally prohibited, applied, and therefore prohibited the taxpayer from deducting his business expenses.

Next, the Olive Court defined “trade or business,” saying an activity constitutes a “trade or business” where the activity was entered into with the dominant hope and intent of realizing a profit. 792 F.3d 1146 at 1149 (citing 477 U.S. 105) (emphasis added). The Court was clear that Taxpayer’s sale of medical cannabis was the only activity that met the “trade or business” standard as it was the only one that generated income. The Taxpayer’s business offered patrons other services including, but not limited to, yoga, counseling, and food and drink. However, all of those activities were offered free of charge to patrons. Thus, the Court concluded that the free services were clearly not offered with the dominant hope and intent of realizing a profit. In the Court’s view, Taxpayer’s only “trade or business” was the sale of medical cannabis.

The Court recognized that the taxpayer’s business was legal on the state level. However, federal law still controls where the issue being litigated deals with federal tax law. Despite federal directives that have eased or eliminated enforcement of the CSA, the law is still the law in this court’s eyes. And unlike other tax codes, section 280E uses clear and plain language. There is no other way for the Court to interpret such a statute. Unfortunately, recreational cannabis also clearly falls under the CSA prohibition and therefore to section 280E. Thus, the analysis used here will remain the same. Section 280E will continue to pose a costly problem for cannabis businesses.

Although the Ninth Circuit’s ruling is legally sound, it is a disappointing outcome for cannabis businesses held in the states comprising the circuit. It also sets a strong precedent for other circuits to follow. For California, however, this ruling comes at an opportune time as it and a number of its sister states prepare for the so-called inevitable legalization of recreational cannabis. Armed with the knowledge that 280E will apply to cannabis businesses, California can take a more proactive approach and establish a state tax model that considers the effects section 280E will have on its local businesses.

States embarking on legalizing recreational cannabis should recognize the 280E problem and realize that it will continue to cost cannabis businesses more than those in other industries. Implementing a new recreational cannabis system with high State taxes will win votes and may draw in high revenues initially, but such a system will only make it more challenging for small businesses and new business owners to remain profitable and open for business. High taxes also do not help educate users on safety or help diminish the social harms associated with cannabis use. (See “Cigarettes and Booze” for the full discussion on this topic). Lower taxes or incentive programs that include state tax credits for compliance, on the other hand, are great options to relieve recreational cannabis businesses from the cumbersome consequences of 280E. Incentive programs and State tax credits can also be especially useful for encouraging “best practices,” or compliance with regulations that are specifically designed to lower specific social harms. (See my earlier post for examples from the tobacco and alcohol industries). From a business and economic perspective, they could also lead to a more stable industry by allowing businesses to flourish and thereby remain in the legal market. Above all, such options incentivize market participants to enter the legal sphere, and will help small businesses grow within California.

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Marijuana Patients Facing Eviction: Responding to an Eviction Action

A recent article on Canna Law Blog touched on aspects of the landlord/tenant relationship that have been taking center stage in the marijuana policy debate in states where recreational marijuana or medical marijuana has been legalized. The article correctly provided a detailed overview of eviction actions as they apply to marijuana dispensaries and importantly focused on the specific laws and regulations that govern commercial tenancies. As marijuana dispensaries pop up throughout the United States, a multitude of legal issues will arise with them. For example, are all marijuana contracts illegal as contrary to public policy? In other words, given that marijuana is not yet legal at the federal level, are people who contract with marijuana dispensaries forming an illegal, unenforceable contract? These questions will be addressed in articles to come.

For now, I will focus on one specific contract: the tenancy lease. Many articles have correctly analyzed issues arising out of commercial tenancies (such as dispensaries). While some articles have accurately indicated that commercial evictions are often based on allegations of “illegal activity,” many have improperly classified the issues as applicable to all landlord and tenant relationships. I intend to set the record straight.

This article is part two of a mini-series that examines the substantive aspects of eviction actions filed against tenants who use marijuana. It will provide tenants with a detailed description of the arguments a landlord may make in an eviction action for marijuana use.

Part one gave tenants some background on their right to a jury trial and encouraged tenants to use this right to leverage negotiations in their favor. Over the past two years of both attending court to assist in client representation and observing the unlawful detainer calendar on a weekly basis, I have seen only ONE defendant request a jury trial. The judge in that case firmly declared that he would never deny a defendant’s right to a trial by jury. I was motivated to write the last article because the judge’s statements caused a change in the landlord attorney’s attempt to reach an agreement and negotiate the case. The landlord attorney walked back and forth between the defendant and his client in an attempt to get them to reach an agreement so as to avoid the lengthy (and might I add, expensive) trial.

The goal of this article is to provide tenants with additional leverage in settlement negotiations. As described in the pervious article, there are many benefits to settlement such as: reduced expenses, reduced stress, privacy, predictability, saved time, and (perhaps most importantly) flexibility with regards to the outcome. While a judgment may be legally correct, the outcome may not always be fair to both tenants as one will ultimately end up with nothing (other than a hefty attorney bill). Settlements allow for both sides to potentially reach terms that are mutually beneficial. Ultimately, this article will provide tenants with information that, if used in negotiations, will result in fair outcomes.

First, I will examine the specific laws that allow a landlord to begin an eviction action. Second, I will explain what the laws mean for a tenant and how a landlord may use the law against a marijuana user. And third, I will lay out the potential arguments to be raised by the tenant.

