If you have ever applied for a commercial cannabis local permit or state license in California, then you probably have heard of the California Environmental Quality Act (commonly known as “CEQA”) which is codified in the California Public Resources Code at § 21000 et seq.

A trio of recent court cases illustrate CEQA’s integral role in the development of California’s cannabis industry.

First, in Union of Medical Marijuana Patients, Inc. v. City of San Diego (2016) 4 Cal.App.5th 103, which is currently pending review in the California Supreme Court (case number S238563), plaintiffs contend that San Diego violated CEQA when the city enacted a zoning ordinance for medical marijuana consumer cooperatives without first considering and analyzing the ordinance’s “potential to result in a change to the environment.” (Union of Medical Marijuana Patients, 4 Cal.App.5th at 111.)  Specifically, plaintiffs argue that the zoning ordinance “(1) will cause patients to drive across the City, increasing traffic and air pollutants; (2) will shift or intensify development to certain areas of the City; and (3) could increase the indoor cultivation of marijuana, which will have negative environmental impacts.” (Id.) Originally filed in 2014, this CEQA challenge has been repeatedly denied and then appealed again.

Second, in San Mateo County an anti-cannabis group filed a CEQA challenge, this one against the county’s limited-scope ministerial permitting scheme allowing cultivation only in pre-existing coastside-area greenhouses. In SMC Marijuana Moratorium Coalition v. County of San Mateo, et. al. (San Mateo Superior Court Case No. 18CIV00206), even though the County conducted a CEQA-mandated initial environmental impact study (unlike San Diego), the plaintiff group contended that this study was deficient under CEQA because it failed to adequately identify, consider alternatives to, and require mitigation of the ordinance’s impacts. Plaintiffs argued that these cultivation activities would adversely impact hydrology and water quality, sensitive species and habitat, air and light pollution, climate change, and other elements.  Shortly after the lawsuit was filed, the parties settled and San Mateo repealed the ordinance.

Finally, at the beginning of this year, another anti-cannabis group called the Trinity Action Association, which was formed in 2015 to influence Trinity County’s cannabis policies and enforcement, sued the county’s planning director and anonymous cannabis licensees.  Trinity Action Association claims that the Trinity County has been violating CEQA by failing to undertake thorough and public reviews of each cannabis cultivation license application and renewal. The suit seeks to stay any further license applications until the county institutes CEQA-compliant processes.

While these cases probably won’t directly impact most readers (and indeed, the sun just set on cannabis cooperatives anyway), they are cautionary tales that local permits will become available only to the extent that local jurisdictions comply with CEQA in the first place.  Further, these cases demonstrate the importance of CEQA compliance for all cannabis industry actors because CEQA is a powerful tool for cannabis industry opponents (like anti-cannabis public interest groups, or NIMBY neighbors), potentially delaying projects by years and at immense cost to all parties involved.

CEQA & CALIFORNIA CANNABIS LICENSING

The legal framework for regulated cannabis in California is known as the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”, pronounced “mao-ker-suh.”) Under both MAUCRSA and state licensing regulations, CEQA compliance is an express requirement.  See, e.g., California  Business & Professions Code § 26201:

“Any standards, requirements, and regulations regarding health and safety, environmental protection, testing, security, food safety, and worker protections established by the state shall be the minimum standards for all licensees under this division statewide.”

Similarly, § 8102(r) of the CDFA Final Permanent Regulations requires license applications to include evidence of exemption from, or compliance with, CEQA.   Furthermore, each level of CEQA environmental review can influence other related projects. For example, state and local level CEQA reviews can influence the scope and nature of business-level CEQA-mandated reviews.

In this first of a two-part blog post, we review some CEQA basics and discuss how CEQA is shaping state and local regulatory landscapes.  In our next post, we will discuss strategies for businesses and permit/license applicants to comply with (and demonstrate compliance with) CEQA on their applications and thereafter.

OVERVIEW OF CEQA

Enacted in 1970, CEQA imposes a statewide policy of environmental protection. CEQA contains both procedural and substantive requirements that apply to all “projects”—broadly defined as any activity that: (a) must receive some discretionary approval, i.e. a government body has authority to use its judgment to deny a permit, and that (b) “may cause either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment.” (Pub. Res. Code § 21065; CEQA Guidelines § 15378.)

(NOTE: the official CEQA regulations titled Guidelines for the Implementation of CEQA are codified at Title 14 of the California Code of Regulations, § 15000 et seq., and commonly referred to as the “CEQA Guidelines.”)

Thus, in addition to potentially affecting local governments enacting their own cannabis ordinances (like San Diego and San Mateo), CEQA’s requirements also likely apply to each decision to issue a cannabis permit, and to each state cannabis licensing decision as well.

