California state regulators have signaled that they will be increasing their focus on enforcement actions against both licensed and unlicensed cannabis industry operators. This heightened focus on enforcement and disciplinary actions can be an existential crisis for businesses in the crosshairs of California’s cannabis licensing authorities (Bureau of Cannabis Control (BCC); CalCannabis Cultivation Licensing, CDFA; Manufactured Cannabis Safety Branch, CDPH) and other state enforcement agencies such as California Department of Fish and Wildlife (CDFW) and California Department of Tax and Fee Administration (CDTFA).
The BCC and DCA’s Cannabis Enforcement Unit today announced enforcement action on three unlicensed #cannabis retailers operating in Bakersfield.— BCC Info (@BCCinfo_dca) February 6, 2020
The combined value of illegal cannabis products and #vape cartridges seized from these unlicensed operators totaled over $660,000. pic.twitter.com/fQMuCjWrqW
The below is a brief description of the process involved in an administrative enforcement action brought by the Bureau of Cannabis Control (“Bureau” or “BCC”) and taken through administrative hearing through the Office of Administrative Hearings (OAH).
An Overview of Enforcement Actions Brought by the Bureau of Cannabis Control
Initial enforcement actions are brought by the BCC to address problematic conduct by persons and licensees. Pursuant to the Business and Professions Code § 26030 the grounds for commencing an enforcement or disciplinary action against a cannabis operation are broad and include:
- failure to comply with any rule or regulation;
- conduct that constitutes grounds for denial of a license;
- failure to comply with any state law, knowing violations of worker protection laws;
- failure to comply with local ordinance regulating commercial cannabis;
- sales to persons under 21;
- intentional and knowing sale of medical cannabis to persons without a physician’s recommendation;
- failure to maintain safe conditions for inspection by licensing authority, and, this is a big one;
- failure to comply with any operating procedure submitted to licensing authority and failure to comply with license conditions.
The Bureau of Cannabis Control can suspend, revoke, deny a license or place their respective licensee on probation as a result of a successful enforcement action. As discussed below, the process generally commences with the licensing authority issuing a citation for the violation. The citation must be in writing and describe with particularity basis for citation. The penalties are set at up to $5,000 per violation of licensees and up to $30,000 per violation of non-licensee. Importantly, each day of violation is separate violation.
Factors considered by the licensing authorities are:
- the gravity of violation,
- the good faith of violator, and
- any history of previous violations.
Additionally, penalties by the licensing authority are cumulative to all other penalties authorized by law. There is generally a 5 year statute of limitations from date of discovery for licensing authority to file a citation; except of allegations of fraud or misrepresentation in which case the statute of limitations is longer.
Notice to Comply Issued by The Bureau of Cannabis Control
A minor enforcement action could be commenced with a Notice to Comply.
The Bureau of Cannabis Control’s regulation listed in California Code of Regulations § 5801 states that the Notice to Comply issued by the Bureau shall be in writing and describe the nature and facts of each violation, including a reference to the statute or regulation violated, and may indicate the manner in which the licensee must correct the violation(s) to achieve compliance.
The recipient of this Notice has 20 days to sign and return a statement under penalty of perjury that they have made corrections and describe how compliance was achieved. (§ 5801(d).) Per § 5801(e) of the Bureau’s regulations, failure to correct the violation(s) in the Notice to Comply may result in a disciplinary action.
Citations Issued by the Bureau of Cannabis Control: Orders of Abatements and Administrative Fines
Most non-minor enforcement actions are commenced by a Citation. Per § 5802(a), the Bureau of Cannabis Control may issue citations containing orders of abatement and fines against a licensee, or an unlicensed cannabis operator, for any acts or omissions which are in violation of any provision of the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) or any regulation adopted pursuant thereto. The Bureau may also issue citations for any violation of state law or regulations applicable to cannabis licensees, including, but not limited to, state labor law.
