Tag Archives: public policy

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.

Licensing High Technology; Cannabis and Corporations

In a recent and excellent blog post, Jeff Madrak, a colleague of mine, addressed the current growth of “Big Marijuana.” The trick is lots of water and sunlight, but mostly it is careful adherence to the law. Cannabis’s legal status is a figurative hydra; ask a question about protecting children and you find yourself having to answer what harms current prohibition has and the long term effects of that regime; ask about taxing cannabis, and then you’re raising questions about specific tax types and similar industry approaches; and so on. Similarly, for every clever business strategy and solution, for every big picture analysis raised by that post, I found myself wondering about the policies served – if such solutions are “good” in more than a business sense, if society should punish or reward these “ganjapreneurs.”

Tackling that hydra is a task that is literally Herculean. This is cold comfort for business people, because business thrives best when the legal framework is well developed: such a framework reduces uncertainty, which reduces risk, and lower risk means greater long term return on investment. I want to address what I found to be a surprising result and a happy coincidence of law: namely the interaction of licensing intellectual property and the legal fiction of the corporate form.

An industry built on cannabis cannot operate on an interstate market without violating federal law and policy. Note the Cole Memo priority of “[p]reventing the diversion of marijuana from states where it is legal under state law in some form to other states” is facially violated even if marijuana is legal in those other states. Interstate commerce is the prerogative of the federal government, so Big Marijuana is restricted to operating on a state by state basis. However, the intangible nature of intellectual property and the economic convenience of the corporate form can provide an avenue between states that is already being explored by some.

The corporate form. It already sounds like a flimsy pretense, a phrase someone might casually drop as a parenthetical at a cocktail party and be met by a collective eye rolling of all within earshot. These days, the idea of the corporate identity is not only much more prevalent in the social dialogue but it is also more akin to an incantation. It is some sort of legal witchcraft, seeming to afford businesses protections traditionally reserved for actual people. I certainly have a degree of initial discomfort with corporate personhood.

Which isn’t to say there are not benefits to allocating personhood to a corporation. Probably the best justification for identifying a corporation as a legal individual is the allocation of liability. For one thing, investors are protected from personal liability, which promotes risk taking and innovation. Additionally, anyone harmed by the activities of a corporation can name this identity as a defendant in a court of law. In fact, a “person” can sue another “person” so long as they have standing. Standing is basically when one person has an injury that another person caused and the courts can give a remedy to, like Apple v. Samsung.

Legal personhood could also be applied to resolving unusual problems, such as an endangered animal being granted personhood via statute, allowing others to sue “someone” on behalf of that animal if that “someone” poses a threat to them or their habitat. While it has been indicated as possible for congress to grant such standing (an extraordinary step, indeed), courts have rejected standing for cetaceans, and declined to address the standing of sea turtles and birds. Not to digress too far into the realm of the Lorax, what is pertinent here is that our legal system defines “person” in a precise and artificial way to enforce certain rights and responsibilities.

Corporate persons generally have residency where they are incorporated. This is another convenience because courts are able to discern what laws apply to that corporation, and corporations are able to determine which state gets their taxes. Cannabis’ current legal hodgepodge makes this particular simplification incredibly useful. A business can very specifically choose a single state and act within those borders in both a literal and transparently legal sense. This distinction not only allows businesses to choose their laws, it also allows businesses to limit the federal illegality of their endeavors.

The California Artisan Cannabis initiative provides that “[a] person who is not a California resident, or not incorporated in California, shall not be qualified for a [cannabis] license.” (emphasis added). So the legal form, in this specific case, allows the legal cannabis market to thrive while limiting the breaking of federal laws, and promotes state self-governance. Finally, it keeps all of the profits and commerce contained within state limits, thus minimizing the effect of state legalization on neighboring states.

This raises the issue of licensing agreements between corporations in different states. Do such agreements subvert the policies and priorities of the individual states and the federal government, or do they, like the corporate form, actually work to preserve what few clear lines exist in the current legal schema? It is most likely that licensing agreements do neither of those things, but they do allow businesses to continue to flourish and to set up strategically for any potential federal-level changes in the legality of cannabis.

Intellectual property comes in various flavors, but is generally understood to refer to the protection of a particular expression of an idea. Intellectual property law is also often under the jurisdiction of the federal government, which, given the apparent contradictions between federal and state law, can lead to some interesting legal dilemmas. Licensing, however, affords private parties simple and interesting solutions to these problems.

