March 08, 2019

Cannabis environmental review and litigation

Tyler Welti

Regulating and permitting cannabis, a newly legalized but long-established and widespread industry, has raised environmental review obligations of unprecedented scale under “state National Environmental Policy Act (NEPA)” laws like the California Environmental Quality Act (CEQA). This article looks at emerging environmental legal risks facing both cannabis businesses seeking permits and state and local governments seeking to permit or ban commercial cannabis. This article focuses on California, but the issues occurring there are bound to occur in other states where cannabis cultivation is, or may become, legal.

Year one of California’s regulatory program for cannabis business

January 1, 2019, marked the first anniversary of California’s sprawling new regulatory program for commercial cannabis. After releasing three sets of (now-supplanted) “emergency regulations,” the state’s three new cannabis-licensing authorities—CalCannabis, the Bureau of Cannabis Control (BCC), and the Manufactured Cannabis Safety Branch (MCSB)—began issuing licenses. During 2018, CalCannabis issued about 6,700 cultivation licenses; the BCC issued around 1,500 licenses for retail, distribution, and other business activities; and the MCSB issued over 1,200 manufacturing licenses. Many more licenses are likely to be issued as the legal market matures. A February 2018 report by the California Growers Association estimates that CalCannabis has licensed less than 1 percent of cultivators in the state.

Local governments have been busy, too. California’s Proposition 64 reserves to them the power to decide whether and how commercial cannabis businesses may operate within their borders. Exercising this authority, many local governments are working quickly to create their own regulatory and licensing programs for cannabis, and to issue licenses so that the new, state-legal market can function.

CEQA and cannabis

CEQA potentially applies to all these regulatory and licensing decisions. CEQA requires public agencies to identify the significant environmental impacts of “projects” and to avoid or mitigate those impacts if feasible. “Projects” include activities undertaken by an agency (like approval of a local ordinance permitting commercial cannabis cultivation) and private activities requiring a public agency’s discretionary approval (like a license to grow cannabis commercially).

CalCannabis took a step toward making environmental review of cannabis cultivation manageable by completing a “Programmatic EIR” (PEIR). While the PEIR provides a foundation for CEQA review of California’s commercial cannabis industry, it anticipates more review in connection with further regulatory and licensing decisions, and such review has raised several potential complications.

Most notably, local governments have varied widely in their approaches to CEQA review of regulatory and licensing programs for commercial cannabis. Indeed, they have used every type of CEQA compliance document in connection with regulating or banning commercial cannabis.

For example, in issuing new cannabis regulations and individual licenses, many local governments relied on CEQA exemptions, which apply to activities found not to have substantial environmental impacts. Other agencies have prepared Negative Declarations (NDs) and Mitigated NDs in issuing cannabis laws. These documents are appropriate where there is no substantial evidence that the project may significantly impact the environment, or if impacts may be made less than significant through mitigation. Still, other local governments have prepared EIRs in creating their regulatory and permitting programs, concluding that the programs would result in significant and unavoidable impacts to environmental resources.

Some of the variety in the types of CEQA documents prepared can be explained by differences between the programs that local governments have proposed and the types of resources present locally. However, the variety in approaches to CEQA compliance also appears to be the product of differing conclusions about the environmental consequences of commercial cannabis activities. Public agencies’ varying conclusions with respect to impacts on air quality, greenhouse gas emissions, and other resources suggest as much.

More fundamentally, there is disagreement about the impacts of legalizing commercial cannabis activities relative to the baseline environmental conditions created by preexisting illegal commercial cannabis activities. Some local governments have found that banning or limiting commercial cannabis activities is not even subject to CEQA, because there is no possibility that the ordinances at issue would physically impact the environment. Such ordinances placing strict limits on commercial cannabis activities are the subjects of two CEQA challenges brought by a medical marijuana nonprofit. Union of Medical Marijuana Patients, Inc. (UMMP) v. City of Upland, 245 Cal. App. 4th 1265, 1272 (2016); UMMP v. City of San Diego, 4 Cal. App. 5th 103 (2016), review granted, 386 P.3d 795 (2017). While the courts of appeal upheld the cities’ determinations that CEQA does not apply to the ordinances, the California Supreme Court unanimously granted review of the Fourth Appellate District’s opinion in the San Diego case. Among other issues the Court may address is whether CEQA applies to San Diego’s ordinance, because it may cause reasonably foreseeable indirect physical changes to the environment.

Tension exists between the view that banning or substantially limiting cannabis business activities would be environmentally superior, on the one hand, and the conclusions underlying CalCannabis’s PEIR and many other CEQA documents prepared by local governments in creating licensing programs, on the other. For example, CalCannabis concluded that regulating and licensing cannabis cultivation would be environmentally beneficial relative to the baseline condition of widespread illegal cannabis cultivation. CalCannabis reasoned that, absent regulation and licensing, “a greater number of unpermitted cultivators would continue to operate . . . result[ing] in impacts due to noncompliance with requirements related to water use, illegal use of pesticides, waste disposal, and illegally obtained energy.”

Emerging CEQA challenges to cannabis

The complexity and scale of environmental review of the newly legalized cannabis industry has also played out in CEQA lawsuits. In addition to the UMMP cases discussed above, examples include:

  • T.C.E.F., Inc. v. Cty. of Kern, No. F070043, 2016 Cal. App. Unpub. LEXIS 2333 (Mar. 29, 2016) (holding that a ballot measure severely restricting the location of cannabis dispensaries was not exempt from CEQA review under the “common sense” exemption in CEQA Guidelines Section 15061(b)(3) due to dispensaries’ foreseeable environmental effects);
  • SMC Marijuana Moratorium Coalition v. Cty. of San Mateo, Case No. 18CIV00206 (San Mateo County Super. Ct., filed Jan. 12, 2018) (challenge to an ND for a law allowing for commercial cannabis cultivation that settled, leading to the county repealing the law); and
  • Mendocino Cty. Blacktail Deer Assoc. v. Cty. of Mendocino Bd. of Supervisors, Case No. SCUKCVPT 16-67623 (Mendocino County Super. Ct., filed June 14, 2016) (challenge to use of a categorical exemption for a law creating a local commercial cannabis permitting program that settled, leading to an injunction on issuance of permits pending additional CEQA review).

Conclusion

Legalization has given rise to complex legal issues under state NEPA laws like CEQA. Notably, even if federal cannabis licensing decisions are not on the horizon, the first NEPA review of cannabis cultivation may be seen before long. For example, NEPA review of commercial cannabis operations on private land could be triggered by related Clean Water Act 404 permits or other federal approvals like rights of way to cross public lands that are needed for the operation of a proposed or existing cultivation operation.

Because NEPA and its state counterparts like CEQA are favorite litigation tools of groups opposed to a project (or an industry) moving forward, it is unsurprising that CEQA has emerged as a new front of cannabis civil litigation. As such, cannabis businesses seeking permits and local governments seeking to regulate cannabis businesses should develop proactive compliance strategies designed to reduce litigation risk.

Tyler Welti

Tyler Welti is an attorney in Venable LLP’s environmental practice in San Francisco who represents clients in a wide range of federal and state environmental, natural resources, land use, and litigation matters.