Pursuant to § 5802(c), each citation may contain either order(s) of abatement, monetary fine(s), or both, and shall:
- Be in writing and describe with particularity the nature of the violation, including a reference to the law or regulation determined to have been violated;
- Fix a reasonable time for abatement of the violation if the citation contains an order of abatement, or assess an administrative fine of up to $5,000 if the citation contains a fine;
- Be served personally or by certified mail; and
- Inform the licensee or person that they may request an informal conference, or contest the citation, or both, pursuant to section 5803.
Failure to pay a fine within 30 calendar days of the date of assessment, unless the citation is being contested, may result in further action being taken by the Bureau including, but not limited to, suspension or revocation of a license. If a citation is not appealed and the fine is not paid, the full amount of the assessed fine shall be added to the fee for renewal of the license. A license shall not be renewed without the payment of the renewal fee and fine. (§ 5802(d).)
Contesting Citations: Informal Conferences and Administrative Hearings
Following the issuance of a citation, the licensee, or person without a license, may choose to contest the violation(s) as alleged by the licensing authority. There is a tiered administrative process for contesting citations which commences when, within 30 calendar days of service of the citation, the accused submits a written request to the Bureau of a hearing. (§5803 (a).) If a hearing is not requested, the hearing is waived; however, payment of a fine will not constitute an admission of the violation charged.
In addition to requesting a hearing provided for in §5803(a), the cited licensee or person may, within 15 calendar days after service of the citation, submit a written request for an informal conference with the Bureau regarding the acts or omissions charged in the citation. (§ 5803 (b).)
Once the Bureau receives the request for the hearing, the Bureau has 15 calendar days from receipt of the written request, to hold an informal conference with the licensee or person cited, and/or his or her legal counsel or authorized representative (§ 5803(c).)
The informal conference is an important phase in potentially resolving the citation because, at the conclusion of the informal conference, the Bureau may affirm, modify, or dismiss the citation, including any fines levied or orders of abatement issued.
A written decision stating the reasons for the decision shall be mailed to the cited licensee or person and his or her legal counsel, if any, within 15 calendar days from the date of the informal conference. Per § 5803(d), this decision shall be deemed to be a final order with regard to the citation issued, including the levied fine and the order of abatement, if any.
If the citation is dismissed, any request for a hearing shall be deemed withdrawn. If the citation is affirmed or modified, the cited licensee or person may, in his or her discretion, withdraw the request for a hearing or proceed with the administrative hearing process. (§ 5803(e).)
If the citation, including any fine levied or order of abatement, is modified, the citation originally issued shall be considered withdrawn and new citation issued. If a hearing is requested for the subsequent citation, it shall be requested within 30 calendar days in accordance with Business and Professions Code section 125.9(b)(4). (§ 5803(f).)
Administrative Hearings and Discipline
When an accusation recommending disciplinary action against a licensee has been filed pursuant to Business and Professions Code section 26031, the accusation shall be served on the licensee in accordance with Government Code section 11505 and a hearing is conducted pursuant to Government Code § 11500. (§ 5809 (a).) This is the same process governing all administrative hearings in California. High level considerations are that an Administrative Law Judge (ALJ) presides over the administrative hearings through the Office of Administrative Hearings (OAH).
Pursuant to Government Code § 1506, the respondent (licensee or person without a license; a.k.a. you) has 15 days from receipt of service of the accusation to file one or more notice(s) of defense, or, as applicable, notice(s) of participation, in which the respondent may:
- Request a Hearing.
- Object to the accusation upon the grounds that it does not state acts or admission upon which the agency may proceed.
- Object to the form of the accusation on the ground that it is so indefinite or uncertain that a respondent cannot identify the transaction or prepare a defense.
- Admit the accusation in whole or in part
- Present new matter by way of defense
- Object to the accusation upon the ground that, under the circumstances, compliance with the requirements of a regulations would result in a material violation of another regulation enacted by another department affecting substantive rights.
