On January 16, 2018, we wrote an article related to the revocation of the Cole Memorandum and discussed the ever changing landscape of cannabis regulation in the state of California. After legalizing cannabis, the state, counties and cities began creating their regulatory schemes to deal with this new area of statewide legal activity.
In general, local agencies (counties and cities) are allowed to create their own legal frameworks of what is or is not permissible within its own jurisdictions. The law states that local agencies can be more restrictive but not less restrictive than state law. Although the people supported the legalization of cannabis at a statewide level, the local levels of government have not welcomed cannabis with warm reception. For instance, the City of Roseville has an outright ban on dispensaries and residential grows are only allowed if permitted by state law. (See Roseville Muni Code 19.63.040 and 19.63.050).
On August 29, 2017, the City of Sacramento adopted Ordinance No. 2017-0047 which set forth the legal framework for cannabis grows within the City of Sacramento. Even within the City of Sacramento which has been more tolerant of legal cannabis activity, significant restrictions and penalties for violations exist. Under Sacramento City Muni Code 8.132.040(B), the City has limited residential grows to no more than six living cannabis plants. What this means is that regardless of how many individuals live in a residential dwelling, the limitation per property is 6 plants. Within the framework of the ordinance there is no exception.
More importantly is the penalty for violating this ordinance. Remember local agencies can be more restrictive but not less restrictive than the state. The City Council in enacting this ordinance recognized the role that cannabis continues to play in relationship to criminal activity. In doing so, among the penalties that were created for violating these cannabis ordinances was an administrative fine found in Section 8.132.050(E)(1) which states that the administrative penalty "is the aggregate amount calculated at $500 per plant that is in excess of the number of plants (6) allowed." What this means is that in a residential dwelling had 10 living plants then the administrative penalty would be $2000 ($500 x 4). More importantly is who gets receives the fine. Under the ordinance, the penalty applies to the person owning the property, leasing the property, occupying or having charge or possession of the premises. The ordinance is written broad enough to cover everyone with an interest and at least for now there appears to be no protection for the innocent owner doctrine.
What this means is that if a landlord rents a property to a tenant and the tenant violates this ordinance, the landlord can and will receive an administrative penalty. Recently, I was part of a panel discussion on the very topic of cannabis and how it is affecting business, landlords and individuals. As part of the were 2 members of the Sacramento Police Department's Marijuana enforcement division. The City is taking enforcement of this ordinance seriously and aggressively. In fact, one of the officers recited a story of a landlord who had leased property to a tenant. That tenant turned out to be a major cannabis grower. It is unclear whether the landlord knew or did not know of the tenant's cannabis grow. Nonetheless, because ordinance maintains a strict liability standard, that landlord received an administrative penalty of $396,000.00. Whether the landlord ultimately knew or did not know is irrelevant. The landlord appears to be liable for the cannabis related activities of their tenant under this new Sacramento City ordinance. Consequently, it is becoming more and more important for landlords and investors to carefully scrutinize their tenant applications and specifically address cannabis concerns both in the application process and lease to protect that landlord.
It remains to be seen whether any innocent owner doctrine protections will be created to protect innocent landlords, but until such happens, it is important to take all practical steps to protect oneself. That includes taking advantage of legal annual inspections of the property. Proper cannabis restrictions in leases and appropriate indemnity and default clauses to protect the landlord or owner of the property.
It really is the wild west as California and its local agencies begin to build its legal framework around legalized cannabis.