CEQA’s basic purposes include: informing government decision makers and the public about the potential, significant environmental effects of proposed activities; identifying ways that environmental damage can be avoided or significantly reduced; and preventing significant, avoidable damage to the environment by requiring changes in projects through the use of alternatives or mitigation measures when the governmental agency finds the changes to be feasible.  (CEQA Guideline § 15002(a).)

To achieve these objectives, CEQA has both procedural and substantive requirements.

CEQA’S PROCEDURAL REQUIREMENTS

Procedurally, CEQA mandates the preparation of certain “environmental documents,” with opportunity for public review and objection. Each public agency or government body that reviews and/or approves a “project” subject to CEQA will normally take up to three separate steps in deciding which environmental document to prepare.

(1)  In the first step the lead agency examines the project to determine whether the project is subject to CEQA at all. If the project is exempt, the process does not need to proceed any further. The agency may prepare a notice of exemption. See Sections 15061 and 15062.
(2)  If the project is not exempt, the lead agency takes the second step and conducts an initial study (Section 15063) to determine whether the project may have a significant effect on the environment. If the initial study shows that there is no substantial evidence that the project may have a significant effect, the lead agency prepares a negative declaration. See Sections 15070 et seq.
(3)  If the initial study shows that the project may have a significant effect, the lead agency takes the third step and prepares an [environmental impact report, or] EIR. See Sections 15080 et seq.

(CEQA Guideline §15002(k): describing CEQA’s three-step process; bold added to identify “environmental documents.”)

A detailed flow chart of the CEQA decision-making process can be found here.  The degree of environmental analysis (and correspondingly, the cost of CEQA compliance) increases as the steps proceed from notice of exemption to the far more rigorous EIR. (See CEQA Guidelines §§ 15070, 15064(f)(3).)

Importantly for the cannabis industry, when broader environmental impacts already have been studied (such as in the program environmental impact report, or “PEIR,” prepared by CalCannabis and discussed below), more narrowly-focused “projects” (like issuing individual permits) may be eligible to “tier” off these prior studies, meaning to rely upon their findings and not have to duplicate the work. (See CEQA Guidelines §§ 15168, 15385: defining program EIRs and tiering.)  And conversely, where a project might have significant environmental impacts not already examined in an earlier EIR, then a more-rigorous study may become necessary at the local level. (Id., § 15063(b).)

Each CEQA “project” has a “lead agency,” which is the government agency principally responsible for carrying out or approving the project.  The lead agency must integrate CEQA review with related environmental laws and consult with other “responsible agencies” (like the Bureau of Cannabis Control, Water Resources Control Board, Department of Fish and Wildlife, etc.).  (Pub. Res. Code §21067; CEQA Guideline §15050.) Other “responsible agencies” provide a second set of eyes “by considering the EIR or Negative Declaration prepared by the Lead Agency and by reaching [their] own conclusions on whether and how to approve the project involved.” (CEQA Guideline §15096).  Because MAUCRSA created a two-step licensing process—i.e. local permits are de facto prerequisites to state licenses (Cal Bus. & Prof. Code §§26200; 26055(d))—local agencies typically become CEQA “lead agencies” for local permits, and the state licensing agencies (CDFA, CDPH, and BCC) are “responsible agencies.”  But these roles can change depending on the circumstances.

CEQA’S SUBSTANTIVE REQUIREMENTS

Substantively, CEQA generally demands that public agencies should not approve a “project” as proposed if feasible alternatives to the project, or feasible mitigation measures, would substantially lessen the project’s significant environmental impacts.  A “significant impact” is defined as a substantial or potentially substantial adverse change in the environment.
 (California Public Resources Code §21068.)  “Significance” depends not only on a project’s direct environmental impacts but also on its reasonably foreseeable indirect impacts as well as its cumulative impacts when viewed in connection with other activities with overlapping effects. (See, e.g., CEQA Guidelines §15064(h)(1).)

So what environmental resources are we talking about?  Some resources typically evaluated during a CEQA review include: aesthetics (e.g. scenic vistas); agriculture resources (e.g. use of prime ag land); air quality; biological resources (e.g. species habitat); cultural resources; geology/soils; greenhouse gas emissions; hazardous materials; hydrology/water quality; noise; transportation/traffic; utilities/service systems.  The Environmental Checklist Form in Appendix G to the CEQA Guidelines offers a more comprehensive list of environmental resources.

Evaluating the “significance” of an impact can be a complex and constantly evolving task, often requiring expert review and opinion.  Notably, some classes of projects are categorically predetermined not have a significant effect on the environment, and these are eligible for categorical exemptions. (CEQA Guideline §15354.)