The Respondent is entitled to a hearing on the merits if the respondent files a notice of defense or notice of participation, and the notice shall be deemed a specific denial of all parts of the accusation not expressly admitted. Importantly, failure to file a notice or defense or notice constitutes a waiver of respondent’s right to a hearing, but the agency, in its discretion, may nevertheless grant a hearing. (Government Code § 1506(c).)
Unless objection is taken as provided above, all objections to the form of the accusation shall be deemed waived. The notice of defense or notice of participation shall be in writing signed by or on behalf of the respondent and shall state the respondent’s mailing address. It need not be verified or follow any particular form.
Pursuant to § 5809, the hearing is conducted to “determine if cause exists to take action against the licensee”. If a hearing on an accusation against a licensee results in a finding that the licensee has committed any of the acts or omissions constituting grounds for disciplinary action, the Bureau may order the license revoked, suspended outright for a specified period of time, suspended on probationary restriction for a specified period of time on such terms and conditions of probation as in its judgment are supported by its findings, impose a fine, or any combination thereof. The Bureau may also issue such other lawful orders it considers to be appropriate on the basis of its findings.
An important side note is that an accusation may be terminated by written stipulation at any time prior to the conclusion of the hearing on the accusation. However, if a licensee submits a proposed stipulation to the Bureau for its consideration and the Bureau subsequently declines to accept the proposed stipulation, the Bureau shall not thereafter be disqualified from hearing evidence on the accusation and taking action thereon as authorized in this section. (Additional authority: Business and Professions Code Section 26012, 26013, 26031 and 26034).
Appeals: Cannabis Control Appeal Panel (CCAP)
The Cannabis Control Appeals Panel (CCAP) is responsible for appeals of any decision by state cannabis licensing authorities relating to the order of any penalty assessment, issuing, denying, transferring, conditioning, suspending or revoking any commercial cannabis license. This means that the CCAP is the next step in the enforcement/disciplinary process following the administrative hearing before the Office of Administrative Hearings (OAH), as discussed above.
After the administrative hearing, any person aggrieved by the decision of a licensing authority denying the person’s application for any license, denying the person’s renewal of any license, placing any license on probation, imposing any condition on any license, imposing any fine on any license or licensee, assessing any penalty on any license, or canceling, suspending, revoking, or otherwise disciplining any license as provided for under this division, may appeal the licensing authority’s written decision to the panel.
The CCAP is then directed to review the decision based on the record created at the administrative hearing. Importantly, the Cannabis Control Appeal Panel is not empowered with de novo review and is instead limited by the panel of a decision of a licensing authority to the following questions:
- Whether the licensing authority has proceeded without or in excess of its jurisdiction.
- Whether the licensing authority has proceeded in the manner required by law.
- Whether the decision is supported by the findings.
- Whether the findings are supported by substantial evidence in the light of the whole record.
However, in appeals where the panel finds that there is relevant evidence which, in the exercise of reasonable diligence, could not have been produced or which was improperly excluded at the hearing before the licensing authority, it may enter an order remanding the matter to the licensing authority for reconsideration in the light of that evidence. (Business and Professions Code § 26044(a).)
Ultimately, except as provided in subdivision (a), in all appeals, the panel shall enter an order either affirming or reversing the decision of the licensing authority. When the order reverses the decision of the licensing authority, the panel may direct the reconsideration of the matter in the light of its order and may direct the licensing authority to take such further action as is specially enjoined upon it by law, but the order shall not limit or control in any way the discretion vested by law in the licensing authority. (Business and Professions Code § 26044(b).)
Judicial Review of the Cannabis Control Appeal Panel‘s Final Order
Pursuant to Business and Professions Code § 26045, only the Supreme Court of California and the courts of appeal have jurisdiction to review affirm, reverse, correct, or annul any order, rule, or decision of a licensing authority or to suspend, stay, or delay the operation or execution thereof, or to restrain, enjoin, or interfere with a licensing authority in the performance of its duties, but a writ of mandate shall lie from the Supreme Court or the courts of appeal in any proper case.
