CEQA: State and Local Environmental Review in California’s Cannabis Industry

Abstract

The California Environmental Quality Act (“CEQA”) is perhaps the most significant legal regime impacting commercial cannabis activities in the State of California, second only to the Medicinal and Adult Use of Cannabis Regulation and Safety Act (“MAUCRSA”). This is because all commercial cannabis businesses must comply with CEQA at both a state and local level in order to (1) be eligible to receive the local authorization(s) and state license(s) required by MAUCRSA, and (2) avoid the significant risk of litigation pursuant to CEQA. 

Issue: CEQA imposes enormous burdens on both licensed cannabis businesses and localities both in terms of regulatory compliance as well as potential litigation exposure. 

Solution: Local jurisdictions should conduct Programmatic Environmental Impact Reports (PEIRs) for their respective permitting programs, then, ministerially permit all commercial cannabis activities including cultivation.

The California Environmental Quality Act (“CEQA”)

CEQA, which is codified in California Public Resources Code Sec. 21000, et. seq., was enacted to advance four different but related purposes which are to:

“(1) inform the government and public about a proposed activity’s potential environmental impacts; 

(2) identify ways to reduce, or avoid, environmental damage; 

(3) prevent environmental damage by requiring project changes via alternatives or mitigations measures when feasible; and 

(4) disclose to the public the rationale for governmental approval of a project that significantly impacts the environment.” 

(California Building Industry Assn. v. Bay Area Air Quality Management Dist (2015) 62 Cal. 4th 369, 382; Sierra Club v. County of Sonoma (2017) 11 Cal. App. 5th 11).

CEQA & California’s Commercial Cannabis Licensing Program

The State of California determined that its commercial cannabis licensing program was a “project” for purposes of CEQA and, in 2017, it prepared a Programmatic Environmental Impact Report (“PEIR”) to evaluate the total environmental impact of California’s cannabis licensing program. Notwithstanding the fact that local authorization is a prerequisite to state licensure under MAUCRSA, the PEIR, expressly excluded, and did not evaluate, any local authorization programs, site specific developments, or other project specific issues. As a result, the burden of determining whether each specific proposed commercial cannabis activity for which a state license is sought is subject to environmental review pursuant to CEQA has fallen to local jurisdictions, which in turn have largely delegated this environmental review to individual project proponents. 

The initial step in any CEQA analysis “requires the [lead] agency to “ ‘conduct a preliminary review [of the proposed activity] in order to determine whether CEQA applies to a proposed activity.’ ” (Parker Shattuck Neighbors v. Berkeley City Council (2013) 222 Cal.App.4th 768, 776,). As part of this review, the lead agency, in this case, the local jurisdiction, must determine whether the proposed activity is a “project” for purposes of CEQA and, if it is, whether it falls under any exemption to CEQA. (Sunset Sky Ranch Pilots Assn. v. County of Sacramento (2009) 47 Cal.4th 902, 907).

CEQA Exemptions

There are two types of CEQA exemptions: statutory exemptions, which are enacted by the Legislature and are not subject to exceptions, and categorical exemptions, which are identified in the regulations that were developed to guide CEQA implementation (the “CEQA Guidelines”)8 and are subject to exceptions. (North Coast Rivers Alliance v. Westlands Water Dist. (2014) 227 Cal.App.4th 832, 850-851).

“If the project is in an exempt category for which there is no exception, ‘ “no further environmental review is necessary.” ’ ” (Parker Shattuck, 222 Cal.App.4th at 776). If the project is not exempt, the lead agency must proceed to the other steps of the CEQA process, which involve the preparation of an Initial Study and, if appropriate, an Environmental Impact Report (“EIR”). (Ibid.)

Required Project Specific CEQA Analysis for Local MAUCRSA Implementation

With respect to California’s commercial cannabis licensing program, which was developed pursuant to MAUCRSA, in order to qualify to receive a state license for any type of commercial cannabis activity, a state license applicant must first obtain  a local permit, local license, or other local authorization to operate its business from the jurisdiction in which the licensed premises will exist (See Business and Professions Code section 26032(a) and the regulations promulgated by the Department of Cannabis Control in furtherance of MAUCRSA). In most cases, this concept of local authorization has been merged with related obligations under CEQA, which require the environmental impacts of any “project” to be evaluated to determine if the project will have a significant impact on the environment. 

