M E M O R A N D U M TO:

M E M O R A N D U M TO: Heather McLaughlin, Benicia City Attorney cc: Thomas B. Brown, Esq. FROM: Stephen A. McEwen, Esq. DATE: RE: Benicia Marijuana Regulations Following Proposition 64 Introduction This memorandum analyzes the City of Benicia s marijuana regulations in light of Proposition 64, which is known as the Control, Regulate and Tax Adult Use of Marijuana Act (the AUMA ) and was approved by voters on November 8 th. Under the AUMA, a variety of non-medical marijuana businesses can operate subject to local ordinances. In addition, individuals can cultivate marijuana for their own personal recreational uses provided they comply with local regulations. Under Municipal Chapters 9.60 and 17.84 and recently-adopted Interim Urgency Ordinance No. 16-13, Benicia currently prohibits all medical and non-medical marijuana businesses and facilities and all non-medical marijuana deliveries. The City also prohibits all marijuana cultivation except for indoor cultivation by qualified patients and non-medical users of up to six mature or 12 immature marijuana plants. The next step will be the creation of permanent zoning regulations regarding the various marijuana land uses recognized under state law. In order to ensure that the City maintains local control over marijuana land uses to the fullest extent possible, the City should consider the following issues: Commercial marijuana businesses. Regardless of whether the City wants to prohibit or regulate marijuana businesses, the City should make sure that the Municipal Code addresses both medical and non-medical marijuana businesses in express terms. Unless a city has clear regulations regarding recreational marijuana businesses, the state could issue a license to an otherwise unwanted establishment. Furthermore, if the City does not have express marijuana business regulations, it may be more difficult for the City to bring enforcement actions against violators. Private cultivation. Under the AUMA, people may only grow up to six marijuana plants at their private residence and there may not be more than six plants being cultivated per private residence at any one time. The City may ban Los Angeles Inland Empire Marin County Oakland Orange County Palm Desert Silicon Valley Ventura County

Page 2 all non-medical marijuana cultivation except for private indoor cultivation of six plants or less, which may be subject to reasonable regulations. The City will need to determine the scope and nature of any indoor cultivation regulations, if any. The City will also need to decide whether it wants to allow qualified patients and/or primary caregivers to cultivate greater amounts of marijuana. Marijuana deliveries. The City will need to decide whether to continue the existing marijuana delivery regulations, which only allow medical marijuana deliveries. Under both the AUMA and the state s medical marijuana laws, the City has the discretion to prohibit any delivery that originates or ends within its boundaries. With these modifications to its marijuana regulations, Benicia will be better positioned to address the unique challenges posed by marijuana land uses, which are likely to become more prevalent following the AUMA s passage. Background On October 9, 2015, Governor Brown signed Assembly Bills 243 and 266 and Senate Bill 643. Taken together, the three bills create the Medical Cannabis Regulation and Safety Act ( MCRSA ) 1, a comprehensive state regulatory and licensing system governing the cultivation, testing, and distribution of medical marijuana, as well as physician recommendations for medical marijuana. MCRSA is intended to govern all commercial cannabis activities, which are defined as cultivation, possession, manufacture, processing, storing, laboratory testing, labeling, transporting, distribution, or sale of medical cannabis or a medical cannabis product. Under MCRSA, all medical marijuana businesses, or commercial cannabis activities, must have both a state license and local permit, license, or other authorization in order to operate lawfully within California. (Bus. & Prof. Code 19320(a).) On November 8, 2016, California voters approved the AUMA, which allows individuals to possess, use, and cultivate recreational marijuana in certain amounts. An individual may possess up to 28.5 grams of non-concentrated marijuana or 8 grams of marijuana in a concentrated form (e.g., marijuana edibles). In addition, an individual may cultivate up to six marijuana plants at his or her private residence provided that no more than six plants are being cultivated on the property at one time. The AUMA also establishes a regulatory system for commercial businesses that is very similar to the 1 Senate Bill 837, signed by Governor Brown on June 27, 2016, changed the name of the Medical Marijuana Regulation and Safety Act to the Medical Cannabis Regulation and Safety Act.