Disclaimer: This post is intended to provide general information about your rights as a tenant. It should not be understood to provide legal advice. Should you receive any court documents, please contact an attorney regarding your particular issue.

The Law: Evictions in General

As discussed in my previous articles, an unlawful detainer action (eviction action) is the process by which a landlord may legally evict a tenant. Evictions arise for many reasons. Perhaps the most common are non-payment of rent and breach of the lease agreement.

Under California law, and for the purposes of this article, a landlord is a person who owns a residential rental unit. The landlord rents the unit to a tenant for that tenant to live in. The only person or entity that has standing to evict a tenant is the owner of the property. As discussed earlier, the landlord may evict tenants for their actions as well as their guests’ actions. In most instances, a tenant’s guests are, in the eyes of the law, an extension of the tenant named on the lease agreement. Unlike standing, where only the landlord may begin the eviction action, if a tenant’s guest is smoking marijuana on the premises, the law views this as if the tenant himself is the one smoking marijuana.

What Gives Rise to an Unlawful Detainer Action?

Eviction actions in California are governed by the California Code of Civil Procedure Section 1161(3). This section provides that a tenant who has failed to perform a condition or covenant of the lease agreement is guilty of unlawful detainer if the tenant has been served with a “3-Day Notice.” In other words, a landlord who suspects that a tenant is using marijuana in his unit may begin the eviction process by serving a “3-Day Notice.”

The Notice must:

  1. Be in writing;
  2. Say the full name of the tenant or tenants;
  3. Have the address of the rental property;
  4. Say what the tenant did to violate the lease or rental agreement; and
  5. Say the tenant has the chance to fix the problem or move out in 3 days.

Tenants who have been served with a “three day notice” should make sure that it complies with the statutory requirements. Failure to comply with any of these requirements will render the entire case moot and force the landlord to reissue the notice until it complies with all the requirements. Courts have given the requirements of Section 1161(3) strict interpretations. This means that the landlord must meet all the requirements and that if he fails to meet these requirements (even slightly) courts must rule in favor of the tenant. For example, where a landlord fails to include the total amount of rent due in a “3-Day Notice,” courts will generally require the notice to be corrected and served again.

If the landlord files an eviction action based on a faulty notice, they will have wasted approximately three weeks in court proceedings only to show up to court and be told that they will need to serve the tenant with an adequate notice. This means more time for the tenant to remain on the premises and to try to negotiate with the landlord.

Given the fact that most (if not all) lease agreements include a “no smoking provision,” using medical or recreational marijuana in a rental unit is likely to constitute a violation of a tenant’s lease agreement. Therefore, if a lease agreement prohibits smoking, Section 1161(3) allows a landlord to serve the much-dreaded “3-Day Notice” and begin the eviction process. However, at this point, the tenant is not yet “guilty” of unlawful detainer.

Failure to Perform a Covenant or Condition of the Lease Agreement

Tenants should review their lease agreement to verify that the lease agreement does in fact include such a provision. If a lease agreement fails to prohibit smoking, this specific argument may not be used against the tenant. The reason for this is that a tenant cannot be in breach of a lease provision that does not exist in their lease agreement.

It’s important for tenants to be aware that a landlord has, at his disposal, many other arguments that he may raise in a marijuana eviction case. For example, violations of implied or express covenants, such as creating a nuisance, possession of an illegal substance, or using the unit to carry out illegal activity, are all grounds for a landlord to initiate the eviction process. Unlike the “no-smoking” provision, these violations exist regardless of whether they were expressly included in the given lease agreement. Landlords have an unconditional [statutory] right to raise these arguments. Likewise, tenants have a duty to comply with them.

When is a Tenant “Guilty” of Unlawful Detainer?

Within the context of the “no-smoking” provision, using marijuana in an apartment is a breach of the lease agreement. This breach allows the eviction process to begin; however, it does not necessarily mean that a tenant is guilty of unlawful detainer. Despite the law’s language favoring landlords, a landlord that decides to pursue an eviction action still bears the burden of proving that the tenant has committed an unlawful detainer. Ashlers v. Barrett, 4 Cal.App158, 160 (1906).

How does a landlord prove that a tenant is “guilty” of unlawful detainer?

In order to prove that a tenant is “guilty” of unlawful detainer the landlord must show: 1.) that the marijuana usage at issue in the case constitutes a material breach and 2.) that the tenant has failed to vacate the unit within the notice period. Given the fact that the second element is very easy to prove, this article will focus on the first element.

First, the landlord must have proof that a tenant in fact breached the lease agreement by committing a specific act that the lease agreement prohibits. Where marijuana is involved, it may be based on testimony from someone who observed the tenant using marijuana. Unless a landlord or neighbor can testify under oath that he saw the tenant using marijuana, the landlord will likely run into problems trying to prove that the tenant actually used marijuana on the premises.

Many landlords don’t live on the same premises as their tenants; therefore, complaints about marijuana are likely to come from other tenants who claim that they can smell pot. This argument is weak, primarily because it is difficult to show that the smell is actually coming from one particular unit (assuming the tenant hasn’t taken it upon himself to “hot box” the apartment unit). In an eviction action that does not involve an eyewitness, the tenant will likely be required to testify under oath. Tenants should be aware of the consequences of lying under oath. If a tenant has indeed used marijuana on the premises, it’s in their best interest to try to negotiate a settlement. However, a tenant who has used marijuana on the premises can use this lack of evidence to negotiate additional time to move out or possibly enter into a probationary tenancy.