Due to the fact that the State’s PEIR did not take project specific environmental impacts into consideration and the fact that MAUCRSA requires  each state license applicant to obtain local authorization prior to state licensure, project proponents are often required to undergo project specific CEQA analysis at the local level, which has proven to be varied and irregular depending on the local jurisdiction is involved.  

Lack of Direction Regarding How Local Jurisdictions Should Permit Commercial Cannabis Businesses

Pursuant to Article XI Section 7 of the California Constitution, police powers, which include the ability to enact land use ordinances and regulations to protect the health, safety, and welfare of residents, are delegated to cities and counties (“local jurisdictions”) rather than the State at large. (Cal Const. at XI section 7). 

Although the power to regulate land use is delegated to local jurisdictions, both MAUCRSA and CEQA are silent with regard to how local jurisdictions should authorize commercial cannabis activities within their borders and how they should structure their authorization programs in order to comply with the nebulous, yet rigorous, provisions of CEQA. 

Economic Costs and Considerations for Mandated CEQA Reviews

While both MAUCRSA and CEQA have, in effect, worked together to mandate local MAUCRSA implementation programs which require CEQA review, neither MAUCRSA nor CEQA account for the cost of creating, implementing, or paying for such programs. This means that the State of California has placed an unfunded mandate on the shoulders of every local jurisdiction that chooses to regulate and authorize commercial cannabis activity rather than ban it. 

Rather than set aside funds for local jurisdictions to use to create and implement the aforementioned local authorization programs, California took a minimalist approach to supporting such programs via the enactment of California Business and Professions Code (“BPC”) Section 26055, which stated, in pertinent part: 

“Without limiting any other statutory exemption or categorical exemption, Division 13 (commencing with Section 21000) of the Public Resources Code does not apply to the adoption of an ordinance, rule, or regulation by a local jurisdiction that requires discretionary review and approval of permits, licenses, or other authorizations to engage in commercial cannabis activity. To qualify for this exemption, the discretionary review in any such law, ordinance, rule, or regulation shall include any applicable environmental review pursuant to Division 13 (commencing with Section 21000) of the Public Resources Code. This subdivision shall become inoperative on July 1, 2021”.

(BPC 26055(h)(i) emphasis added).

Under BPC 26055(h)(i), local jurisdictions were exempted from CEQA in their enactment of  local commercial cannabis permitting programs as long as such programs required each project applicant to go through a costly, lengthy, and risk intensive discretionary permitting process.  This requirement is compounded by the nearly universal imposition of indemnification provisions, which require the applicant to pay for attorney’s fees and damages incurred by localities should the project be challenged under CEQA. ’

A Convenient Tool for Cannabis Prohibitionists and NIMBYism

Further, CEQA is known, perhaps primarily, as a vehicle for collateral attack against projects. NIMBYs1, labor activists, and environmentalists commonly sue project proponents under CEQA which provides for, among other things, prevailing party attorney’s fees. This creates  circumstances in which project proponents, in this case applicants for commercial cannabis activity permits, assume a significant risk of costly litigation as a built-in cost for each CEQA project/commercial cannabis activity permit or license application. 

This transfer of CEQA liability from the State, to the local governments, to, ultimately, the applicant itself has proven to be systemically untenable.

Currently, a majority of California’s cities and counties have not enacted local MAURCSA implementation programs. This has relegated those localities to a purgatory era of cannabis prohibition. In most jurisdictions that have implemented MAUCRSA local authorization programs, project applicants are forced to withstand costly and time intensive permitting processes as most jurisdictions require discretionary permitting for projects that are not otherwise subject to a categorical or statutory exemption. 

Improving the Local Permitting Process for Commercial Cannabis Businesses

The sunsetting of BPC 26055(h)(i) presents an opportunity for all stakeholders to work together to fundamentally to change local regulations to improve local permitting processes in a way that complies with the dictates of CEQA and MAUCRSA but limits the time and expense to both localities and project applicants. 

First, the State of California should make funding available for each city and each county to conduct an EIR for all commercial activities allowed under MAUCRSA and its related regulations.