Any person affected by a final order of the panel, including a licensing authority, may apply to the Supreme Court or to the court of appeal for the appellate district in which the proceeding arose. The mechanism for judicial review of a CCAP determination is through a writ of review which must be filed within 30 days of the final order.
Judicial review, and subsequent proceedings are governed by the Code of Civil Procedure relating to writs of review shall, insofar as applicable, apply to proceedings in the courts as provided by this chapter. A copy of every pleading filed pursuant to this chapter shall be served on the panel, the licensing authority, and on each party who entered an appearance before the panel.
A couple of important considerations are that no decision of a licensing authority that has been appealed to the panel and no final order of the panel shall become effective during the period in which application may be made for a writ of review. Conversely, the filing of a petition for, or the pendency of, a writ of review shall not of itself stay or suspend the operation of any order, rule, or decision of a licensing authority, but the court before which the petition is filed may stay or suspend, in whole or in part, the operation of the order, rule, or decision of the licensing authority subject to review, upon the terms and conditions which it by order directs.
The review by the court shall not extend further than to determine, based on the whole record of the licensing authority as certified by the panel, whether:
- The licensing authority has proceeded without or in excess of its jurisdiction.
- The licensing authority has proceeded in the manner required by law.
- The decision of the licensing authority is supported by the findings.
- The findings in the licensing authority’s decision are supported by substantial evidence in the light of the whole record.
- There is relevant evidence which, in the exercise of reasonable diligence, could not have been produced or which was improperly excluded at the hearing before the licensing authority.
As with the Cannabis Control Appeal Panel, the reviewing court is not permitted to hold a trial de novo, to take evidence, or to exercise its independent judgment on the evidence. The findings and conclusions of the licensing authority on questions of fact are conclusive and final and are not subject to review. Those questions of fact shall include ultimate facts and the findings and conclusions of the licensing authority. The panel, the licensing authority, and each party to the action or proceeding before the panel shall have the right to appear in the review proceeding.
Succinctly stated, the record one makes at the administrative hearing follows the matter through the CCAP, to the court of appeal, and ultimately, the Supreme Court of California if it goes that far. (Business and Professions Code § 26046,§ 26047.)
Conclusion of the Enforcement, Discipline, and Appeals Process
Following the court hearing, the court then enters judgment either affirming or reversing the decision of the licensing authority, or the court may remand the case for further proceedings before or reconsideration by the licensing authority (the Bureau of Cannabis Control, for the discussion above).
After the exhaustion of the administrative and judicial review procedures, a licensing authority may apply to the appropriate superior court for a judgment in the amount of the administrative fine and an order compelling the cited person to comply with the order of the licensing authority.
The application, which shall include a certified copy of the final order of the licensing authority, shall constitute a sufficient showing to warrant the issuance of the judgment and order. The licensing authority may then recover from the licensee or person who was the subject of the citation costs of investigation and enforcement, which may include reasonable attorney’s fees for the services rendered. If the licensing authority recovers costs from a licensee, the licensing authority shall recover the costs pursuant to Section 125.3.
If there are fines resulting from the enforcement and disciplinary action, they shall be paid within 30 days of service of a citation by the licensing authority. Failure to pay a fine assessed pursuant to this section within 30 days of the date of service of the citation, unless the citation is being appealed, shall constitute a separate violation under this division subject to additional action by a licensing authority. A licensing authority shall not renew or grant a license to a person who was the subject of the fine until that person pays the fine.
All monies collected pursuant to this process which are associated with the recovery of investigation and enforcement costs shall be deposited into the Cannabis Control Fund. Any administrative fine amount shall be deposited directly into the Cannabis Fines and Penalties Account and shall be distributed pursuant to subdivision (d) of Section 26210.