Second, the landlord must prove that the marijuana usage in that particular instance constitutes a “material breach.” Courts have declared that breaches that are only technical or trivial (as opposed to “material”) will not support forfeiture in an unlawful detainer action in an unlawful detainer action. See McNeece v. Wood, 204 Cal 280, 285 (1928). Hence, even if a tenant has been seen smoking marijuana in their rental unit, the tenant is not necessarily guilty of unlawful detainer unless the particular instance is so severe that it constitutes a “material breach.” For example, smoking marijuana in a rental unit every day is very likely to constitute a material breach. However, a single time that involved a guest is not likely to constitute a material breach because most courts recognize that one instance is not significant enough to result in an eviction.

While not covered extensively in this article, tenants should keep in mind that they have additional defenses such as substantial compliance with a covenant. Knight v. Black, Cal. App. 3d. (1985) Additionally, courts have not drawn a clear line between a trivial breach and a material breach. Thus, even where a given breach is deemed “material” the tenant may still argue that enforcement would be unconscionable and inequitable.

My next article will specifically look at marijuana evictions as they arise in public housing. As discussed in a previous article, while landlords are required to follow the eviction process requirements for all tenancies, public housing tenants stand to lose much more. I will also analyze the potential effects of a recently proposed HUD regulation.

Remember, this is an article, not an attorney. If the above matters apply to you please seek legal advice from you local Legal Aid or pro-bono attorney.

SB-643 and the Price of Tuna

Legislators and voters are faced with many questions when it comes to legalizing adult recreational use of marijuana, one of which is how such laws or initiatives will impact the California environment and wildlife. Some reports show that Humboldt and Mendocino Counties have experienced a dramatic increase in deforestation, stream diversion, and harm to wildlife since the passing of the Compassionate Care Act. However, the same studies cited in support of those claims found that the greatest negative environmental impact was from “trespass” grows on federal land. Enforcement of the existing regulations has been spotty, in part because of the questionable legal status of marijuana on the state level from the Compassionate Care Act, as well as the federal level with the Cole Memo.

However, this questionable legal status would in large part be resolved by legalizing adult recreational-use marijuana. With federal enforcement goals as laid out in the Cole Memo, state legalization could shift enforcement to addressing trespass grows rather than busting up dispensaries. Out of fear that the next wave of legalization will have further negative impact on the Golden State’s already fragile environment, one Senator has proposed SB-643, a bill that would provide greater environmental protection and agency oversight into the existing medical marijuana legal framework. SB-643 is broken into several parts; part one would establish a bureau within the Department of Consumer Affairs to manage the regulation and licensing of existing and future dispensaries, which would also manage the appropriation of fees for the purpose of funding environmental protections enforcement, and the violation of which would result in fines up to $35,000; part two would crack down on the current medical practice of prescribing marijuana without proper examination, violation of which would result in criminal prosecution and fines; part three opens the door to local taxation of all levels of the marijuana supply chain; part four criminalizes possession for all non-patients or caregivers, and offers a meager exemption from prosecution those licensed to dispense or cultivate; part five imposes additional taxes to all levels on behalf of the state. Each of these parts creates a new statutory requirement needing additional enforcement. The bill addresses the additional cost to the state and local enforcement agencies by collecting licensing fees, taxes, and fines to fund the enforcement of the provisions.

While at present there are no environmental protections for marijuana cultivation, there are existing regulations that could be applied against those doing the greatest environmental harm. Additionally, we must consider fully any legislation that would re-criminalize possession, as we hardly need to reinstitute drug crimes in a state suffering from severe prison overcrowding, a point which I unfortunately won’t have time to delve into more deeply. What I will ask is whether additional legislation is really necessary? Could market forces or additional enforcement solve the environmental concerns specific to California? Can enforcement costs be passed off to the consumer, rather than paid for on the backs of simple possessors, cultivators and physicians?

To answer these questions it is necessary to review the regulations that are either not currently being enforced, or that, in some cases, cannot be enforced. While the Compassionate Care Act left much of the creation of legal frameworks and the process of enforcement to local county and municipal agencies, it is also true that there are federal and state criminal statutes that could be applied to the marijuana activities that are most harmful to the environment. A great example would be what are known as “trespass grows;” grows taking place on public or private lands without permission from the owner or right to enter.

Because public lands are open to entry by the public, federal agencies are unlikely to pursue action under criminal trespass. In cases where the land falls under federal jurisdiction (think National Parks) the federal penalties for cultivating marijuana are anywhere from five years to life and carry fines as high as a million dollars. Additionally, enforcement of these penalties is one of the eight priorities provided in the Cole Memo, and therefore the legal status of marijuana in the state should not be an issue where the grow is occurring on federal land. With full enforcement under the Cole Memo from the federal side, a large part of the environmental hazards currently threatening California can be resolved.