Second, California cities and counties should use these state funds to actually conduct EIRs, for each of their respective local programs, which includes the entire scope of activities allowed under state law. Localities should conduct expansive EIRs even if California does not provide funding and recoup the cost of preparing such EIRs through subsequent local MAUCRSA program related fees.

Localities should conduct expansive EIRs even if California does not provide funding and recoup the cost of preparing such Environmental Impact Reports (EIRs) through subsequent local MAUCRSA program related fees.

Third, upon the completion of each EIR, each respective city and county should enact local regulations creating local MAUCRSA implementation programs. Once this is done, each city and county will be able to enact ministerial (non-discretionary) permitting programs that are CEQA compliant. This will have, perhaps, the largest impact on both local government and project applicants because the ministerial permit process is significantly streamlined and inexpensive as compared to discretionary permit processes. 

A ministerial permit is one that does not require agency discretion in approving a project or undertaking. (Cal Pub. Res. Code §21080(b)(1); Cal Code Regs. ttl. 14 §15369). Additionally, once a project is determined to be subject to ministerial review, it is statutorily exempt from CEQA. (Id). In Sierra Club v. County of Sonoma, the California Court of Appeal held that a permit’s issuance is ministerial if “[t]he fixed approval standards delineate objective criteria or measures which merely require the agency official to apply the local law … to the facts as presented in a given … application.” Sierra Club v. County of Sonoma (2017) 11 Cal. App. 5th. 11 at p. 23). 

From a local jurisdiction standpoint, the validity of the ministerial permitting program and its ability to overcome judicial scrutiny will be based, among other things, on the discretion, or lack thereof, in its approval of the project as the lead agency.

Generally, courts recognize that “‘CEQA does not apply to an agency decision simply because the agency may exercise some discretion in approving the project or undertaking. Instead[,] to trigger CEQA compliance, the discretion must be of a certain kind; it must provide the agency with the ability and authority to “mitigate … environmental damage” to some degree.’ ” (San Diego Navy Broadway Complex Coalition v. City of San Diego (2010) 185 Cal.App.4th 924, 934, italics omitted; see also Friends of Juana Briones House v. City of Palo Alto, (2010), 190 Cal.App.4th at 308 [permit is discretionary if agency “has [the] authority to condition the permit in environmentally significant ways”].)

An agency’s determination that an activity falls under the ministerial exemption is generally reviewed subject to a “ ‘a prejudicial abuse of discretion.’ ” standard. (Muzzy Ranch Co. v. Solano County Airport Land Use Commission, 41 Cal.4th at p. 381 quoting § 21168.5; Save Our Carmel River v. Monterey Peninsula Water Management Dist. (2006) 141 Cal.App.4th 677, 693.) “Abuse of discretion is established if the agency has not proceeded in a manner required by law or if the determination or decision is not supported by substantial evidence.” (§ 21168.5.) Guidelines section 15268, subdivision (a) makes clear that “[t]he determination of what is ‘ministerial’ can most appropriately be made by the particular public agency involved based upon its analysis of its own laws, and each public agency should make such determination either as a part of its implementing regulations or on a case-by-case basis.” (See Friends of Davis v. City of Davis, supra, 83 Cal.App.4th at p. 1015, 100 Cal.Rptr.2d 413; see also Sierra Club, supra, 205 Cal.App.4th at p. 178). 

This is all to say that localities should feel confident that their ministerial MAUCRSA implementation programs will be durable provided that they (1) conduct sufficient EIRs, and (2) adhere to general parameters concerning limiting discretion of the lead agency in the issuance of ministerial permits.

Conclusion: A Viable Path Forward

Assuming that the above occurs, California’s localities will be able to streamline the costs associated with staffing and legal needs, planning commission hearings, and city council and board of supervisors time while providing a viable path forward in the regulated cannabis market. California, in turn, will benefit because more local MAUCRSA permitting programs will ultimately lead to more legal market participants. California should therefore enthusiastically fund local programmatic EIRs related to local MAUCRSA implementation programs.

All of the above will also, obviously, be of great benefit to aspiring and existing MAUCRSA licensees who will be able to more realistically and efficiently get their project off the ground.

Through adopting the steps discussed above, California, its localities, MAUCRSA project applicants, and Californians at large will be able to more effectively comply with CEQA while strengthening the foundation of the regulated cannabis industry.


Endnotes

1  “Not In My Backyard” activists

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