Page 3 medical marijuana regulatory system under MCRSA. Under the AUMA, recreational marijuana cultivators, manufacturers, distributors, retailers, and testing laboratories may operate lawfully if they obtain a state license and comply with local ordinances. Neither MCRSA nor the AUMA limits local police power authority over commercial marijuana business and land uses. Cities may prohibit such businesses completely if they so choose. With regard to private cultivation, as noted above, cities may ban private outdoor marijuana cultivation, but they may not completely ban private indoor cultivation of six marijuana plants or less. The AUMA provides that private indoor cultivation of six marijuana plants or less is lawful under both state and local law and is only subject to reasonable local regulations. Benicia currently imposes the following restrictions on marijuana land uses: All medical and non-medical commercial marijuana activities are prohibited. (Mun. Code 9.60.020, 9.60.040, 17.84.020; Ord. No. 16-13, 3.) This prohibition extends to any marijuana activity that would require a state license under either MCRSA or the AUMA. This would include marijuana cultivators, manufacturers, distributors, testing laboratories, and retailers. Private outdoor marijuana cultivation for both medical and non-medical purposes is prohibited. (Mun. Code 9.60.030, 17.84.010; Ord. No. 16-13, 4.) All indoor cultivation is also prohibited, except that any qualified patient or nonmedical user may cultivate up to six mature or 12 immature marijuana plants at their private residence, provided that the cultivation occurs in an enclosed structure and the cultivation is not detectible in any way from a public right-of-way or adjoining property. (Mun. Code 9.60.030; Ord. No. 16-13, 4.) Nonmedical marijuana cultivation is limited to six mature or 12 immature plants per parcel. Non-medical marijuana deliveries are prohibited. (Mun. Code 9.60.040.) There are no restrictions on medical marijuana deliveries. Recommended Actions and Regulatory Options Issue #1 Commercial Marijuana Activities The first task for the City Council is to determine how it wants to address commercial marijuana businesses. MCRSA includes three separate provisions that protect local police power authority over medical marijuana establishments, which includes the authority to prohibit such businesses. Business and Professions Code

Page 4 section 26200, which is part of the AUMA, provides that cities may completely prohibit the establishment or operation of one or more types of businesses licensed under the AUMA. Therefore, cities have a wide range of regulatory options under MCRSA and the AUMA to deal with marijuana land uses: The City could continue its existing prohibition against the medical marijuana businesses recognized under MCRSA and the recreational marijuana businesses recognized under the AUMA. Under this option, the City would prohibit all commercial marijuana businesses throughout the City. If the City decides to take this approach, I would recommend separate definitions for medical marijuana facilities and non-medical marijuana facilities as follows: - "Medical marijuana facility" means any business, facility, use, establishment, property, or location, whether fixed or mobile, where medical marijuana is sold, made available, delivered, and/or distributed by or to three or more people. A medical marijuana facility includes any business, facility, use, establishment, property, or location, whether fixed or mobile, where a commercial cannabis activity, as defined by Business and Professions Code section 19300.5(j), takes place. A "medical marijuana facility" does not include the following uses, as long as the location of such uses are otherwise regulated by this Code or applicable law: a clinic licensed pursuant to Chapter 1 of Division 2 of the Health and Safety Code, a health care facility licensed pursuant to Chapter 2 of Division 2 of the Health and Safety Code, a residential care facility for persons with chronic life-threatening illness licensed pursuant to Chapter 3.01 of Division 2 of the Health and Safety Code, a residential care facility for the elderly licensed pursuant to Chapter 3.2 of Division 2 of the Health and Safety Code, a residential hospice, or a home health agency licensed pursuant to Chapter 8 of Division 2 of the Health and Safety Code, as long as any such use complies strictly with applicable law including, but not limited to, Health and Safety Code sections 11362.5, 11362.7, and following. - Non-medical marijuana facility means any building, facility, use, establishment, property, or location where any person or entity establishes, commences, engages in, conducts, or carries on, or permits another person or entity to establish, commence, engage in, conduct, or carry on, any activity that requires a state license or nonprofit license under Business and Professions Code sections 26000 and following, including but not limited to marijuana cultivation, marijuana distribution, marijuana transportation, marijuana storage, manufacturing of marijuana

