Date of Hearing:

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

Evan Low, Chair

ABPCA Bill Id:AB 2094

Author:(Jones-Sawyer) – As Amended Ver:May 6, 2020

SUBJECT: Cannabis: facilities used for unlawful purposes.

SUMMARY: Imposes additional liability on persons who rents, leases, or makes available a property, building, room, space, or enclosure under their management or control for the purpose of unlawfully cultivating, manufacturing, selling, storing, or distributing controlled substances by subjecting such persons to a civil penalty of up to $30,000 when the controlled substance is illicit cannabis.

EXISTING LAW:

1. Enacts the Medicinal and Adult-Use Cannabis Regulation and Safety Act to provide for a comprehensive regulatory framework for the cultivation, distribution, transport, storage, manufacturing, processing, and sale of medicinal and adult-use cannabis. (Business and Professions Code (BPC) §§ 26000 et al.)
2. Provides for twenty total types of cannabis licenses including subtypes for cultivation, manufacturing, testing, retail, distribution, and microbusiness; requires each licensee except for testing laboratories to clearly designate whether their license is for adult-use or medicinal cannabis. (BPC § 26050)
3. Establishes the Bureau of Cannabis Control (BCC) within the Department of Consumer Affairs, previously named the Bureau of Marijuana Control, the Bureau of Medical Cannabis Regulation, and the Bureau of Medical Marijuana Regulation, for purposes of regulating microbusinesses, transportation, storage, distribution, testing, and sale of cannabis and cannabis products within the state. (BPC § 26010)
4. Requires the BCC to convene an advisory committee to advise state licensing authorities on the development of standards and regulations for legal cannabis, including best practices and guidelines that protect public health and safety while ensuring a regulated environment for commercial cannabis activity that does not impose such barriers so as to perpetuate, rather than reduce and eliminate, the illicit market for cannabis. (BPC § 26014)
5. Provides the Department of Food and Agriculture with responsibility for regulating cannabis cultivators. (BPC § 26060)
6. Provides the Department of Public Health with responsibility for regulating cannabis manufacturers. (BPC § 26130)
7. Establishes grounds for disciplinary action against cannabis licensees, including failures to comply with state licensing requirements as well as local laws and ordinances. (BPC § 26030)
8. Subjects cannabis businesses operating without a license to civil penalties of up to three times the amount of the license fee for each violation in addition to any criminal penalties. (BPC § 26038)
9. Provides that all persons concerned in the commission of a crime, including those who aid and abet in its commission, are principals in that crime. (Penal Code § 31)
10. States that a public nuisance is one which affects at the same time an entire community or neighborhood, or any considerable number of persons, although the extent of the annoyance or damage inflicted upon individuals may be unequal. (Civil Code (CIV) § 3480)
11. Authorizes a private person to maintain an action for a public nuisance, if it is specially injurious to that person, but not otherwise. (CIV § 3493)
12. Allows a public nuisance to be abated by any public body or officer authorized by law. (CIV § 3494)
13. Provides that every building or place used for the purpose of unlawfully selling, serving, storing, keeping, manufacturing, or giving away any controlled substance, and every building or place wherein or upon which those acts take place, is a nuisance which shall be enjoined, abated, and prevented, and for which damages may be recovered, whether it is a public or private nuisance. (Health and Safety Code (HSC) § 11570)
14. Specifically authorizes the district attorney or county counsel of the county, or the city attorney of any incorporated city or of any city and county, or any citizen of the state, to maintain an action to abate and prevent the nuisance and to perpetually enjoin the owner, lessee, or agent of the building or place in or upon which the nuisance exists from directly or indirectly maintaining or permitting the nuisance where the nuisance involves the unlawfully selling, serving, storing, keeping, manufacturing, or giving away any controlled substance. (HSC § 11571)
15. Subjects a person who violates or disobeys an order of abatement to a fine of not less than $500 nor more than $10,000, or by imprisonment in the county jail for not less than one nor more than six months, or by both. (HSC § 11580)
16. If a court finds that any vacancy resulting from closure of a building or place may create a nuisance or that closure is otherwise harmful to the community, in lieu of ordering the building or place closed, authorizes the court to order the person who knowingly permits controlled substances to be unlawfully sold, served, stored, kept, or given away in or from a building or place they own to pay damages in an amount equal to the fair market rental value of the building or place for one year to the city or county in whose jurisdiction the nuisance is located for the purpose of carrying out drug abuse treatment, prevention, and education programs. (HSC § 11581)
17. Provides that any person who has under their management or control any building, room, space, or enclosure, either as an owner, lessee, agent, employee, or mortgagee, who knowingly rents, leases, or makes available for use, with or without compensation, the building, room, space, or enclosure for the purpose of unlawfully manufacturing, storing, or distributing any controlled substance for sale or distribution shall be punished by imprisonment in the county jail for not more than one year. (HSC § 11366.5)
18. Lists cannabis as a Schedule I controlled substance within the state’s Uniform Controlled Substances Act.