Intellectual property is intangible. When you license someone to use it, you transfer legal rights, not an actual object. Normally a sale between a business in one state and a business in another state would be interstate commerce. Does a license to use a particular expression of an idea qualify as a transfer between state lines? Generally, no.

Without getting too silly, intangible properties, like debt, have no real location and so they are not physically transferred from one place to another. This legal technicality is important because the federal government only has jurisdiction over interstate commerce. In U.S. v. Lopez a federal statute barring guns from public schools was deemed unconstitutional and later had to be rewritten to include only those guns that have “moved in or that otherwise affect[] interstate or foreign commerce.”

Often, licensing will have territorial restrictions. With the current legal classification of cannabis, this is not only desirable and probably legally necessary for business, it also serves the voters’ preferences in determining the legality of cannabis for their state. Common intellectual property licensing practices come with various pros and cons.

What is interesting to this discussion is the availability of arbitration and non-assertion clauses, and the antitrust considerations raised by the latter. Arbitration agreements are a way to provide legally binding resolutions to any disputes that arise. They are wonderful because they avoid the public costs of a court, the individual costs of an attorney, and because they are not part of the court system they can be much more efficient, quick, and accessible to the poor. Of course, the flipside is that there are no fairness guarantees, appealing a decision is difficult, one party often has much more bargaining power and influence in the choice of arbiter (you’re probably bound to one with your credit card, your cell phone, your car, and so on), among other concerns. The primary focus of these concerns relates to labor agreements, or the protection of unsuspecting consumers.

I assume these business licenses are conducted by corporations that are legally savvy and cooperative, so many of those concerns are not present. Which is to say, arbitration agreements would largely function to save taxpayer money by keeping inter-business disputes out of the courts. An additional benefit of keeping disputes out of the courts is that courts would not have to weigh in on the divisive political debate over the legality of cannabis, arguably outside the purview of the court since strategy on how to enforce federal law is up to the executive branch.

Similarly a non-assertion agreement is a contract to not sue over certain property right infringements (often as part of a settlement in an infringement claim). This serves much of the previously mentioned arbitration benefits by keeping such controversies out of court but raises different concerns. Patents, specifically, grant a temporary monopoly on an invention and the dangers of monopolies have long been recognized. A non-assertion agreement can lead to a small group of businesses acting as an oligarchy by contract. Further, such an agreement potentially protects invalid patents from being challenged by competitors – certainly not a win for society since we prefer the full use of ideas in the public domain.

In conclusion, it appears that the legal technicalities of how corporations exist as entities and the intangible nature of intellectual property actually serves to avoid many of the legal problems surrounding cannabis.   While my initial impression was that corporations could use legal maneuvers to essentially be an interstate cannabis operation, the actuality is that these legal hoops need to be jumped through and actually function as further restrictions on interstate commerce for Big Cannabis.

Additionally it would be wrong to condemn a business for working within the existing legal framework. Furthermore, if they were trying to abuse that framework, courts are equipped to see through manipulations of the corporate form. Through these legal fictions, society is served by confining cannabis commerce to those states that wish to allow it without violating federal law and also potentially without placing unreasonable burdens on the judicial system.

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.

Cannabis IP Remedies: Erie-ly Familiar, Patently Different

If you’re familiar with my writing, you probably expect (or dread) an anecdotal segue to basic policy concerns of intellectual property law. Perhaps fortunately, I don’t have an anecdote for patent infringement. Apparently it’s not the sort of thing that pops up for most people. Put simply, a patent can be described as a contract with the government where the inventor exchanges information for certain temporary, but exclusive, rights. Infringement is when someone uses those rights without your permission. Now, assume you have a patent on a cannabis-related invention. If someone else begins to exercise your exclusive rights (“practice” your patent), what are your options?

First of all, you’d expect the court would make the infringer stop practicing your invention. Second, and probably more important, you would seek out some recompense for the ways in which their infringement has cost you. The reimbursement you seek can be in the form of compensation for lost sales profits, price erosion from the added market supply, increased expenses you experienced, or the profits that an infringer made as a result of taking advantage of your invention. Although the award cannot be more than what the presumed infringer would have paid in a “reasonable royalty” to legally practice your patent, there is the possible availability of treble damages. But what if the defense is that those profits were neither possible, nor could be related to the patent infringement because the practice of that patent was federally illegal?