But what about trespass grows not occurring on federal land? While the Compassionate Care Act (CCA) may have caused a boom in demand for the legal medicinal marijuana market, raising the need for additional supply, it does not in fact prevent enforcement by state agencies of trespass grows. This is true for two reasons; 1) the language of section (d) of the CCA exempts patients and their caregivers from Penal Code § 11358, but does not prevent section 11358 from applying to those not cultivating marijuana on behalf of patients, and 2) were the statutory construction of the CCA to obstruct such a charge from being raised against a trespass grower, the California penal code provides charges that could be brought for the action of trespassing. For example, if California Fish and Wildlife agents were to discover a trespass grow site on California state public lands they could arrest the growers for either a violation of Penal Code § 11358 or for violating Penal Code § 602(p) which prevents the “entering upon any lands declared closed to entry as provided in Section 4256 of the Public Resources Code, if the closed areas shall have been posted with notices declaring the closure, at intervals not greater than one mile along the exterior boundaries or along roads and trails passing through the lands.”

Where does this leave private California landowners who discover an illegal grow on their property? There are two possible avenues to seek legal redress; 1) call the local police or sheriff and report the trespassers as violating Penal Code § 602(l) or (o), or 2) file against the trespassers under the California Civil Code. The second route could be the more dangerous of the two because, in the past, trespass growers have been known to carry arms, which could pose a physical threat of injury, not to mention the financial burden of hiring an attorney. However, the California Code of Civil Procedure allows for the recovery of attorney’s fees for successful trespass actions. While both solutions may not be sufficient to fully protect private landowners from the harm of trespass grows, the truth is that trespass grows on private land are not the primary cause of the environmental harm that is being done.

It’s not clear whether there would be additional action available to private landowners seeking to prevent trespass grows on their land under SB-643. However, for those private landowners who choose to cultivate marijuana on their property, the bill may limit their ability to do so; it had previously included an outright ban on cultivation in areas zoned as residential. This is still reflected in the digest of the bill, leaving open the option to reinstitute the ban. Furthermore, failure to receive a license and pay the associated taxes would be grounds for criminal prosecution or fines in the five digit range. The suggested licensing system, an infrastructure that will be overseen by a regulatory commission created by the bill, would limit which doctors are able to “prescribe” marijuana and also collect associated fees in order to fund enforcement of the regulatory system.

Given that the regulators of the license system would be getting a paycheck as a result of the sale of marijuana this leads to concerns about a possible direct preemption on the part of the California state government, which I won’t go into here. But what works about the bill is that it provides funding to the agencies who will be enforcing the existing regulations and prohibitions. Of all the hurdles facing the Golden State’s environment, funding for enforcement has to be at the top of the list.

But perhaps there’s an alternative method of enforcement for marijuana cultivation? One that wouldn’t require additional funding or new laws. For some products, market regulation is sufficient to prevent environmental harms. When we buy tuna and it says “dolphin-safe” or when we prefer “Non-GMO” ingredients, we are in effect regulating the market and acting as enforcement agencies against the harms we wish to prohibit. While the cost of being monitored and awarded such labels is passed on to the consumer, we are happy to pay ten cents more for tuna we can feel good about. And while there are some consumers who don’t have the luxury of spending an extra ten cents on tuna, the majority of consumers who do influence the market have done so to such an extent that “dolphin-safe” tuna has become the norm rather than a luxury item.

Applying this model to marijuana would require the formation of some regulatory group, but that does not necessitate that the group be a government entity. For example in the area of organic food, there co-exists the U.S. Department of Agriculture (USDA), California Certified Organic Farmers (CCOF) and Oregon Tilth regulatory groups for the receipt of organic certification. Only the USDA is a government regulatory group, whereas CCOF is a trade association and Oregon Tilth is a non-profit entity. Similarly, California Cannabis Voice Humboldt is working to create a non-governmental trade association for addressing the legalization of adult recreational-use marijuana. What if, rather than passing additional regulations and creating more state agencies, non-profit and trade associations were formed for the purpose of certifying and monitoring marijuana grow practices? The result would be market enforcement of what the consumer values rather than placing strict limitations on the California medical marijuana industry, and a “green” marijuana certification process that is not a restatement of the fines and prohibitions of the past.

In my next post I will delve into the particular challenges faced by a drought-ridden California considering legalization of adult recreational-use marijuana, and propose possible solutions to the dilemmas presented.

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.

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.

Gambling with Tribal Marijuana

For this post I will look at the application of state criminal jurisdiction to non-tribal members while on tribal lands; first at the jurisdictional framework in general, and then at a brief history of federal Indian gaming regulations to better understand the legal limitations of tribal marijuana cultivation. In my last post I discussed Federal Public Law 280 (PL-280) and the delegation of criminal jurisdiction over tribes and their members to state agencies and courts. State criminal jurisdiction does not apply to tribal lands where the alleged crime is regulated—and not strictly prohibited—by states. This raises the question: Does state criminal jurisdiction under PL-280 extend to the activities of non-members of the tribe while on tribal lands? For example, if a tribe opens a “cannabar” for non-tribe members to purchase and imbibe marijuana while on tribal lands, would the actions of those non-members be within the criminal jurisdiction of California, the U.S., or the tribe? The answer to this question depends on whom we ask. The current U.S. Supreme Court case law and lower court statutory interpretations find that federal criminal jurisdiction (or state criminal jurisdiction in PL-280 states) over non-members extends to their activities on tribal lands. Which, continuing from the earlier example, non-members would be subject to federal or state criminal jurisdiction for acts committed on tribal land, and could be prosecuted for violating the state or federal law by purchasing marijuana for recreational use at a cannabar located on tribal lands. But a group of constitutional theorists argues that these activities are beyond the reach of state, and perhaps even federal, criminal jurisdiction in PL-280 states. What does this jurisdictional quagmire mean for tribes seeking to sell marijuana to non-tribal members for use on tribal lands? Is “casino”-style marijuana consumption and sale possible?

