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When supporters of recreational marijuana took the issue to California voters last fall, one of the biggest selling points was the promise of millions of dollars in new tax revenue. Legalization could generate up to $1 billion in state and local taxes, the state’s legislative analyst said, with some of the money earmarked for substance abuse treatment, marijuana research and youth programs.
Voters overwhelmingly said yes to to recreational use. But not every city and county rushed to embrace the green wave.
Proposition 64 allows residents to grow up to six plants indoors and possess limited amounts of marijuana. But the law also gives local government the authority to regulate or even prohibit recreational sales within their borders. And many are choosing to do just that.
Thirteen of California’s 58 counties have already banned all marijuana cultivation, manufacturing and sales in their unincorporated areas, according to Cannabusiness Law Inc. Thirty-eight other counties barred some aspect of commercial marijuana operations.
Tracking the positions taken by all of California’s 482 cities is not so easy; the League of California Cities doesn’t keep a record. But municipal lawyers said many of their clients are taking a cautious approach, either expanding existing bans on medical marijuana sales or waiting for further guidance from the state.
Here are five of the top reasons lawyers and local government officials gave for their hesitation.
Fear of the Feds
California may have said yes to recreational marijuana, but it’s still an illegal drug under federal law. While it might seem that growers, manufacturers and retailers would be taking all the risk of a federal crackdown, some cities and counties are wary. They may have reason to be, said Ruthann Ziegler, a partner at Meyers Nave Riback Silver & Wilson’s Sacramento office who has represented cities and special districts.
Seven years ago, only medical marijuana was legal in California. The city of Oakland had embraced medicinal use, and in 2010 leaders there started plans for private, large-scale farming operations. That led Alameda County District Attorney Nancy O’Malley to warn Oakland leaders that it remained “an open question” whether public officers who violated state or federal laws by approving a city ordinance would be exempt from criminal liability.
Then-U.S. Attorney Melinda Haag of California’s Northern District also wrote to city leaders, advising them that anyone who helped marijuana growers, “including property owners, landlords and financiers” risked criminal charges.
Shortly after the letters arrived, the elected city attorney, John Russo, announced that he and his office would no longer represent the city in marijuana cultivation matters. Russo cited California’s Rules of Professional Conduct for attorneys, which allow lawyers to withdraw from matters if their clients choose to pursue illegal conduct. The city then retained Ziegler and Meyers Nave for legal advice on medical pot grows.
“Things were different then,” Ziegler said. “But some of us remember.”
And some worry, she said, what the U.S. Department of Justice may do to government officials under U.S. Attorney General Jeff Sessions, an outspoken critic of marijuana legalization.
‘Public Safety Is Front and Center’
In voting last month to pursue a ban on marijuana dispensaries, a majority on the Fresno City Council cited warnings from Police Chief Jerry Dyer about the potential rise in burglaries, robberies, drugged driving and use by minors.
“I firmly believe it will have a detrimental impact on our society,” Dyer said several weeks before the council vote. “It would truly send the wrong message to our youth, and that’s that drug use is OK.”
Many marijuana retailers still operate on a cash-only basis, with bank officers fearful of sanctions from federal regulators if they serve clients dealing in a controlled substance. Law enforcement officials warn the cannabis businesses are a natural target for criminals.
“Elected officials will listen to the public and their local law enforcement,” said Jeffrey Dunn, a partner at Best Best & Krieger’s Irvine office who counsels public agencies. “Public safety is front and center of what they do.”
Quality of Life Issues
The Anaheim City Council in April voted to ban all commercial marijuana operations and grows within its boundaries. The enforcing ordinance includes two pages of potential nuisances—beyond crime—city leaders feared an explosion of pot shops would create: offensive odors, overuse of water, runoff from dangerous pesticides, an increase in homelessness, loitering and fire hazards. Among other things.
Cities also worry about how neighborhoods would be affected if the predicted pot boom fizzles and dispensaries and warehouses go empty.
“It depends on the nature of the community,” Ziegler said. “Some communities are trying to improve the quality of life for their residents and this sort of business may not be conducive to that. And that’s not a liberal or a conservative issue or a Republican or Democratic one.”
Doubts About the Tax Revenue
Some cities and counties are ready to cash in on the recreational market. Voters in the tiny Central Coast city of Gonzales in November overwhelmingly approved a $25 per square foot tax on marijuana growers and a 15 percent levy on annual gross receipts of marijuana manufacturers. The taxes are expected to generate $1.6 million annually, a virtual bonanza for the city of 8,400.
“There is no other business that would generate this type of revenue,” Gonzales City Manager Rene Mendez told Reuters. “It’s easy to see why this is something that communities want to pursue.”
But many other cities are skeptical, with leaders wondering if increased fee and tax revenue would be high enough to pay for extra police, fire or permitting services—or if the new regulations will drive pot businesses to the tax-free black market.
“It’s not like people line up to pay their taxes and fees,” said Dunn. “Time will tell whether the money is really going to come from this.”
A Preference to Wait and Watch
Many cities and counties are preparing to welcome new recreational businesses, some with strict caps or zoning and others taking a more open-market approach. Some of their municipal neighbors are waiting to see what develops before opening their own borders to dispensaries and cultivation.
“What we’re really looking at here fundamentally is this new state law that hasn’t entirely been worked out,” Dunn said. He noted that state agencies are still working feverishly on the rulesthat will govern the commercial market as of Jan. 1.
“There are all these unanswered questions,” Dunn said. “Sure, a few cities are worried that if they don’t allow [marijuana businesses], then maybe the city next door will. But I don’t think that’s causing anyone to change their mind.”
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