This is going to get complicated. How the individual branches of government interact, much less federal and state laws, and where any of that authority begins or ends is something even our top officials often disagree on. I’m assuming that in order to practice this hypothetical patent, the Controlled Substance Act (CSA) would be violated either through the production or possession of cannabis. Furthermore, I am assuming that in the given state, that very same production or possession is legal under state law.

Now, every law student has drilled into them the rule that federal courts are courts of limited jurisdiction. In short, if the power to adjudicate a dispute is not explicitly granted to federal courts, those courts have no power to rule over the case. A flipside to this is that certain issues are exclusively under the jurisdiction of federal courts. Because of Article 1, Section 8, Clause 8 of the Constitution, patents are issued by the federal government and the jurisdiction to decide patent cases is held solely by federal courts. However, state courts can have jurisdiction over non-patent claims, such as a licensing contract, that raise patent “issues” and decide those issues.

For the next bit we need to be clear on common law. Common law emerges when the application of a law is unclear and a court must interpret how it would or should apply. Judges must suspend personal beliefs and follow statutes as the legislation intended, even if those judges disagree with the legislative policies or goals. In fact, if a judge has the rare opportunity to clarify a legal rule, she is on extremely dangerous ground because she is likely an unelected public official who now needs to write a bit into the rule herself. Of course, we can always pass legislation to correct for any egregious interpretations. Common law can become confusing because terms of art in one state may have different meanings in a sister state, perhaps most familiar is the availability of common law marriage in some – but not all – states.

In Erie Railroad co. v. Tompkins Justice Brandeis wrote the Supreme Court holding that clarified the role of common law in our split federal and state systems. Basically, it would be pretty strange for federal courts to develop their own guideline definitions of terms of art and then apply them to states whose courts could have conflicting definitions. Arguably, litigants could then “shop” between federal and state systems for more favorable common law. Also, a federal court explaining to a state how that state’s own laws are applied is not reasonable. Essentially, after the decision in Erie, when a federal court applies state law it follows the common law of that state.

There remains federal common law in a few specific areas, such as when the rights or duties of the United States are in question. Federal common law can also be found where a statute explicitly calls for it, or even implies it – such as when a court has exclusive jurisdiction and there is a need for common law in that field. (Exclusively federal legislation exists in the areas of maritime law, bankruptcy law, and, of course, patent law, among others).

A state court deciding cannabis patent “issues” faces a small dilemma if the practice of that patent is legal under state law but not under federal law. The court could apply state law to the practice of the patent, federal law to the infringement, and avoid any conflict. Alternatively, a state court could look to the CSA. A state court applying federal law has been described as reverse- and scholars argue that supremacy usually dictates that federal law applies.

The language of the CSA can be read to address this situation, clarifying in section 708 that there is no “intent on the part of the Congress to occupy the field . . . including criminal penalties, to the exclusion of any State law . . . which would otherwise be within the authority of the State, unless there is a positive conflict between that provision of this subchapter and that State law so that the two cannot consistently stand together.” (emphasis added). “Occupying the field” is when a federal law either explicitly or presumptively (by being exhaustive) leaves no room on the legal “field” for state law. Since the CSA explicitly does not occupy the field, a state court would have to resolve whether or not state cannabis laws is able to consistently stand with the CSA.

The Supreme Court has held that “[d]isplacement [of state law] will occur only where . . . a ‘significant conflict’ exists between an identifiable ‘federal policy or interest and the operation of state law,’ [Wallis], or the application of state law would “frustrate specific objectives” of federal legislation, [Kimbell Foods].” (citations shortened). In rare cases, such as where federal law (in this case, the CSA) conflicts with various state approaches to cannabis but the goals of the federal law (as outlined by the Cole memo) do not conflict with state goals, a court might be able to choose. A state court could hold that so long as the legislative goals and policies of the state’s cannabis statutes align with the Cole memo there is no conflict at all.

A state court looking to federal law that their own legislation has specifically chosen not to enforce would be working against the public policy of their own state. One reason a state court might take that course is to avoid validating a state law that is invalid under the federal scheme (we have seen the legal inverse of this strategy). I think a state court both would not and should not tackle such an issue from the perspective of federal interests when explicitly stated federal policy and goals do not conflict with that state’s interests and goals. Ultimately, the judicial branch can take the executive branch at its word and, failing to see a conflict, resolve any patent issues.