Page 5 products, marijuana processing, the sale of any marijuana or marijuana products, and the operation of a marijuana microbusiness. The City could allow all or some of the marijuana businesses recognized under MCRSA and/or the AUMA. If the City Council decides to allow marijuana businesses under a regulatory scheme, it should consider the following additional questions: - Does the City want to only allow medical marijuana businesses or both medical and non-medical marijuana businesses? - Which types of marijuana businesses does the City want to allow? Under MCRSA, the following licensing categories exist: Type 1 Type 1A Type 1B Type 2 Type 2A Type 2B Type 3 Type 3A Type 3 Type 4 Type 6 Type 7 Type 8 Type 10 Type 10A Cultivation, Specialty Outdoor, Small (5,000 sq. ft. or less or 50 mature plants or less, no artificial lighting) Cultivation, Specialty Indoor, Small (5,000 sq. ft. or less, artificial lighting) Cultivation, Specialty Mixed-Light, Small (5,000 sq. ft. or less, natural or artificial lighting) Cultivation, Outdoor, Small (5,001-10,000 sq. ft, no artificial lighting) Cultivation, Indoor, Small (5,001-10,000 sq. ft., artificial lighting) Cultivation, Mixed-Light, Small (5,001-10,000 sq. ft., natural or artificial lighting) Cultivation, Outdoor, Medium (10,001 sq. ft to one acre, no artificial lighting, DFA will limit number of permits) Cultivation, Indoor, Medium (10,001 sq. ft to one acre, artificial lighting, DFA will limit number of permits) Cultivation, Outdoor, Mixed-Light (10,001 sq. ft to one acre, natural or artificial lighting, DFA will limit number of permits) Cultivation, Nursery Manufacturer level 1, products made using non-volatile solvents Manufacturer level 2, products made using volatile solvents, Department will limit the number of permits Testing Dispensary Dispensary, no more than three retail sites

Page 6 Type 11 Type 12 Distribution Transporter Under the AUMA, the following licensing categories exist: Type 1 Type 1A Type 1B Type 2 Type 2A Type 2B Type 3 Type 3A Type 3B Type 4 Type 5 Type 5A Type 5B Type 6 Type 7 Type 8 Type 10 Type 11 Type 12 Cultivation, Specialty Outdoor, Small (5,000 sq. ft. or less or 50 mature plants or less, no artificial lighting) Cultivation, Specialty Indoor, Small (5,000 sq. ft. or less, artificial lighting) Cultivation, Specialty Mixed-Light, Small (5,000 sq. ft. or less, natural or artificial lighting) Cultivation, Outdoor, Small (5,001-10,000 sq. ft, no artificial lighting) Cultivation, Indoor, Small (5,001-10,000 sq. ft., artificial lighting) Cultivation, Mixed-Light, Small (5,001-10,000 sq. ft., natural or artificial lighting) Cultivation, Outdoor, Medium (10,001 sq. ft to one acre, no artificial lighting, DFA will limit number of permits) Cultivation, Indoor, Medium (10,001 sq. ft to one acre, artificial lighting, DFA will limit number of permits) Cultivation, Outdoor, Mixed-Light (10,001 sq. ft to one acre, natural or artificial lighting, DFA will limit number of permits) Cultivation, Nursery Cultivation, Outdoor, Large (no artificial lighting, greater than one acre) Cultivation, Indoor, Large (artificial lighting, greater than 22,000 square feet) Cultivation, Mixed-light, Large (natural and artificial lighting, greater than 22,000 feet) Manufacturer 1, products made using non-volatile solvents Manufacturer 2, products made using volatile solvents, Department will limit the number of permits Testing Retailer Distributor Microbusiness - What type of restrictions should apply to marijuana land uses? Locational restrictions may include the designation of certain zoning districts as permissible locations and separation requirements to avoid

