Bureau of Cannabis Control’s Pyrrhic Victory Leaves CA Statewide Delivery in Limbo

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Bureau of Cannabis Control’s Pyrrhic Victory Leaves CA Statewide Delivery in Limbo

For two years, the cannabis delivery industry were anxiously awaiting the resolution of a lawsuit brought against the Bureau of Cannabis Control (“BCC”) by two-dozen California cities, asserting that a regulation promulgated by the BCC allowing for delivery to any address in California violates statutes allowing such deliveries only to the extent such operations comply with local law. The battle was cast as one regressive between cities attempting to cut off their citizen’s access to cannabis delivery against the noble BCC standing in its way, protecting its licensees’ right to statewide delivery. In the end, however, the BCC obtained a victory on procedural grounds by essentially conceding the central issue in the case: whether local governments may prohibit deliveries within their borders. 

The cities contend that state law allows them to prohibit cannabis operations, including delivery of cannabis, within their borders. The BCC long defended its Regulation 5416(d), arguing even in its June 2020 trial brief that local jurisdictions cannot totally prevent businesses that are established and operate in other cities or counties from delivering into their jurisdictions.” 

Last month, however, the BCC reversed course and accepted the Court’s invitation to argue that the matter was not yet ripe and that the cities lacked standing to pursue the case. The BCC did so by asserting that its regulation allowing statewide delivery does not conflict with local delivery bans. The cities, said the BCC, can enforce their own local bans, even if the State is not required to do so. The court based its ruling upon and adopted this argument.

From the perspective of the cannabis industry, this represents a completely pyrrhic victory. The BCC prevailed in the legal proceeding, but the practical result of this “win” is a court ruling that says local delivery bans are ok under current law. Localities can impose and enforce their own bans on cannabis delivery within their borders. This “win” thus leaves cannabis delivery companies in the same impossible situation in which they started: Honor local bans they believe unconstitutional or face enforcement actions against them that could include criminal sanctions and have the potential to impact their permits and licenses to continue operating. 

That the BCC’s position is adopted in this ruling is legally significant, as it will almost certainly result in a finding of judicial estoppel should the BCC attempt to shift course again.  Indeed, the issue of judicial estoppel is addressed in the court’s ruling because BCC had taken the opposite position in a prior case, and the plaintiff cities tried to hold them to it.

In this earlier case, East of Eden, BCC took the position that the statewide delivery reg preempted local ordinances banning delivery. The case, however, settled before that issue was resolved. So, the BCC was never legally “successful” in making its preemption argument, and it was thus not estopped from arguing that delivery bans did not, in fact, conflict with its statewide delivery rules.

The lack of success in East of Eden is why the Court did not apply judicial estoppel. But now BCC has succeeded in its new assertion that localities can impose and enforce local delivery bans. The result is that BCC will now face problems of judicial estoppel if it attempts to argue in the future that a local ban and any enforcement action violate its statewide delivery regulation. 

This creates an incredibly murky and fraught situation for delivery licensees. The state does not view delivery into jurisdictions with bans as inherently problematic, but this conduct may be made criminal by local ordinance. And criminal conduct can jeopardize licensure. Thus, absent a legislative fix or an action by a private company (which would not be similarly constrained by the application of judicial estoppel), California does not truly have statewide cannabis delivery. 

Let’s hope that the industry does not suffer too many more “wins” like this one.