On the other hand, a federal court can simply look to the CSA, note the illegality of practicing the patent, and end the suit there.   A federal court might also try a few other approaches. Can—and, more importantly, should–a federal court grant validity to a patent claim and give full enforcement of that patent when doing so would at least tangentially condone a violation of a separate federal law?

As I theorized about trademarks, a weighing of policy interests of the federal government and state governments can bring resolution to apparently contradictory stances with regard to the legality of a Schedule I substance. However, this is difficult to apply to a case where the federal courts not only have exclusive jurisdiction but where they must apply federal law because federal patent law is the only patent law in the United States. For a federal court to apply state law with regard to CSA issues raised by parties would arguably be an arbitrary refusal to apply federal law and, unlike a state court, allow a precedent that could give inconsistent judgments in states with differing cannabis laws.

I think the best resolution to this is the Federal Circuit developing a little nuance to the Erie doctrine. When a federal statute facially conflicts with state law, the court should look at the underlying goals and policies of the conflicting legislation. If there is no conflict in the goals and policies then a federal court should give deference to the state law. It makes a lot of sense to regulate activity within a state the way that state does. To quote Justice Brandeis’ dissent in another Supreme Court case: “It is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” While Nebraska and Oklahoma disagree with that last point, it has yet to be resolved.

With this approach, a court could have conflicting results in cases, but in those cases the court could point to conflicting state laws. There is no need to resolve what one state allows and another does not – that is a state’s prerogative. This is simple and arguably adheres to Erie, but it appears to ignore supremacy. But just as the Cole memo was a shift from the “original” Cole memo, which in turn was a clarification on the Ogden memo, goals and policies change. Everything changes. Any analysis by a court that relies on current goals and policies set forth by the government would be overturned by an explicit change in those goals and policies. This functions exactly as a legislative response to a “wrong” interpretation, mentioned above, and is exactly how a government built on checks and balances is supposed to function.

Finally, there is one other approach a state or federal court might employ to this conflict: ignore it. Common law systems function by precedent. In other legal systems, precedent does not have the same level of authority to influence or dictate the same interpretation to other courts. Our courts are cautious because of the danger of a precedent having unknown, perhaps negative, effects. It may not always seem like it, but the legislative process is exhaustive, with analysis, discussion, and debate by elected officials trying to do what is best for the general populace and their constituents – not a decision by a single person in response to a very specific dispute. Because of this difference, Courts have developed a long tradition of answering questions in the narrowest possible way to avoid the creation of common law that is not necessary to answer the specific question that court is faced with, so it is entirely believable that the Federal Circuit will rule on an infringement of a patent without addressing the legality of the practice of that patent.

If you remember the litigation over Proposition 8 in California, you may recall the Supreme Court holding on “standing” and nothing else. Essentially, if California itself did not want to defend the constitutionality of its laws then some other party cannot step in and defend the laws for that state’s government. This was a convenient way to avoid holding on the extremely divisive debate over gay marriage, but also an interesting precedent in its own right. No party other than a prosecutor has the standing to charge someone with a violation of federal law. The enforcement of federal laws, just as the defense of the constitutionality of those laws, is the role of the executive branch. Any argument that infringement damages are unobtainable because the practice of a patent violates the CSA is an argument that a federal prosecutor should raise, not a defendant in a patent suit.

The beauty of this approach is that it affords courts with an avenue to avoid answering the (unraised) question of the conflict between state cannabis law and the CSA, and thus avoid setting any precedent in that area. Additionally, as Lord Mansfield famously wrote, certain defenses sound “at all times very ill in the mouth of the defendant.” While a defendant can sometimes use illegality of behavior as a defense, it is not that the defendant is being protected, but that the plaintiff has no legitimate, or legal, cause of action in the first place. As Mansfield eloquently continues: “No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act.” Courts of all stripes may very well consider a CSA violation defense in a patent case a flimsy attempt at getting away with blatantly profiting from another’s intellectual property and happily address the sole issue of theft.