Page 7 clustering of marijuana land uses. Some cities have limited the number of marijuana establishment permits that they are willing to issue. Operating requirements can be extensive and include the following: the use of licensed security guards, designated hours of operation, prohibition against on-site marijuana consumption, installation of adequate odor control devices and ventilation systems, and limitations on access to minors. - What type of permit or permits will be required? Some cities have imposed conditional use permit requirements for marijuana land uses, while others have required annual renewable regulatory permits. A conditional use permit is a one-time discretionary land use permit that requires a Planning Commission hearing in order to determine if the proposed use is necessary or desirable to the neighborhood, whether it may potentially have a negative impact on the surrounding neighborhood, and whether it should be allowed subject to certain conditions. Conditional use authorizations are entitlements that run with the property, but may be revoked if there are violations of the permit or other nuisance conditions. A regulatory permit is renewed annually, is not a land use entitlement that runs with the land, and is typically issued by a law enforcement official or other similar official who conducts a background check on the proposed business and determines whether it meets the municipal code s basic requirements. While a regulatory permit has the advantage of being subject to an annual review, it puts the burden of making what are essentially land use decisions in the hands of city staff members. - How will the City process marijuana land use applications? A city could take a number of approaches for processing applications: (1) first come, first serve; (2) lottery; and/or (3) scoring system. Under a lottery system, pre-qualified applicants are selected through a random lottery to apply for the required marijuana land use permit. Under a scoring system model, applicants would receive a score based on a review of their applications and, in some instances, an interview. Those applicants who receive the highest scores would then be recommended for approval to the decision making authority. If this selection method is used, it may be preferable to use a neutral outside consultant to review the applications, conduct interviews, and make recommendations. In considering whether or not to allow marijuana businesses, please keep in mind that the California courts have not definitively addressed the extent to which local

Page 8 regulatory and permitting schemes would conflict with either the Federal Controlled Substances Act, which prohibits all marijuana possession, cultivation, and distribution, or Government Code section 37100, which states that cities may pass ordinances not in conflict with the Constitution and laws of the State or the United States. One de-published decision in 2011 called into the question the validity and enforceability of local regulatory schemes. In Pack v. Superior Court (2011) 199 Cal. App. 4th 1070, the court of appeal held Long Beach s permitting system for dispensaries conflicted with federal law and, thus, could not be implemented and enforced. The Supreme Court granted review in Pack and later dismissed the appeal as moot after Long Beach rescinded its regulatory ordinance (Pack v. Superior Court (2012) 283 P.3d 1159, 146 Cal.Rptr.3d 271). As a result, Pack was depublished and is not binding authority. However, the analysis in Pack continues to raise questions about the legality of local regulatory schemes that allow medical marijuana facilities. In Conejo Wellness Center v. City of Agoura Hills (2013) 214 Cal.App.4th 1534, the court observed that any affirmative authorization of medical marijuana activities was likely subject to federal preemption. One court, however, reached a different result on the issue. In City of Palm Springs v. Luna Crest, Inc. (2016) 245 Cal.App.4th 879, the court of appeal concluded the CSA did not preempt a local ordinance that allowed a certain number of dispensaries to operate subject to a local permit. Luna Crest opened a medical marijuana dispensary in Palm Springs without a permit, contending that the CSA preempted Palm Springs regulatory permitting scheme. First, the court concluded that there was no conflict between the CSA and Palm Springs ordinance. The court observed that the CSA did not direct local governments to exercise their regulatory, licensing, zoning, or other power in any particular way, so exercise of those powers with respect to the operation of medical marijuana dispensaries that meet state law requirements would not violate conflicting federal law. Second, the court held that the ordinance was not an obstacle to enforcement of the CSA because a strong local regulatory program for medical marijuana would tend to prevent medical marijuana from contributing to recreational drug abuse and drug trafficking. There is some debate about the extent to which Luna Crest resolves the federal preemption issue or whether it is limited to its particular factual and procedural background. While this issue awaits a definitive appellate ruling, the analyses in Pack and Conejo Wellness raise significant questions about the legality and enforceability of local marijuana regulations. There is a risk that a marijuana opponent or rejected marijuana applicant could sue the City to block a regulatory