Does PL-280 extend state criminal jurisdiction to activities of non-members while on tribal lands? In Oliphant the U.S. Supreme Court ruled that tribal criminal jurisdiction does not apply to non-members, noting that “[n]on-Indians are not subject to the jurisdiction of Indian courts and cannot be tried in Indian courts on trespass charges. Further, there are no Federal laws which can be invoked against trespassers.”  Mark Oliphant was a non-tribe member residing on the Suquamish reservation in Port Madison, Washington. During the tribe’s annual Chief Seattle Days celebration, Oliphant was arrested by tribal police and charged with assaulting a tribal officer and resisting arrest. He was arraigned before a tribal court, and after bailing out; he filed for a writ of habeas corpus in Ninth Circuit relying on the claim that the Suquamish court did not have criminal jurisdiction over non-members. The Ninth Circuit found in favor of the Suquamish, and Oliphant appealed to the Supreme Court. The Court found that tribal sovereignty is not strictly geographical, and thus the tribal court’s criminal jurisdiction does not automatically extend over non-members while they are present on tribal lands. Rather, non-members are subject to the federal (or in PL-280 states, the state) statute that would apply if the crime had been committed outside of tribal boundaries. The Court did not question the tribe’s power to arrest, and in fact found that the tribal agencies must turn over and “not to shelter or conceal offenders against the laws of the United States, but to deliver them up to the authorities for trial.” It also noted that the basis for this policy was to provide protection for tribal members “from the violences [sic] of the lawless part of our frontier inhabitants,” or to put it another way, to protect the American Indians from non-members entering tribal territory and committing what would be considered crimes by the federal government had it occurred on non-tribal soil. Oliphant further elucidated that tribes have sovereignty over their members, and the right to assert jurisdiction where no Congressional jurisdiction has been asserted (or asserted and then delegated to states via PL-280).

Cohen’s Handbook of Federal Indian Law, the preeminent source for understanding the intricacies of U.S. tribal law, also lends clarity to the convoluted point of tribal jurisdiction over non-members while on tribal lands. Citing Oliphant as authoritative precedent, Cohen’s Handbook notes that even a regulatory PL-280 state law, which would normally not be enforceable in Indian territories, may be enforceable on tribal lands where it “affects non-Indians and survives the Court’s infringement/preemption test.” The test, as explained by the Court in Mescalero Apache Tribe is that “if [the state regulation] interferes or is incompatible with federal and tribal interests reflected in federal law [it is preempted], unless the state interests at stake are sufficient to justify the assertion of state authority.”

There are some critics that question whether the federal government acts within the scope of its constitutional powers by delegating inherently federal jurisdiction to states; an issue which has never been addressed by the U.S. Supreme Court in regards to the application of state law to tribal lands.

The lower courts that have addressed this issue have set aside the issue with minimal or circular analysis. In Anderson, James Anderson, a member of the Klamath tribe residing on the Klamath reservation, appealed his conviction of second-degree murder in Oregon state court to the Ninth Circuit. He appealed to the Court on the basis that Oregon state courts did possess criminal jurisdiction in this case as the homicide had occurred on Klamath land, and the defendant is a member of that tribe. The Ninth Circuit did not agree, and found that, “[t]he [Congressional] power over Indians was deemed not so inherently or exclusively federal as to apply beyond the extent to which the federal government has preempted the field, and the federal government could thus withdraw from the field and turn the subject matter back to the states when it chose to do so.” However, the presumption that the states possessed original jurisdiction over tribes, and that the federal government had preempted the state powers on those lands, is unsupported by statute, treaty, or constitutional amendment. Tribes, recognized in the U.S. Constitution as falling under the same umbrella of federalist powers as states and foreign countries, never entered into treaties with state governments to cede jurisdiction, but rather made treaties with the federal government to cede their jurisdiction in a limited manner. As Cohen’s Handbook notes, “[U.S.-Indian t]reaties must be understood as grants of rights from Indian people who reserve all rights not granted.”

The false presumption first promulgated in Anderson was relied on in other cases reviewing the PL-280 for its constitutionality. In Agua Caliente the District Court noted that, “Public Law 280, like other similar laws in recent years, is a withdrawal by Congress from its preemption in this field. It has done so in this case by express grant to the state of authority…to the extent that any further withdrawal by the Federal Government occurs, the sovereignty of the state becomes enlarged to that extent.” Again, there is no existing evidence or support of this presumption, except that this is the relationship between federal powers and state jurisdiction outside of tribal lands. The express purpose of federalism is for federal jurisdiction to extend to “certain enumerated objects only, and leaves to the several States a residuary and inviolable sovereignty over all other objects.” But this only exists where original state jurisdiction would otherwise exist. Keeping in mind that this issue has never been argued before the Supreme Court, it is possible that the Court would find in favor of the federalist principles, and rule that where the federal government has withdrawn from a jurisdiction, the sovereignty of tribes would become enlarged to that extent.

