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Publications
Medical Marijuana Dispensaries: The New Retail Paradigm
Sedgwick’s Real Estate Newsletter
So you thought it was illegal to sell marijuana? Think again – in California, a medical marijuana dispensary may be moving in just down the block from a building you own or occupy, or one might propose leasing or buying space from you. While medical marijuana arguably serves a valuable purpose for California residents, the operation of dispensaries leads to many significant real property and land use questions: Specifically, is there any regulation of dispensaries? Are there legal or other ramifications for those who lease or sell property to dispensaries? And, do those who own or occupy property near dispensaries have any legal rights with respect to them?
Dispensaries, Concerns and Possible Benefits
Medical marijuana dispensaries are typically businesses that supply and possibly grow medical marijuana for persons who are authorized under California law (or other state law) to obtain and possess marijuana for medical purposes. Dispensaries have potential effects on the neighborhood in which they exist, which should be considered carefully if one is proposed near you. If you are considering leasing to a dispensary, there are additional areas of concern, such as considerations related to your other tenants, and the risk of the leased premises (or even the entire property) being seized under federal, state or local regulations pertaining to controlled substances or public nuisances.
Adverse effects of dispensaries might include smoke, odors, additional foot and car traffic, an increase in impaired driving in the area, possible security problems, and the overall image of the area. These issues may be affected by the operational characteristics of the proposed business, such as whether plants will be grown on-site (for building operators, this could translate into both security issues and vastly increased energy use), the hours of operation, what types of marijuana products will be sold, what other activities are proposed, how the marijuana will be priced and what security measures will be in place. For example, if marijuana is sold at less than "street value," there is the danger that a secondary market may be created for resale of the drug after the purchaser has left the dispensary.
In addition to a dispensary's operations, its proposed location may have legal ramifications. For instance, under state law, marijuana may not be smoked within 1,000 feet of a public or private school (Cal. Health & Safety Code § 11362.79), and under many local laws, dispensaries are prohibited within certain distances of schools and/or other specified "sensitive uses."
It should also be noted, however, that at least some dispensaries have been active in their local communities, and are reportedly lauded by neighbors for their civic service and efforts to keep their neighborhoods clean and secure.
Regulation of Medical Marijuana and Dispensaries
But, can marijuana dispensaries possibly be legal?
Under the 1970 federal law known as the Controlled Substances Act (21 U.S.C. § 801 et seq.), the manufacture, distribution or possession of marijuana – whether for medical purposes or otherwise – is a federal criminal offense. California state law also prohibits the possession, sale, cultivation or transportation of marijuana except that, in 1996, California voters passed the Compassionate Use Act (Health & Safety Code § 11362.5), which gave seriously ill Californians the right to obtain and use marijuana for medical purposes. In 2004, the California Legislature enacted the Medical Marijuana Program Act (Health & Safety Code §§ 11362.7-11362.83), clarifying the scope of the Use Act and providing a regulatory structure for achieving its goals. Contrary to popular belief, neither the Use Act nor the Program Act "decriminalize" any type of marijuana use; instead, they provide that the state will not prosecute certain activities involving marijuana when those activities are related to medical purposes.
Neither the Use Act nor the Program Act authorizes the operation of dispensaries – medical marijuana users and their caregivers have created the dispensary model to "pool" their abilities collectively to cultivate and distribute medical marijuana. To complicate matters further, local regulation of dispensaries varies tremendously. Some cities and counties have enacted moratoria on new dispensaries, or even prohibit dispensaries altogether (for example, the Richmond City Council recently voted to extend an existing ban on dispensaries until January 20, 2011, or until the city adopts permanent zoning provisions to regulate dispensaries and cooperatives). Other jurisdictions regulate dispensaries to varying degrees through legislation passed either by the governing bodies or through voter initiatives. (For instance, the Berkeley City Code includes a citizen-enacted ordinance permitting up to three dispensaries within city limits, and the Los Angeles City Council recently enacted legislation to restrict significantly the operations and locations of dispensaries, which some have estimated could result in the closure of up to 800 existing dispensaries.)