THIS BILL:

1. Specifically prohibits a person who has management or control of a property, building, room, space, or enclosure, either as an owner, lessee, agent, employee, or mortgagee, from renting, leasing, or making available for use, with or without compensation, the property, building, room, space, or enclosure for the purpose of unlawfully cultivating, manufacturing, selling, storing, or distributing cannabis.
2. Subjects persons who violate the above prohibitions to civil penalties of up to $30,000 for each violation.
3. Provides that each day of violation shall constitute a separate violation of this section.
4. Authorizes a licensing entity, the Office of the Attorney General, or a local jurisdiction to bring an action for a civil penalty under this bill.
5. Provides that an action for civil penalties shall be commenced within three years from the date of the first discovery of the violation.
6. Deposits civil penalties imposed under this bill into the Cannabis Fines and Penalties Account, minus the amount necessary to reimburse the prosecuting agency for unrecovered costs.
7. Provides that a civil penalty imposed under this bill shall be in addition to any other civil or criminal penalty, including prosecution of existing prohibitions against renting, leasing, or making available for use, with or without compensation, the property, building, room, space, or enclosure for the purpose of unlawfully cultivating, manufacturing, selling, storing, or distributing controlled substances.

FISCAL EFFECT: Unknown; this bill is keyed fiscal by the Legislative Counsel.

COMMENTS:

Purpose. This bill is sponsored by the author. According to the author:

When voters passed Proposition 64, they did so with the intent of allowing legal dispensaries to flourish, providing communities that were targeted by the war on drugs to become entrepreneurs in this new industry. In Los Angeles, my district, illegal dispensaries outnumber legal dispensaries ten to one. These illegal dispensaries do not adhere to state regulations, putting the health and safety of residents at risk in favor of their own profits. Illegal dispensaries can be closed by law enforcement on one block today, and begin operating again two blocks over. Imposing a fine on landlords, ensures that they will do their due diligence in vetting cannabis businesses that seek to open on their property. AB 2094 will provide law enforcement and local authorities an important tool to help spur the growth of legal cannabis businesses while shutting down the thousands of illegal dispensaries.

Background.

Early History of Cannabis Regulation in California. Consumption of cannabis was first made lawful in California in 1996 when voters approved Proposition 215, or the Compassionate Use Act. Proposition 215 protected qualified patients and caregivers from prosecution relating to the possession and cultivation of cannabis for medicinal purposes, if recommended by a physician. The initiative prohibited physicians from being punished or denied any right or privilege for making a medicinal cannabis recommendation to a patient. Proposition 215 also included findings and declarations encouraging the federal and state governments to implement a plan to provide for the safe and affordable distribution of cannabis to patients with medical needs.