How does this relate to marijuana sales on tribal lands? Which criminal jurisdiction applies on tribal lands matters to non-members seeking to imbibe or purchase marijuana from tribe-operated dispensaries? Under the majority view, it appears that non-members cannot commit acts on tribal lands that are considered crimes in state or federal court. This is due in part to existing statutes and Supreme Court decisions, and seems to be the most largely accepted interpretation of the law. However, a splinter group of theorists among the minority view argues that the federal government cannot delegate its criminal jurisdiction to states. Under one interpretation of the principles of federalism this could mean that where the federal government has withdrawn from the field of criminal jurisdiction (i.e. via attempting to delegate this power to states) that jurisdiction is restored to the tribes. The tribes would have the criminal jurisdiction that would otherwise be granted to the states under PL-280, and could determine whether non-members could purchase or imbibe marijuana on their land. Of course, this is not a view supported by the existing case law, but since the Supreme Court has not addressed the question, it remains an argument to be made.

When first hearing of the interaction between PL-280 and the CSA for tribes, it may seem natural to conclude that the state criminal jurisdictional exception extends to non-members in such a way that “casino”-style marijuana sales (i.e. tribal dispensaries providing marijuana for on-site consumption by non-members) seem inevitable. To better understand why this not the case, an examination of the history of American Indian gaming is necessary. From the outside, it may seem a rather straightforward matter; tribal sovereignty in conjunction with PL-280 allows for casino and gaming in states that do not completely prohibit gaming (i.e. operating a state lottery). However, the power to organize casinos and gaming on reservations is still within the jurisdiction of the federal government. This is because the Federal Indian Gaming Regulatory Act of 1988 (IGRA) re-asserted federal jurisdiction to regulate the conduct of gaming on Indian Lands, established the National Indian Gaming Commission (NIGC), as well as a regulatory structure for Indian gaming in the United States, essentially closing the jurisdictional loophole left open under PL-280 by the Cabazon decision.

Based on Cabazon, which held that in PL-280 states where gaming is a regulated activity and not a prohibited activity (e.g., states with a state-operated lottery), tribal gaming was determined not to fall within the state’s jurisdiction to regulate. The Court further elucidated that only Congress “could effectively place limits on the Indian Gaming industry.” For precedential support, the Court relied on the Mescalero Apache Tribe preemption test mentioned earlier in this post. Within a year of the Cabazon decision, Congress passed the Indian Gaming Regulation Act (IGRA). The stated purpose of the IGRA includes the establishment of Federal Regulatory powers over Indian gaming and a Federal commission to oversee and apply such powers (NIGC). Cohen’s Handbook notes that although the IGRA does not mention PL-280, it operates to supersede state jurisdiction because it is a more recent statute asserting exclusive federal control over violations of Indian gaming. Under the IGRA, tribes are required to enter into compacts with the states in order to participate in Class III gaming, which includes all gaming not covered in Class I and II, specifically anything not closely resembling bingo or “social games solely for prizes of minimal value or traditional forms of Indian gaming engaged in by individuals as a part of, or in connection with, tribal ceremonies.” Tribes retain jurisdiction over Class I and Class II gaming; subject to any “prohibitive” limitations placed by states (very similar to the tribal jurisdiction limitations mandated by PL-280).

In those states where tribes have sought Class III compacting agreements, the state has not granted criminal jurisdiction as a result of the IGRA legislation, rather states have a per se veto power over Indian proposed regulation of such activities, as iterated in
§ 2710(d)(3) of the IGRA:

“Any Indian tribe having jurisdiction over the Indian lands upon which a class III gaming activity is being conducted, or is to be conducted, shall request the State in which such lands are located to enter into negotiations for the purpose of entering into a Tribal-State compact governing the conduct of gaming activities.”

The IGRA included a provision for tribes to file suit in U.S. District Court against states failing to enter into negotiations or that negotiate in bad faith these compacts with tribes. However, in Seminole Tribe the Supreme Court ruled that this provision was not within the constitutional power of the federal government, and that states were immune to suit by tribes under the Eleventh Amendment. Despite the fact that the language of the IGRA seems to be a broad grant of jurisdiction to the District Courts over suits brought by Indian tribes against States that had not consented, the language was held as “insufficient to constitute a clear statement of an intent to abrogate state sovereign immunity.”  Thus, tribal sovereignty was limited by the passage of the IGRA, but state sovereignty (under the Eleventh Amendment) was not.

This is important because there has been some recent discussion of state legislation in Washington essentially re-asserting state jurisdiction over marijuana cultivation or sale on tribal lands. However, any resulting legislation would be open to legal challenge. This is because while the federal government can re-assert federal jurisdiction via federal statute in states where PL-280 applies, such as it did with the IGRA, the principles of federalism do not allow for states to assert their criminal jurisdiction without direct delegation by the federal government. Those states either have criminal jurisdiction over drugs (where that drug has been strictly prohibited) or they don’t (where there is existing regulatory state legislation). In PL-280 optional states, or states that were offered the opportunity to claim state criminal jurisdiction under PL-280, but were not mandated to accept that jurisdiction, such as Washington, Arizona, and Montana, further analysis is necessary to determine whether PL-280 is applicable. Several of these optional states have state constitutional disclaimers that prevent PL-280 from applying (according to the McClanahan decision), and cannot claim criminal jurisdiction until these constitutional disclaimers were nullified. Cohen’s Handbook notes, “[i]f a state has not assumed jurisdiction under Public Law 280, it may not acquire jurisdiction over Indians independent of that Act.”  This is especially true in Washington, which is blocked from fully asserting criminal jurisdiction over tribes by its own constitutional disclaimer, and so would lack PL-280 jurisdiction on two counts; first it would lack jurisdiction under PL-280 because it has not fully assumed that jurisdiction, and secondly, because if PL-280 were to fully apply, the state regulates but does not prohibit marijuana sales and cultivation, and so would not have jurisdiction over the tribes that chose to engage in those activities.