State, Federal, and Local Enforcement Policies
The California state attorney general issued guidelines in 2008 to inform patients, law enforcement and local communities on what is allowed and what is not allowed with regard to medical marijuana under California law. These guidelines addressed not only the operation of dispensaries but also the treatment of "medical marijuana identification card" holders, the return of unlawfully seized medical marijuana, and the amount of marijuana that a patient may possess at any one time, among other things. These guidelines clarify California law requirements pertaining to dispensaries. Dispensaries must be nonprofit organizations (Cal. Health & Safety Code § 11362.765(a)), they must distribute only "lawfully cultivated marijuana" (i.e., only marijuana grown by a person entitled to the protections of the Use Act or his or her primary caregiver (Cal. Health & Safety Code §§ 11362.765, 11362.775)) and they may distribute or sell marijuana only to "members" (Cal. Health & Safety Code § 11362.765(c)). The state attorney general's guidelines recommend that law enforcement officers not arrest individuals or seize marijuana "when the officer determines from the facts available that the cultivation, possession or transportation is permitted under California's medical marijuana laws."
In October 2009, the U.S. attorney general announced guidelines for federal prosecutors in the 14 states with laws authorizing the use of medical marijuana. The guidelines clarify that so long as people comply with state and local law regarding medical marijuana, they will not be the "focus of federal resources." However, this policy does not make the use or distribution of medical marijuana any more legal under federal law than it was previously.
Neighbors Fight Back, and So Do the Dispensaries
Given state and federal policies, and ongoing efforts to address problems associated with dispensaries, local jurisdictions have resorted to a number of different strategies with varying degrees of success. In February 2010, for instance, a judge ordered a Walnut Creek dispensary to close because the zoning district in which it was located did not specifically permit the retail sale of marijuana. In January 2010, the Santa Barbara police forced a dispensary to close because it allegedly violated the state requirement of checking the medical marijuana identification cards of its members. Also in January, a judge issued a preliminary injunction ordering all dispensaries in Fresno to cease operations until a court could hear their challenge to a 2007 city ordinance requiring dispensaries to comply with both state and federal law (which essentially prohibits all dispensaries by forbidding the sale or distribution of marijuana). Finally, in September 2009, San Diego County closed down 14 dispensaries for (among other things) illegally profiting from the sale or distribution of marijuana. By contrast, however, in December 2009, a judge denied the City of San Jose's request for a preliminary injunction against a dispensary that had opened without a business license, stating that the city had not proved that the dispensary would do "irreparable harm" by staying open until a trial could occur on whether it complied with city code and federal law.
Citizens concerned about existing dispensaries have often been instrumental in their closure. In the case of the 14 San Diego dispensaries discussed above, the investigation that led to their closure was initiated by neighbors' complaints of noise, robberies and vandalism. In addition to lodging complaints with the relevant jurisdictions, other avenues of recourse could include pursuing a "public nuisance" action or organizing neighbors to file multiple small claims court actions for loss of peace and safety. Depending on how the proposed dispensary could affect the neighborhood, there may be a variety of other remedies as well.
Medical marijuana proponents have filed lawsuits as well against various state and local laws (including the recent Los Angeles ordinance), arguing among other things that they illegally restrict access to medical marijuana in violation of the directives of the Use Act. None of these suits has yet resulted in judgment against a state or local government. An ongoing movement seeks to legalize marijuana at the state or federal level, to date without success.
Conclusion
There are those who say that a large percentage of the dispensaries in California are run by legitimate, not-for-profit operators, in compliance with current state and local laws. Indeed, many would argue that these dispensaries provide a critically important service to seriously ill people. In many jurisdictions, however, once a dispensary has been established, it can change hands without any additional government approval. Therefore, even if a dispensary begins operations as a legitimate entity, it may later be operated by someone whose activities do not comply with the law. However, before leasing or selling property to a dispensary, or encouraging or protesting the establishment of a dispensary, it is important to investigate your options and the ramifications of taking action, both in terms of potential impact on the neighborhood, and under the current regulations applicable to dispensaries at every jurisdictional level – state, federal and local.
What would happen if a dispensary proposed to locate near you or to lease or buy property from you? If you decide to oppose a proposed dispensary, you should not only pursue any political avenues available, but also examine strategies based on any approval process required for the establishment of the dispensary, including any zoning permit requirements and review under the California Environmental Quality Act. If you are considering leasing or selling property to a dispensary, your considerations should include: any liability you may incur from conducting a transaction with a business that is operating in violation of federal and perhaps also state and local law; the fact that future changes in the law or governmental policy could force the proposed dispensary to cease operations before the transaction is complete or the lease term has ended; and possible political bias for or against dispensaries during any required public approval process. In any of these cases, be sure to seek assistance from someone well-versed and up to date on the convoluted framework of medical marijuana regulation.
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