The regulatory scheme for medicinal cannabis was further refined by SB 420 (Vasconcellos) in 2003, which established the state’s Medical Marijuana Program (MMP.) Under the MMP, qualified patients were eligible to obtain a voluntary medical marijuana patient card, which could be used to verify that the patient or a caregiver had authorization to cultivate, possess, transport, or use medicinal cannabis. The MPP’s identification cards were intended to help law enforcement officers identify and verify that cardholders were allowed to cultivate, possess, or transport limited amounts of cannabis without being subject to arrest. The MMP also created protections for qualified patients and primary caregivers from prosecution for the formation of collectives and cooperatives for medicinal cannabis cultivation.

Without the adoption of a formal framework to provide for state licensure and regulation of medicinal cannabis, a proliferation of informally regulated cannabis collectives and cooperatives were largely left to the enforcement of local governments. As a result, a patchwork of local regulations was created with little statewide involvement. More restrictive laws and ordinances by cities and counties were ultimately upheld by the California Supreme Court in City of Riverside v. Inland Empire Patients (2013) 56 Cal. 4^th 729, which held that state law did not expressly or implicitly limit the inherent authority of a local jurisdiction, by its own ordinances, to regulate the use of its land, including the authority to provide that facilities for the distribution of medicinal cannabis be prohibited from operating within its borders.

Even after several years of allowable cannabis cultivation and consumption under state law, a lack of a uniform regulatory framework led to persistent problems across the state. Cannabis’s continued illegality under the federal Controlled Substances Act, which classifies cannabis as a Schedule I drug ineligible for prescription, generated periodic enforcement activities by the United States Department of Justice. The constant threat of action by the federal government created apprehension among California’s cannabis community.

A document issued by the United States Attorney General in 2013 known as the “Cole memorandum” indicated that the existence of a strong and effective state regulatory system, and a cannabis operation’s compliance with such a system, could allay the threat of federal enforcement interests. Federal prosecutors were urged under the memo to review cannabis cases on a case-by-case basis and consider whether a cannabis operation was in compliance with a strong and effective state regulatory system prior to prosecution. The memo was followed by Congress’s passage of the Rohrabacher-Farr amendment, which prohibits the United States Department of Justice from interceding in state efforts to implement medicinal cannabis.

MCRSA. After several attempts to improve the state’s regulation of cannabis, the Legislature passed the Medical Marijuana Regulation and Safety Act—subsequently retitled the Medical Cannabis Regulation and Safety Act (MCRSA)—in 2015. MCRSA consisted of a package of legislation: AB 243 (Wood); AB 266 (Bonta, Cooley, Jones-Sawyer, Lackey, and Wood); and SB 643 (McGuire). MCRSA established, for the first time, a comprehensive statewide licensing and regulatory framework for the cultivation, manufacture, transportation, testing, distribution, and sale of medicinal cannabis to be administered by the newly established BCC within the Department of Consumer Affairs, the CDPH, and the CDFA, with implementation relying on each agency’s area of expertise.

MCRSA vested authority for:

• The BCC to license and regulate dispensaries, distributors, transporters, and (subsequently) testing laboratories, and to provide oversight for the state’s regulatory framework;
  
• The CDPH to license and regulate manufacturers; and
  
• The CDFA to license and regulate cultivators.

While entrusting state agencies to promulgate extensive regulations governing the implementation of the state’s cannabis laws, MCRSA fully preserved local control. Under MCRSA, local governments may establish their own ordinances to regulate medicinal cannabis activity. Local jurisdictions may also choose to ban cannabis establishments altogether.

AUMA. Not long after the Legislature enacted MCRSA, California voters passed Proposition 64, the Adult Use of Marijuana Act (AUMA). The passage of the AUMA legalized cannabis for non-medicinal adult use in a private home or licensed business; allowed adults 21 and over to possess and give away up to approximately one ounce of cannabis and up to eight grams of concentrate; and permitted the personal cultivation of up to six plants. The law retained prohibitions against smoking in or operating a vehicle while under the effects of cannabis, possessing cannabis at a school or other child oriented facility while kids are present, growing in an unlocked or public place, and providing cannabis to minors.