Page 9 scheme based on federal preemption (provided that party can establish standing in court). Based on past federal enforcement efforts and threats, there are also risks that the federal government could (1) sue a local government to stop a local regulatory scheme on preemption grounds, (2) file a civil forfeiture action against the owner of a property used for a marijuana establishment (resulting in the governmental seizure of the property), or (3) criminally prosecute any person involved in or facilitating a marijuana establishment. 2 These risks are difficult to assess given the pending shift in presidential administrations and the unknown federal marijuana policy direction that the new administration will take. What type of local taxes should the City impose? If the City Council decides to enact a regulatory scheme for medical marijuana, it should also consider corresponding taxation provisions. The City s options include an excise tax on gross receipts for medical marijuana sales and a tax on marijuana cultivation sites based on the square footage of the facility used for medical marijuana purposes. This type of tax would be considered a general tax and would require approval by a simple majority of voters. The revenue could then be deposited in the City s general fund. There are risks involved in enacting a marijuana taxation measure. First, there is the possibility that marijuana advocates will challenge such measures in court on the theory that they compel collectives to incriminate themselves. (See Leary v. United States (1969) 395 U.S. 6.) We believe that this particular risk is relatively remote under applicable tax laws. Second, the United States Drug Enforcement Agency could seize any funds raised by a marijuana tax under federal criminal forfeiture statutes. There is general consensus that the federal government would prevail if it took a city to court to seize marijuana tax revenues. The federal government has currently taken a hands-off approach to state marijuana laws. This, of course, could change with the new presidential administration. Issue # 2 Personal Cultivation In considering regulations for personal cultivation, the City should consider the following issues: 2 In 2011, the United States Attorneys in the State of Washington sent a letter the Washington Governor and warned that state employees conducting activities under the state s marijuana laws would not be immune from liability under the Controlled Substances Act. We are not aware of any such prosecution in the United States. While we believe that the risk of such a prosecution would be remote and there may be valid defenses for state and local officials, we cannot rule out such a risk completely, especially in light of the uncertainty over the new administration s policy direction on state marijuana laws.

Page 10 What type of personal cultivation must a city allow? As noted above, cities cannot ban the private indoor cultivation of six marijuana plants or less at a private residence. The six-plant limitation is per private residence, not per person. Therefore, a group of non-medical users cannot live together and each grow their own six plants without triggering state licensing requirements. Marijuana ordinances should reflect this limitation on the local police power. Cities, however, can reasonably regulate such cultivation. An example of a bare minimum ordinance that reasonably regulates private indoor cultivation of six plants or less, but prohibits all other marijuana cultivation is as follows: No person or entity may cultivate marijuana at any location in the City, except that a person may cultivate no more than six living marijuana plants inside his or her private residence, or inside an accessory structure to his or her private residence located upon the grounds of that private residence that is fully enclosed and secured against unauthorized entry, provided that the owner of the property provides written consent expressly allowing the marijuana cultivation to occur, the person conducting the marijuana cultivation complies with all applicable Building Code requirements set forth in Chapter 15 of the Municipal Code, there is no use of gas products (CO2, butane, propane, natural gas, etc.) on the property for purposes of marijuana cultivation, and the marijuana cultivation complies with Health and Safety Code section 11362.2(a)(3). This example includes some basic restrictions on private indoor cultivation that would likely be considered permissible reasonable regulations. Some cities that have addressed private indoor marijuana cultivation have imposed local permit and safety inspection requirements. So long as such requirements do not effectively ban private indoor cultivation, courts would probably consider them to be reasonable regulations and therefore permissible under the AUMA. The issue is whether city staff members have the time and resources to implement a private marijuana cultivation permit and inspection program. Many cities have decided based on local circumstances that the burden and expense of local permit and inspection requirements for private indoor cultivation outweigh the potential benefits of the added regulations. How much personal cultivation can a city allow? In theory, a city could allow private individuals to cultivate as much marijuana as they want with or without local regulations, subject to the following state licensing requirements and criminal rules: - Under the AUMA, people can cultivate no more than six marijuana plants

