Delivery is a hot ticket item in the Cannabis Industry and has resulted in a court case filed by multiple California cities against the Bureau of Cannabis Control (“BCC”). Cannabis delivery services, a subsection that falls under the category of retail for purposes of licensing, allows customers to place orders via phone or online and then have their products delivered directly to their doors. Those in the cannabis space are clamoring for local municipalities to expand licensing to permit delivery because it’s significantly cheaper than running a traditional brick and mortar store.
Although delivery is popular for many customers, very few cities in California actually issue retail licenses for cannabis delivery businesses, and those that do usually require the licensee to also run a retail storefront.
On July 13, 2018, the Bureau of Cannabis Control in California adopted Regulation 5416(d), which allows licensed delivery services to deliver products anywhere in California, even if the customer lives in an area that bans retail and/or delivery. Outraged by this new policy, multiple California cities filed a lawsuit against the BCC. The cities included are Santa Cruz, Agoura Hills, Angels Camp, Arcadia, Atwater, Beverly Hills, Ceres, Clovis, Covina, Dixon, Downey, McFarland, Newman, Oakdale, Palmdale, Patterson, Riverbank, Riverside, San Pablo, Sonora, Tehachapi, Temecula, Tracy, Turlock, and Vacaville. The Cities argue that Regulation 5416(d) infringes on their right to prohibit and cannabis-related business within their jurisdiction, and that they exclusively have the right to determine what type of licensed cannabis activity is permitted within their cities. Ultimately, the Cities want the ability to ban delivery services in their city limits.
While the lawsuit by the Cities began to make its way through the court systems, one licensed retailer decided to take matters into his own hands. Salinas-based East of Eden Cannabis Co. filed a lawsuit against the City of Santa Cruz for prohibiting deliveries into unincorporated areas. In court filings, East of Eden said that Santa Cruz threatened criminal investigation and took steps to have its state license revoked, despite the mandate from Regulation 5416(d) that allowed statewide delivery. Now, State Attorney General Xavier Becerra has thrown his hat in the ring in this already high-stakes litigation. In December, the Office of the Attorney General filed a motion on behalf of the BCC to join the lawsuit. The State is throwing its weight behind upholding Regulation 5416(d) and allowing licensed delivery retailers to delivery cannabis statewide.
If the Cities are successful in both cases, the impact of overturning Regulation 5416(d) will be widely-felt and far-reaching. Delivery services will be forced to make some difficult changes to existing business models:
- Continue delivering throughout California, but look into each individual city to determine if delivery is banned or allowed
- Shrink operations to delivery within the city or county limits in which it is licensed
- Deliver state-wide at the risk of fines and threats to their business licenses
Each of the three scenarios will result in higher operating costs. With many cities reporting disappointing cannabis-generated tax revenue in 2019 that fell short of estimates, prohibiting growth seems contrary to the Cities’ own interests. Currently, this case does not have a resolution.
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The Cannabis industry is constantly evolving, and this is one of the many cases we will see regarding policies. Businesses specializing in everything from retail and delivery to manufacturing and packaging need to have a Cannabis professional on their side. Hire Unlock Legal. Our team knows the ins and outs of Cannabis law here in California and can help you remain in compliance and successfully manage the hurdles that come along with operating a Cannabis business.
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