While cannabis is nearing legalization in California, some are still looking to push it out. The City of Pasadena has forced an eviction of a retail dispensary. We sat down with Joshua Schneiderman of Snell & Wilmer to find out the legal implications here. Here is what he tells us about the recent forced eviction and the legal issues at play in the decision.

GlobeSt.com: Tell me about the recent forced eviction case of a marijuana dispensary owner in Pasadena.

Joshua Schneiderman: Under California's Medicinal and Adult Use Cannabis Regulation and Safety Act, California cities have discretion to determine how they will regulate commercial cannabis activities within their borders. Pasadena is one of the cities that has elected, at present, to completely ban commercial cannabis activities within its borders. When the City discovers a commercial marijuana business operating in its borders, it will generally issue a cease and desist order and impose fines. Recently, however, the City has had to figure out what to do about an elusive marijuana dispensary operator who has been hard to find and has ignored the City's cease and desist order. Faced with that, Pasadena's Code Compliance Manager has recommended in this instance that the City order the landlord of the property to evict the tenant. This would be the first time the City uses its enforcement authority against a property owner.

GlobeSt.com: What are some of the legal issues at play from this decision?

Schneiderman: This case has implications far beyond real estate. I think there's a false assumption out there that companies that do business with cannabis companies are generally not running any legal risks so long as they aren't growing, manufacturing, distributing or selling cannabis. That's a terrible assumption, and Pasadena's actions here highlight how it's wrong. If you rent property to a cannabis business, or if you sell goods or provide services to a cannabis business, you run a risk, and you need to have a full understanding of the regulatory environment to make an educated decision as to whether that's a risk worth taking and how to mitigate that risk.

GlobeSt.com: What impact could this decision have on the cannabis industry statewide? And, locally in Los Angeles?

Schneiderman: For the first time, starting in January 2018, California's regulations governing commercial cannabis activities will kick in, and the State will start issuing licenses. I'd imagine that very soon thereafter, we'll start to see a crackdown on those businesses that aren't licensed or that violate the regulations in some other way. Cracking down on an industry that has operated unregulated for decades is not an easy task though, and I think we'll see the State and cities start to get creative on how they enforce their regulations. I wouldn't be surprised at all to see more cities utilize their leverage over landlords to enforce their cannabis regulations. As far as Los Angeles goes, the good news is that in early December the Los Angeles City Council finally adopted its cannabis ordinances, which do allow commercial cannabis activities within city borders. That said, I would expect that as soon as Los Angeles gets its arms around how it will implement and enforce its ordinances, it will turn its attention to those operators who decide they don't intend to play by the rules, and I wouldn't be surprised if Los Angeles uses similar tactics as Pasadena to enforce its regulations.

GlobeSt.com: What do landlords renting to cannabis businesses need to keep in mind?

Schneiderman: First and foremost, despite California law, the fact of the matter is that marijuana is a Schedule I narcotic under the United States' Controlled Substances Act of 1970. Growing, selling, manufacturing and distributing cannabis is illegal under federal law. That means that if the federal government truly decided to crack down on the industry aggressively, they have the power to seize any property being used in a marijuana business. There are ways to mitigate this risk that an attorney can help with, but there is no way to eliminate the risk. Second, the conflict between federal and state law in the cannabis industry raises a number of issues that require careful consideration when drafting leases. Leases in this space need to be carefully drafted to take into consideration issues such as (i) whether the landlord can accept a security interest in the tenant's inventory, (ii) what happens if the tenant loses its licensing, (iii) what happens if State or local cannabis regulations change during the term of the lease, and (iv) what is the appropriate venue for dispute resolution. The number of things a landlord needs to be cautious of here is fairly lengthy, so it's important to work with an attorney who is familiar with cannabis law in addition to traditional real estate counsel.

GlobeSt.com: How will the legalization of marijuana affect these legal issues or the ability of local municipalities to force eviction?

Schneiderman: While there is a lot that's up in the air in terms of marijuana regulation and enforcement, one thing that is crystal clear is that cities have full discretion to enact more restrictive regulations than the State as a whole, and to completely ban commercial cannabis activities within their borders. In light of that, legalization at the State level should not have any impact on the power of a municipality to crack down on cannabis businesses within their borders. I do expect, initially, however, that the State and local municipalities will be overwhelmed with license applications and implementing the regulatory framework during the first few months of 2018, and may not have the resources to aggressively go after the illicit operators immediately. Once the State and local governments do get their arms around regulation and catch up with the license applications, I would not be surprised if we see a significant crack down at the State and local level on those that continue to operate unlicensed facilities. When that happens, I expect the State and cities will use all enforcement powers available, including license revocation and fines, and in some cases, forced evictions.

Instant Insights /

Pasadena Forces Dispensary Eviction

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