Page 11 per private residence for non-medical purposes. Any non-medical marijuana cultivation beyond the six-plant per residence limit would require a state cultivation license. Without a state license, non-medical marijuana cultivation beyond the six-plant per residence limit would be subject to state law criminal sanctions. - Under MCRSA and the Medical Marijuana Program Act (the MMPA ), no state medical marijuana cultivation license is required for a qualified patient if the cultivation area is 100 square feet or less, the cultivation is for the patient s personal medical use only, and the patient does not distribute the marijuana to any other person. (Health & Safety Code section 11362.777(g).) Similarly, no state cultivation license is required for a primary caregiver if his or her cultivation area is 500 square feet or less, the cultivation is for no more than five qualified patients, and the caregiver does not receive payment except for reimbursement of actual costs. (Ibid.) Any medical marijuana cultivation by patients or caregivers beyond these limits would require a license. - Under the MMPA, qualified patients and primary caregivers may maintain up to six mature or 12 immature marijuana plants per qualified patient without violating state law. Patients and caregivers who stay within this limit will have a defense to any criminal prosecution under state law. Upon a doctor s recommendation, a qualified patient or primary caregiver could lawfully possess a greater amount consistent with a patient s medical needs. (Health & Safety Code 11362(b).) How do these rules affect Benicia s marijuana cultivation regulations? As noted above, Benicia prohibits all marijuana cultivation except for private indoor cultivation of up to six mature or 12 immature marijuana plants per qualified patient or per parcel for non-medical users. This raises the following issues: - First, any qualified patient cultivating marijuana for medical purposes in Benicia will need to confine his or her cultivation to an area no greater than 100 square feet. Any cultivation beyond that area, even if it involves no more than six mature or 12 immature plants, will require a state medical marijuana cultivation license. - Second, each qualified patient living in a particular dwelling can cultivate their own share of medical marijuana; there is not per residence cap. Therefore, multiple qualified patients could live together and each could separately cultivate 6 mature or 12 immature plants.

Page 12 - Third, while Benicia allows non-medical users to cultivate up to 12 immature plants, this would exceed the immunity provided by the AUMA. Under the AUMA, any non-medical user who cultivates more than six marijuana plants (regardless of whether the plants are mature or immature) will need to obtain a state cultivation license. - Finally, Benicia imposes a per parcel limit of six mature or 12 immature marijuana plants for non-medical users. This per parcel limitation conflicts with Health and Safety Code section 11362.2(b)(2), which requires cities to allow private indoor cultivation of up to six marijuana plants per private residence rather than per parcel. The City should consider these points and determine whether it wants to make any revisions to the existing marijuana cultivation rules for both medical and nonmedical users. Issue #3 Marijuana Deliveries Under both MCRSA and the AUMA, a city retains the police power authority to prohibit marijuana deliveries that begin or end within the city s boundaries. A city, however, cannot prevent a delivery service from using public roads to simply pass through its jurisdiction from a licensed dispensary to a delivery location outside of its boundaries. The City currently prohibits non-medical marijuana deliveries, but allows medical marijuana deliveries. The City will need to decide whether it wants to continue this policy and whether it wants to impose any regulations on medical marijuana deliveries. These local regulations could include limitations on the amount of marijuana or cash that delivery people may possess at any one time, reasonable restrictions on commercial signage for delivery vehicles, restrictions on the hours that delivery services may operate, and documentation requirements that would enable law enforcement, if necessary, to confirm that the delivery is lawful under state and local law. Under state law, marijuana deliveries can only be made by licensed dispensaries or retailers. The state is working on the implementing regulations, which may further explain how medical and recreational marijuana deliveries will occur. It will be up to the Department of Consumer Affairs to determine how much marijuana can be transported during the delivery process. This is an important question because a small amount of marijuana can have a significant street value, making it an attractive criminal target. Any health and safety regulations developed by the state for marijuana deliveries will represent the minimum state-wide standards.

Page 13 Conclusion The explicit local control language in MCRSA and the AUMA provide local governments with broad discretion to deal with marijuana land uses. In order to ensure that the City can exercise that authority fully, the City should amend the Municipal Code to address the various marijuana activities that are now recognized under state law.