As recently as March of this year, tribes were granted the ability to prosecute non-Indians for certain crimes under Special Domestic Violence Criminal Jurisdiction, including criminal violations of protective orders. While this federal action may partly overturn Oliphant, it is not clear whether this opens the door for greater tribal jurisdiction over crimes committed on reservations. If it did and tribes were able to determine for themselves what recreational drug use was allowed on their lands by non-members, the risk of investing in the marijuana industry would be largely alleviated.

What About the Children: Why Our Justice System is Failing Marijuana Involved Youth

Last time in What About the Children, I discussed some of the different ways marijuana prohibition affects children. Today, I want to look deeper into the ways a criminal conviction can affect a child’s life.

Before we can fully understand how marijuana use affects a child within the criminal justice system, I think it is useful to examine, generally, how the juvenile justice system works and how it is different than adult criminal court. One of the chief differences between juvenile court and adult court is the court’s ostensible purpose. In adult court, retribution, colloquially “punishment,” is allowed to play a large role, while rehabilitation takes a back seat. In juvenile court, rehabilitation is the primary purpose. The juvenile court recognizes that the brain of a child is not fully developed, that juveniles are not as culpable as adults who commit the same crimes, and that therefore when juveniles commit crimes and find themselves in the care of the court, it is the court’s duty to do everything they can to rehabilitate them and ensure they eventually become contributing members of society. One of the ways this sentiment is reflected is in the naming of court proceedings in juvenile court. Juveniles are minors or juveniles, never defendants; they are not tried for cases, but appear for petitions; they are never found guilty, but rather their petitions are found true (if by trial) or the allegations admitted (if by plea); finally, they are never convicted as criminals, but rather their behavior is found delinquent. Functionally, the change in terms is fairly surface level. Juveniles are often still referred to as being “convicted” or “having a record; and critically, even though they “admit petitions” rather than “plea guilty to a charge,” the offense they admit to is still referred to as a felony or misdemeanor. Finally, a difference between the juvenile justice system and the adult criminal system that is more than just for show, is that juveniles never appear before juries. It would be mostly impossible and definitely impractical for a jury of juvenile peers—aka other juveniles—to be assembled to hear a petition, and there are additional privacy and fairness concerns with allowing an adult jury to hear a juvenile case.

To be subject to the jurisdiction of the juvenile court, juveniles must be found “fit” for the juvenile system. This occurs by way of a fitness hearing, wherein the judge considers factors including the sophistication of the crime, the minor’s potential to be rehabilitated, and the minor’s criminal history, to determine if the child is “fit” for the juvenile court system. If a child is found unfit for juvenile court, his/her case can be filed in adult court. There are also a number of crimes for which a district attorney can bypass a fitness hearing and file the minor’s case directly in adult court. This practice, called “direct filing,” is generally reserved for violent crimes, and in California was established by Proposition 21, a ballot initiative passed by voters in 2000 in an effort to combat the steep rise in gang crimes. Direct filing, while a contentious issue and worthy of discussion, doesn’t substantially affect marijuana crimes since only violent and sexual cases may be directly filed in adult court, so we needn’t consider it when discussing how juveniles are affected by marijuana convictions.

So, what happens when a minor is found delinquent in juvenile court or admits to drug charges? It’s complicated.

judicial flow chart

This chart is available on the Santa Clara County Court website. It is intended to inform parents about the judicial process their child may be subject to. Frankly, it’s overwhelming. I work in juvenile court several days a week and even I find it confusing. For the purposes of this article, the important points can be summarized as follows: If the crime is an infraction, the youth (or more practically, the youth’s parents) will have to pay a money fine. If the crime is a misdemeanor, the youth will likely be subject to some fines and a period of probation. If the crime is a felony, the youth may be put on probation, placed on a DEJ program, or sent to a 6 to 8 month ranch program. Each of these programs has different requirements and interacts with marijuana law in their own way.

The ranch programs are residential facilities where youth go to receive behavioral and medical therapy, attend school and other programming, and generally be rehabilitated. Depending on how the youth performs at the program, the youth can be released from the program as early as 6 months after s/he began or as late as 8. Ranch programs are California’s highest security program and the last stop before being sent to the Division of Juvenile Justice, formerly the California Youth Authority, which is essentially a prison for those convicted of crimes before their 18th birthdays. DJJ may retain a youth in her facility until she is as old as 25. A youth may be expelled, suspended, or forced to restart a ranch program if he is caught behaving feloniously, aka committing crimes, or if he breaks any number of program rules. A popular way to get kicked out of the ranch or forced to restart is by sneaking in and using drugs.