The proponents of the AUMA sought to make use of much of the regulatory framework and authorities set out by MCRSA while making a few notable changes to the structure still being implemented. In addition, the AUMA approved by the voters adopted the January 1, 2018 deadline for state implementation of non-medicinal cannabis in addition to the regulations required in MCRSA that were scheduled to take effect on the same date. The same agencies given authority under MCRSA remained responsible for implementing regulations for adult use.

Under the AUMA, the BCC within the Department of Consumer Affairs continues to serve as the lead regulatory agency for all cannabis, both medicinal and non-medicinal. The AUMA includes 19 different license types compared to the original 17 in MCRSA, and provides the Department of Consumer Affairs (and the BCC) with exclusive authority to license and regulate the transportation of cannabis. The AUMA also authorizes vertical integration models which allows for the holding of multiple license types, as previously prohibited under MCRSA. Additionally, while MCRSA required both a state and local license to operate, the AUMA only stipulated a state license; however, the state is also directed not to issue a license to an applicant if it would “violate the provisions of any local ordinance or regulation.”

The language of the AUMA allows for legislative modifications that “implement” or “give practical effect” to the law by a majority vote. However, what constitutes “implementing” has been interpreted to be limited. Consequently, proposed changes to the voters’ intent in the AUMA require a two-thirds vote and of those, some may be deemed to require voter approval.

MAUCRSA. In the spring of 2017, SB 94 (Committee on Budget and Fiscal Review) was introduced to reconcile the distinct systems for the regulation, licensing, and enforcement of legal cannabis that had been established under the respective authorities of MCRSA and the AUMA. The single consolidated system established by the bill—known as the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA)—created a unified series of cannabis laws and deleted redundant code sections no longer necessary due to the combination of the two systems. MAUCRSA also clarified a number of components, including but not limited to licensing, local control, taxation, testing, and edibles.

Regulations. On January 16, 2019, the state’s three cannabis licensing authorities—the BCC, the CDPH, and the CDFA—officially announced that the Office of Administrative Law had approved final cannabis regulations promulgated by the three agencies respectively. These final regulations replaced emergency regulations that had previously been in place, and made various changes to earlier requirements following the public rulemaking process. The adoption of final rules provided a sense of finality to the state’s long history in providing for the regulation of lawful cannabis sale and use.

Black Market Cannabis Businesses and Landowners. Despite the implementation of the state’s cannabis laws, a widespread marketplace for unlawful cannabis persists. Representatives of local government, law enforcement, and law-abiding cannabis businesses have advocated for additional laws to disincentivize the illegal sale of cannabis and provide stiffer penalties for those who engage in unlawful cannabis sales. This bill seeks to establish new tools for combatting the black market by holding landowners accountable for unlawful cannabis transactions and activities occurring on properties under their control.

Current Related Legislation. AB 2122 (B. Rubio) subjects any person who aids and abets unlicensed commercial cannabis activity to civil penalties of up to $30,000 per day. This bill is pending in the Assembly Business and Professions Committee.

Prior Related Legislation. SB 94 (Committee on Budget and Fiscal Review, Chapter 27, Statutes of 2017) combined AUMA and MCRSA into one system for the regulation of cannabis, resulting in MAUCRSA.

ARGUMENTS IN SUPPORT:

The California Statewide Law Enforcement Association (CSLEA) supports this bill. The CSLEA states that “currently, California’s illegal cannabis market is over three times as large as its regulated counterpart. A recent audit found 2,835 unlicensed dispensaries operating in California, compared to only 873 licensed cannabis businesses. These numbers reflect a lack of adequate enforcement policies in place to curtail the illegal cannabis industry, which in turn harms legal, regulated cannabis businesses. CSLEA’s investigators at the Department of Consumer Affairs are the lead enforcement agency tasked with protecting the legal cannabis market. In order to better protect this market, law enforcement officers require the support of stringent policy mechanisms to be able to better enforce California’s cannabis laws.”