What We Don’t Know About the Black Market Workforce and Why it Matters for Successful Regulation of Recreational Cannabis

The danger of making assumptions about who makes up the black market labor force is illuminated by Keith Humphreys’s recent article – “The stereotype of the college-educated pot smoker is wrong.” In the article, Humphreys cites Professor Jonathan Caulkins, who is quoted as saying “Most of the marijuana market is more Wal-Mart than Whole Foods.” Yes, we all know that stereotypes are not often truly representative of the people they are trying to describe. But what was most interesting about the article (aside from the irony that Caulkins used a stereotype about where the poor shop in order to explain a stereotype we have) was the explanation for the college grad-stoner stereotype – that human beings “have a tendency to overestimate the representativeness of their own experience.” Meaning that the people who feed the discussion in our media and political culture (journalists, policy analysts, politicians, etc.) “portray and discuss the world they know, which in fact is a small slice of the U.S. marijuana scene.” Why shouldn’t we make assumptions about who makes up the black market workforce? Because successful regulation of the recreational marijuana market depends on turning the black market green, which requires transitioning the people within the black market to the legitimate market. Admitting there is a lot we don’t know about the black market workforce and their ability to transition to the state-regulated market is the first step in the process of determining what regulations best serve our purported state interests.

First off, it is important to establish that I am defining successful regulation as promoting public safety and preventing diversion of profits to illicit enterprises. Not only are these high priorities for California, these are the priorities of enforcement of the CSA outlined by the Cole Memo. Addressing these priorities serves the interest of the state and is the best option for avoiding the scrutiny of the federal government. From preventing distribution to minors to preventing growing marijuana on public lands, all of these goals are served by transitioning the black market workforce to the state-regulated market. While street level dealers don’t check identification, regulated marijuana storefronts will be required to. Legitimate business will pay taxes and keep financial records, preventing money from marijuana sales from going to criminal enterprises. Passing state regulations that present significant economic barriers and barriers related to criminal records will bar more individuals from participating in the legal market. Will those barred from operating in the legal market continue to operate their businesses illegally?

It is more likely we will have better information on this issue in California after state regulation. There is no good information on the black market workforce because it is not something that people discuss openly. The black market is characterized as such because it takes place in the shadows. It is meant to be a mystery to those on the outside looking in. Recreational marijuana is still illegal in much of the United States, and those on the supply side are unlikely to self-incriminate. If marijuana is legalized in California it is possible there will be more information about the black market because individuals won’t be silent for fear of prosecution. The information that we currently don’t know that would be valuable to this discussion is who it is that makes up the black market workforce and what their skills are, both within and outside of the marijuana industry.

For the purposes of this blog series, I am concerned with individuals currently working with illegal marijuana as their primary vocation, meaning people who do this as their main source of income (which does not necessarily equate to full-time). I am not focusing on the individuals who sell, trim, or grow as supplemental income for two reasons. First, they are less likely to have as large an impact on black market supply, therefore there are less worries about diversion if they continue to operate in the black market. Second, they already have an additional source of income. If they continue to work in the black market because they are barred from working in the state-regulated market, it is not because they are dependent on illegal work as their sole source of income. People who are willing to break the law for additional income should not be the focus of incorporation into the legal market because successful regulation will only work with individuals who follow the rules. There is something inherently different about those who break the law because it is the only way they can make a living or because they are politically or morally opposed to cannabis prohibition and those who break the law for some extra cash.

Now, within the group of people working in the marijuana industry as their primary source of income, there are different specializations, skillsets, and levels of skill. There are those on the production side, ranging from growers with years of experience to those who trim for a season, and then there are those on the distribution side. Within these groups it’s possible to discuss likelihoods and possibilities for transition to a state-regulated market in general terms. But the odds of an individual continuing to work in the black market if barred from entering the legal market depends on their skillset and reasons for working in the black market to begin with.

For those who are doing less-skilled work full-time, whether seasonally or steadily, any barriers may make a legitimate marijuana job not worth pursuing. Maybe even an application process would not be worth the trouble. The full-time grower and cannabis activist is more likely to jump through the hoops of the application process than someone just trying to make a dollar because they are personally invested in the concept of state regulation. This distinction is important when considering how barriers to entry into the recreational market will affect differently situated people in distinct ways. What will skilled growers with criminal records do if they can’t get a job in the newly legal recreational market? What if there are insufficient incentives to transition to the legal market? Odds are, like in Colorado, some growers will continue to operate in the black market.

