In Union of Medical Marijuana Patients v. City of San Diego, the California Supreme Court unanimously held that the City of San Diego failed to analyze the potential environmental impacts of its medical marijuana dispensary law. While the main issue in this case was the definition of a project under the California Environmental Quality Act (CEQA), the ruling has important ramifications for the legal cannabis market as a whole. This decision seems to place a procedural burden on cities across the State of California, potentially slowing down the expansion of the legal cannabis market.

California Supreme Court Decision

In 2014, the City of San Diego passed an ordinance that authorized the establishment of cannabis dispensaries and regulated their locations. Prior to its enactment, it was determined that this ordinance was not considered a project, therefore it was not subject to environmental reviews under the CEQA. Although, the trial court and the Court of Appeals agreed with the city's determination, the California Supreme Court held that CEQA applies if an ordinance “may cause either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment….” This holding requires all California cities and counties to analyze how changes in laws and projects, including new laws, cannabis laws, and zoning projects, affect the environment.

Medical Marijuana Dispensaries and Their Future

We expect this decision to place a procedural burden on cities that want to amend current laws to allow medical marijuana dispensaries in their jurisdictions. Currently, three years after voters approved Prop 64, more than 50 percent of cities and counties in California still ban local dispensaries. This holding also places additional burdens on cities and counties that want to establish new cannabis businesses. In turn, this process could decrease the establishment of cannabis stores in new cities.

This ruling will likely have an economic impact on cannabis businesses and the state. Local jurisdictions are now required to spend considerable resources to conduct environmental reviews, which could potentially be passed down onto new businesses in the form of increased license fees. As such, budding cannabis entrepreneurs can expect an increase in the already steep costs of opening a California dispensary. Current estimates place these costs between $250,000 to $750,000. These changes could also easily impact the tax revenue that the state hopes to collect from the legal cannabis market, which is already below projections. Recently, the State of California announced that while cannabis tax revenue increased in the last quarter, it has still fallen short of estimates.

Cannabis attorneys at Hanson Bridgett can provide guidance to entrepreneurs regarding cannabis regulations. Entrepreneurs and cannabis businesses with questions should contact Jonathan Storper at [email protected] or Peter Banyai at [email protected].