If the felony the youth admits to is the youth’s first felony, DEJ, or Deferred Entry of Judgment, allows the youth the opportunity to avoid a criminal record if she satisfactorily completes a period of intensive probation. A youth is eligible for DEJ, generally, if he doesn’t have a prior criminal history and if his offense isn’t a “707(b)” offense. 707(b) is a statutory list of mostly violent crimes, including rape, murder and torture. Once the court agrees the youth is eligible, the probation department makes a recommendation on whether they think the youth is suitable for DEJ; the department considers things like the youth’s maturity and family situation – essentially all the factors that would indicate the youth is likely to succeed in the DEJ program. DEJ generally requires weekly or biweekly drug testing, enrollment in therapeutic or education programming, and quarterly check-ins with the court to ensure the youth hasn’t picked up any new cases. If, after a year, the court finds the youth to have satisfied the requirements of the DEJ contract, her record is expunged and she is deemed never to have been found delinquent. If the court finds the youth did not satisfy the terms of the DEJ contract, the youth may be placed on formal probation. Again, a popular way to fail DEJ is with dirty drug tests.

The story goes like this: Diego admits to a charge of burglary when he was caught breaking into cars and stealing iPhones and GPS systems. It’s his first felony, and he is found eligible for DEJ. The entire ordeal is a wakeup call for Diego, and he puts in a lot of effort during the year he is on DEJ. His grades improve, he’s on the basketball team, his relationship with his family is fantastic, he attends programming and victim awareness courses, and he doesn’t commit any new crimes. However, he still smokes pot a couple of times a week. At his last check-in, the judge declares that because he hasn’t stopped smoking marijuana despite an order from the court, he has broken his DEJ contract. The felony is entered onto his record, and Diego is placed on formal probation. Despite vastly improving himself since admitting to his crimes, and even though drugs played no role in his offense, he will now have a felony on his criminal record.

But Diego’s story is not over, since he is now under the supervision of formal juvenile probation. Formal juvenile probation has requirements similar to DEJ, requiring the youth to be clean and sober and not commit any new crimes at the risk of being sent back to juvenile hall or a ranch program. However, unlike DEJ, which operates under the theory that only youth who remain entirely law abiding for a year should receive the gift of an expunged criminal record, formal probation’s purpose is to assist in rehabilitation. This means that a youth who is on formal probation may also be required by the court to attend therapeutic programming, ranging from family counseling to residential drug treatment. Unlike DEJ, however, the youth may be required to remain in a program, like drug treatment programs, until they successfully completes the program. This can take quite a long time if the youth insists on continuing to use drugs. Formal probation is generally discretionary, meaning the court can extend probation supervision at will depending on how the youth is performing. The juvenile court can keep a youth on formal probation until he is 21. Any youth who admits to a misdemeanor, and many youth who admit to felonies, can be subject to formal probation. So, while simple possession of marijuana will not land a youth under the supervision of the court, since it is only an infraction, a myriad of other marijuana related crimes could. And as you may begin to suspect, the court is not very sympathetic to youth who use marijuana while on probation. In Diego’s case, a number of scenarios may unfold while he is on formal probation if he continues using marijuana. He may be subject to the jurisdiction of a judge and probation officer who are less concerned with his marijuana use (remember, he’s become a high achieving student and star athlete; on many fronts he is having some very successful years) and after two years probation may end. However, if a stricter judge hears Diego’s case and/or he has a stricter probation officer, his drug use may force him into additional treatment programs. He may even be subject to a residential program, which could remove him from his family and school for more than four months at a time.

Diego’s story, while invented for this article, is not uncommon, and I have witnessed every aspect of it play out in various juvenile cases. It also highlights some of the collateral issues of marijuana convictions. One issue that is particularly salient for youth under 18 is that even minor misdemeanor convictions can cause the youth to be removed from their family and community for quite significant periods of time. (Do you recall being 16? EVERY period of time is significant!) Removal from one’s family can cause stress on even the strongest, most supportive family. Removal from school means a youth’s education is disrupted, even if alternative school programming is offered wherever the youth is housed. Spending time in juvenile hall or other facilities also means youth are associating with other criminally active minors. Finally, spending time in juvenile hall, a ranch program, or rehab, despite the juvenile court’s best rebranding efforts, has a profound effect on a youth’s self-awareness. They are no longer considered a science nerd, football jock, or budding rock star, but rather, they see themselves as the system they are subject to: as a delinquent, criminal, and screw-up.

This problem of personally identifying with the label they are given, often referred to as “labeling theory,” is the subject of numerous books, college courses, and Ph.D. theses. The basic explanation of labeling theory is that we are or become what we are labeled, especially if those labels involve deviant or abnormal behavior. For teenagers in particular, labels and names can be particularly influential. The theory as applied says that youth who are labeled criminal or delinquent because of a marijuana conviction are more likely to engage in other, non-marijuana related, criminal activity. Labeling theory provides, to me, one of the most convincing arguments for legalizing marijuana for adult use. If marijuana is no longer so taboo that it makes anyone who engages with it considered a criminal in the eyes of the law, it will serve as less of a gateway for our youth. I recognize that this argument relies on a lot of unfounded extrapolation, but I firmly believe it holds water. Consider that teenagers who smoke cigarettes or drink alcohol, while still breaking the law and engaging in unhealthy behavior, are considered more as “rebels” by their peers rather than criminals. Marijuana is often referred to as a “gateway drug,” but there is insufficient evidence of a causal relationship to prove that it is marijuana use that compels individuals to use harder, more damaging, and more illegal drugs. What we do know, and what countless highly esteemed scholars have accounted for, is that labeling someone a criminal makes them more likely to commit crime. By regulating marijuana for legal adult use, we have the potential to protect our children from the harmful labels initiating them into our criminal system.