While there is a lot of discussion about those growing marijuana, what about those selling it? This is the most important group when considering successful regulation as qualified above; dealers are making a lot of the money and are the access point to marijuana for users. It would seem that this group would be the most important to consider incorporating into the legitimate market. But unlike growing marijuana, where the necessary skills don’t change drastically moving from the illicit to legitimate markets, operating a storefront requires additional skillsets that the average dealer probably does not possess, i.e. managing employees and bookkeeping. Will there be a place for dealers or will we be leaving out those who may be the most important to include? If excluded, will they continue to operate in the black market?

The job market outside of recreational marijuana could affect an individual’s propensity to continue operating in the black market. Barriers to non-marijuana-related employment might leave some stranded. Work experience, education, and criminal records all affect an individual’s ability to find a job. When a person has been selling or growing marijuana illegally for a living, connections outside that industry might be hard to come by. Additionally, filling out the work experience section of a job application could be tough. Individuals with criminal records are the most likely to be barred from entering any state-regulated market in California, and they are also less likely to find gainful employment elsewhere. We know that communities of color are more likely to shut out by barriers based on criminal records because of disparate enforcement, creating a heightened inability to transition from the black market. We already know criminal records limit job opportunities outside of the marijuana business. It appears as though the one thing we can know for certain is that the communities most injured by the failed war on drugs could continue to be left behind in the new paradigm of state regulation.

Ultimately, every individual in the black market has a unique circumstance. Considering there is so much that is unknown about the makeup of the black market, it is best to operate under the assumption that there are certain ripples and effects of legalization that we can’t plan for. We don’t know if someone is going to continue growing and selling marijuana illegally, turn to selling harder drugs, or go into a different industry, and we don’t know what their motivations will be. If we want successful regulation, we need to turn the black market to the legal market, and frankly we don’t know enough about the existing black market to make sweeping statements about what people will do if they can’t work within the state-regulated system. This is why it is important to build a market that will be as inclusive as possible, without compromising the integrity of state regulation.

While the market needs to be inclusive enough to bring the black market workforce into the fold, there also needs to be the financial incentive for people to want to work in the state-regulated market. In my next post, I will explore the economic barriers to entry to existing marijuana markets with a focus on capital requirements and finding the balance between supply and demand. Specifically, I will be comparing the recreational markets in Colorado and Washington and notable medical marijuana structures in other states, looking ahead at what would be best for California.

Diversion from the Black Market Also Involves People, not just Plants

Much of the focus in the coverage of state regulated marijuana has been on the plants, the product, and the money. Michelle Alexander, Associate Professor of law at Ohio State University and renowned author, has illuminated the irony of a movement where whites are now looking to marijuana with dollar signs while communities of color still suffer the consequences of the failed war on drugs. “Here are white men poised to run big marijuana businesses, dreaming of cashing in big—big money, big businesses selling weed—after 40 years of impoverished black kids getting prison time for selling weed, and their families and futures destroyed. Now, white men are planning to get rich doing precisely the same thing?” This highlights the importance of focusing on the people, especially those communities who have been affected most, in the rehabilitation of California’s relationship with marijuana.

No matter how you view marijuana reform, any chance of a successful rehabilitation of California’s drug policy must focus on people. Some see marijuana reform as a civil rights issue, citing the failed war on drugs and overcrowding of prisons as evidence that change is needed. If you view reform as a civil rights issue, how do you reconcile that belief with a system where the people who have been the most adversely affected by the war on drugs are now precluded from taking part in the state-regulated market? Others see drug use as something that isn’t going to change, so the government might as well collect additional tax revenue. If you are part of the group who sees dollar signs from tax revenue, the success of taxation depends on a shift from the black market to the legitimate market. This would depend on those currently operating in the shadows being able to operate, or get hired by, legitimate businesses. Regardless of the policy goal, the most important aspect of rehabilitating California’s relationship with marijuana is the shift from the black market to the legal market, which includes the people.

