As a litigator who has tried dozens of cannabis-related cases in the eight years since California voters legalized cannabis for adult use, yesterday’s decision by the California Court of Appeal in JCCrandall v. Santa Barbara immediately called to mind an image from one of my favorite childhood books. A young girl steps out from a throng of adoring subjects, points toward their lavishly adorned sovereign, and just blurts out what we all knew the whole time: “The Emperor isn’t wearing any clothes!” 

Indeed, cannabis-focused lawyers and legal scholars have long recognized the inherent logic of the court’s nonetheless grave proclamation: “No matter how much California voters and the Legislature might try, cannabis cultivation and transportation are illegal in California as long as it remains illegal under federal law.” 

The Court’s decision in JCCrandall is rooted in the United States Constitution’s Supremacy Clause. And, as every law student learned in their Constitutional Law classes, under the Supremacy Clause, federal law is “the supreme Law of the Land” and preempts any conflicting state laws. The potential application of the Supremacy Clause has always been a vulnerability of what is commonly referred to as the “state-legal” cannabis industry. 

JCCrandall appears to represent, however, the first time that any California court has actually applied the Supremacy Clause in refusing to enforce the state’s clearly-articulated statutes making commercial cannabis activity legal under state law. What happens next is far from certain, but the JCCrandall case is likely to shake up litigation of cannabis-related issues in courts throughout the state. 

The Case

The JCCrandall case involved a challenge to a conditional use permit (“CUP”) issued by Santa Barbara County to a cannabis cultivator by an adjacent landowner over whose property the cultivator held a right-of-way easement. The easement had been granted to the cultivator’s owner long before cannabis was legalized by California voters through Proposition 64 and was the only way to access the property for which the County issued the CUP. 

The adjacent landowner sued to invalidate the CUP, challenging the County’s finding that streets and highways to the property were adequate because, among other reasons, use of the easement for transporting cannabis is illegal. The County defended the suit in large part based on California Civil Code section 1550.5(b), which provides:

Notwithstanding any law, including, but not limited to, . . . federal law, commercial activity relating to medicinal cannabis or adult use cannabis conducted in compliance with California law and any applicable local standards, requirements, and regulations shall be deemed to be all of the following:

1. A lawful object of contract.
2. Not contrary to, an express provisions of law, any policy of express law, or good morals.
3. Not against public policy.

The Court of Appeal found this defense unpersuasive, because section 1550.5(b) “defies the Supremacy Clause.” Cannabis is illegal under federal law; ergo, it is illegal under California law. Thus stripping the invisible layers of protection provided by “cannabis legalization” off of the County’s CUP process, the court found that the County could not force the adjacent landowner to allow his property to be used to transport cannabis because illegality activity is outside the scope of the right-of-way easement. Without the easement, the findings underlying the CUP were not supportable. 

The Impact

The holding in JCCrandall is limited to the context of whether section 1550.5(b) is valid as applied to a CUP “premised on [the adjacent landowner] being forced to allow its property to be used in cannabis transportation.” Expressly not decided was the question of its validity in disputes among parties consensually engaged in cannabis business. There is little question, however, that the decision will reverberate in such cases throughout the state in the months and years to come. 

To be sure, there may well be ways to distinguish JCCrandall from, for example, cases between contracting cannabis companies. But if California courts coalesce around the position that section 1550.5(b) is invalid under the Supremacy Clause, the impact on legal protections within the “state-legal” industry could be dramatically impacted. 

To date, California courts have not seriously questioned their ability to enforce cannabis-related contracts and order relief from cannabis-related torts. If that changes, cannabis industry litigants in California courts may want to freshen up on case law regarding the extent to which federal courts may award relief in cannabis-related disputes. There, the emerging consensus is that federal courts can award such relief, so long as doing so does not require the court to order a violation of the federal Controlled Substances Act. Some of the relevant authority suggests differing treatment of cases involving those unwittingly drawn into cannabis activity and those between parties engaging with eyes wide open. 

While it is impossible to know where California courts will ultimately land, until the law is settled, there will be litigants in almost every cannabis-related case that are incentivized to use the JCCrandall  case to their advantage, meaning that it is very likely that the courts will soon be invited to expand on its holding. And those seeking to beat back such expansion will be rowing upstream against a straightforward application of the Supremacy Clause to a state statutory scheme that plainly conflicts with federal law.  Depending on how the resulting case law develops, there could be significant impact on how cannabis businesses do business and the industry’s attractiveness to potential new entrants and investors. 

Conclusion

The decision in JCCrandall underscores the enduring conflict between state and federal law regarding cannabis legalization. By focusing on the inarguable doctrine of federal supremacy over state law, the court has reminded cannabis industry stakeholders, at a minimum, that the path to true legalization requires not just state-level reforms, but a fundamental change in federal law. Until then, the cannabis industry remains, like the Emperor, clothed in an illusion of legality.

 

by Jason Horst