ARGUMENTS IN OPPOSITION:

None on file; a prior letter of opposition from the California Chapter of the National Organization for the Reform of Marijuana Laws was withdrawn following commitments from the author to draft amendments adding a knowledge requirement to the bill’s cause of action.

POLICY ISSUE(S) FOR CONSIDERATION:

This bill would create specific civil penalties for landlords or property owners who allow their properties to be used for unlawful cannabis activities. These civil penalties have the potential to be substantial, with up to $30,000 in penalties imposed per day of violation. While this bill would create a new cause of action that is specifically tailored to unlawful cannabis activities, there are already a number of state laws imposing various penalties on landowners who allow for unlawful drug activity to occur on their properties.

First, Health and Safety Code specifically provides that every building or place used for the purpose of unlawfully selling, serving, storing, keeping, manufacturing, or giving away any controlled substance, and every building or place wherein or upon which those acts take place, is a nuisance. Under this statute, damages may be recovered regardless of whether it is a public or private nuisance. A public nuisance to be abated by any public body or officer authorized by law, including the prosecuting agencies referred to in this bill.

In such an action, the owner, lessee, or agent of the building or place may be enjoined if they from directly or indirectly maintaining or permitting the nuisance. A landowner’s failure to comply with this order of abatement is subject to a fine ranging from $500 to $10,000, or imprisonment in county jail.

Further, if a court finds that if the vacancy of a building resulting from the order of abatement create a nuisance or otherwise harmful to the community, the landowner who knowingly permitted controlled substances to be unlawfully sold, served, stored, kept, or given away in or from a building or place they own may be required to pay damages in an amount equal to the fair market rental value of the building or place for one year to the city or county in whose jurisdiction the nuisance is located for the purpose of carrying out drug abuse treatment, prevention, and education programs.

In addition to the state’s nuisance laws, statute also provides that a person who has under their management or control any building, room, space, or enclosure, either as an owner, lessee, agent, employee, or mortgagee, who knowingly rents, leases, or makes available for use, with or without compensation, the building, room, space, or enclosure for the purpose of unlawfully manufacturing, storing, or distributing any controlled substance for sale or distribution shall be punished by imprisonment in the county jail for not more than one year. Any person who violates this prohibition an additional time after their first conviction is punished by imprisonment for two, three, or four years.

The author has replicated the above language for purposes of this bill to create a new code section that specifically refers to cases where the controlled substance being unlawfully sold is cannabis. Under this bill, civil penalties of up to $30,000 per day are imposed. The bill further clarifies that the penalties created may be imposed in addition to other civil or criminal penalties, including the general punishment for unlawful controlled substances.

Were this bill to be enacted, the $30,000 per violation civil penalty imposable upon landlords for allowing their properties to be used for unlawful transactions and activities involving cannabis would be in addition to up to nuisance prosecutions; up to $10,000 for failure to comply with an abatement order; potential damages equal to the one year’s fair market rental value of the property; and punishment by imprisonment in the county jail for not more than one year.

It is arguable that the numerous existing penalties for allowing owned property to be used for unlawful cannabis activities are sufficient, and that combining these penalties with an additional $30,000 fine seems unlikely to prevent the use of properties for black market activities. While it is likely that the author believes this additional civil penalty would provide additional incentives for local prosecutors to bring actions against landlords, it is unclear why existing remedies are not sufficient or why a civil penalty would be more commonly sought by law enforcement.

Finally, assuming a local prosecutor elects to pursue multiple penalties now possible upon the enactment of this bill, it is arguable that the resulting judgment upon the landowner would be excessive, especially continuing the state’s progress away from overpenalizing nonviolent drug offenses.

REGISTERED SUPPORT:

California Cannabis Industry Association
California Statewide Law Enforcement Association
CMG/Caliva
Southern California Coalition

REGISTERED OPPOSITION:

None on file.

Analysis Prepared by: Robert Sumner / B. & P. / (916) 319-3301