Black market marijuana is grown and sold by a black market labor force. What happens to that labor force when marijuana is legalized? The Cannabist recently published an article on black market growers in Colorado’s state regulated market. Titled “A divided weed world: Black market growers and legit industry jobs,” the article addresses the problems of merging the black market and the legitimate marijuana trade. First, there are the legal hurdles to overcome. If a person has a certain criminal record, he or she legally cannot receive a business license. Those looking for employment at a cannabusinesses must be of good moral character, meaning any criminal history will be considered. Additionally, black market growers aren’t financially incentivized to enter a legal market, where they will take a significant pay cut if they can even get a job. The competition for work is high and most available jobs are entry-level, paying $10 per hour.

Additionally, the legitimate marijuana business is wary about including those who previously operated in the shadows. Being “in any way connected to black market growers (or any type of crime) is the kiss of death in this business.” Not only is it a legal issue, legitimate marijuana businesses are split on the benefit of including black market growers in their operations. Some business owners cited applicable knowledge and experience as the positives of a black market background, but applicants are “better off never mentioning he or she has experience growing and selling their own.” Even in the absence of a criminal record, there is a “stigma that comes with being a black market grower.” There is the concern about bad habits that would be carried over and the sometimes-rocky transition of going from being your own boss to integrating into an already established and functioning business.

While the Cannabist article explored some the problems faced by a small segment of the black market in Colorado, it provides a lens with which to view the broader problem of integration into the legal market in California. Not only will there be growers needing to transition to the legitimate market, there will be trimmers, processors, and dealers. Street level dealers and trimmers do not have the same level of specialized skill and knowledge as growers. Dealers may arguably have more of a tendency to flout laws, for example by selling to minors. Each different area of employment will bring to light different problems and policy considerations.

There is also the criminal history of black market workers to consider. A criminal record makes it difficult to find any gainful employment, but this will be exacerbated in the legitimate marijuana market by regulations that exclude the justice involved from receiving licenses or being hired. The effect of criminal records for both licensing and employment purposes will have a greater impact on communities of color in California, where Latinos are arrested at higher rates than whites, and Blacks are arrested at an even higher rate. While there will be disparate impacts from barriers based on criminal history in California, there are also race-neutral reasons for excluding the justice-involved in the state regulated market that require consideration. For example, it would be reasonable to refuse a business license to an individual convicted of financial crimes to prevent money laundering. Also, because legitimate marijuana is still a cash-only business, barring convicted tax evaders or embezzlers would be sensible policy.

Furthermore, economic requirements, wages, and competition will be a contributing factor to keeping black market workers from turning legit. The licensing structure and any vertical integration requirements could prevent individuals from opening their own businesses. Like in Colorado, those making money in the black market will not be incentivized to transition to the legal market at a significant pay cut, where their wages will also be taxed. In California, where we have one of the nation’s highest wealth gaps and where Black and Latino communities have much higher poverty rates than whites, economic barriers also adversely affect communities of color. This reinforces Michelle Alexander’s point that those with the money and the privilege will be the people profiting off of marijuana reform.

My future posts for the Drug Law and Policy Blog will delve into the barriers to entry into the future state-regulated market for black market workers in California, with a focus on policy that will best serve to bring them into the fold. Ultimately, there is a general lack of information in about the black market in California, including the racial make up of the labor force, so there are questions that will go unanswered. This fact remains true – without transitioning the black market workforce to the legitimate market, marijuana reform will not succeed in the way we hope. Stay tuned for more information as I wade through the murky waters of black market industries and the ever-evolving arena of state-regulated marijuana.

Cannabis and Intellectual Property: To © or not to ©, and Other Pressing Questions

My contributions will primarily be analysis of different aspects of intellectual property in a market that has decriminalized cannabis while it remains federally illegal.  Can, and more importantly, should a state furnish intellectual property protections when they are unavailable from the federal government?  California’s possible shift from medical cannabis to recreational cannabis raises many questions about commercial and social costs and benefits to affording these protections.  While attorneys and businesses are largely approaching this topic from the perspective of private players,  my goal is to outline not just the various legal challenges and possible solutions to the concerns of cannabis-oriented businesses but, instead, to point out how a state can balance those private interests with public policy, safety, and health concerns.

I am a law student who studied science for my undergraduate degree. I am focusing on intellectual property law with an emphasis on patent prosecution. I am an associate on the Santa Clara High Tech Law Journal, and I have developed a strong interest in the intellectual property challenges presented to emerging markets and businesses.  Because of the politicized nature of these topics I am writing under a pseudonym, Lucilius, who was a friend and correspondent of one of my favorite writers.