On the other hand, the CEQA Guidelines have undergone recent updates that are particularly relevant to the energy- and water-intensive cannabis industry. For example, “wasteful, inefficient, or unnecessary” consumption of energy resources, either during a project’s construction or regular operation, will become potential grounds for finding energy impacts to be “significant.” (CEQA Guideline § 15126.2(b).)

Cultivators and manufacturers also should be aware that under the updated Guidelines, owners will be required to make good-faith estimates of long-term greenhouse gas impacts, and they must give greater consideration to water supply availability throughout the life of the project. (CEQA Guideline §§15064.4, 15155.)

Retailers and distribution companies should be aware of new traffic analysis standards focused on the project’s impact on vehicle-miles-traveled (or VMT). (CEQA Guideline §15064.3)

HOW CALIFORNIA CANNABIS LICENSING AGENCIES HAVE DEALT WITH CEQA

In the course of adopting their state-wide regulations pursuant to MAUCRSA, California’s three cannabis licensing agencies (CDFA, CDPH, and BCC) triggered their own CEQA compliance demands. (CEQA Guidelines §15378)  These agencies have made several key CEQA findings as a result.

For example, CalCannabis (California Department of Food & Agriculture’s cannabis division) conducted a thorough Program Environmental Impact Report (PEIR). (See the report here.) This PEIR included some helpful general findings, including that various impacts frequently associated with cultivation–such as impacts to biological resources, water quality impacts from pesticide use, and land use –would be “less than significant” if CDFA’s cannabis regulations are adopted and enforced.  (But impacts on cultural resources and tribal cultural resources would be significant.) (CDFA PEIR, pp. ES-17 to ES-22.)

As mentioned above, PEIRs are intended for projects spanning large areas (like CDFA’s statewide regulations governing cannabis cultivation), and can be relied on by subsequent, narrower projects (such as by local governments and permit applicants).  Indeed, CDFA’s PEIR expressly invites this reliance:

The PEIR may be used for subsequent CEQA evaluation, to evaluate project-level cannabis cultivation activities, as well as local and regional programs, newly developed management approaches, or other emerging aspects of cannabis cultivation. Use of the PEIR to facilitate CEQA compliance for individual activities and program components will enable CDFA to efficiently implement an adaptable program.

(CDFA PEIR, p. ES-08.)

CDFA even offers a comprehensive “CEQA Tiering Strategy and Checklist” (PEIR Appendix J) for use by subsequent projects.  However, the PEIR does acknowledge that it could not consider every potential site-specific impact of its regulations, and therefore additional analyses by local governments and permit applicants may be necessary.

The Bureau of Cannabis Control (BCC) also conducted a broad initial study (IS) of the potential impact of its emergency regulations.  But rather than issue an EIR, BCC prepared a negative declaration (ND) based on its finding that the proposed project (i.e. the BCC’s emergency regulations) “COULD NOT have a significant effect on the environment.”  (See Initial Study/Negative Declaration, September 2017, p. ix.)

Like CDFA, BCC invites subsequent project proponents (i.e. local governments and license applicants) to rely on its findings, to the extent they adequately address the potential impacts of the subsequent projects. “[I]f, for purposes of future discretionary approvals, this IS/ND adequately captures the specific environmental issues associated with the Proposed Program, no additional CEQA environmental review is necessary.”  (ES-4)

Again, however, it is important to recognize the limited reach of BCC’s high-level IS/ND analysis:  BCC stated that the determination of potential environmental impacts in areas such as aesthetics, land use, noise, odor, and connections to public utilities will be “most appropriately evaluated at a local and, in some cases, site-specific level.” (Initial Study/Negative Declaration, September 2017, p. 4.0-5.)

Notably, the California Department of Public Health’s Manufactured Cannabis Safety Branch seems to have opted not to issue any CEQA review documents related to its regulations governing California’s cannabis manufacturers, Cal. Code Regs., tit. 17, § 40100 et seq.

HOW CALIFORNIA’S CITIES AND COUNTIES HAVE GRAPPLED WITH CEQA

MAUCRSA left California’s cities and counties with broad discretion over their regulation of commercial cannabis, and these local regulatory schemes have ranged widely—from absolute bans to comprehensive permitting for all license types.  Understandably then, potential environmental impacts stemming from local ordinances differ greatly, as have their CEQA analyses.

A complete survey of each city and county is beyond the scope of this article but as a general matter jurisdiction with more extensive cannabis industries and regulations often conduct more robust CEQA analyses. (This pattern likely is a function of greater potential environmental impacts but also stems from the greater potential for organized opposition.) For example, in January 2018 Humboldt County created a robust 556-page EIR for updates to the County’s Commercial Medical Marijuana Land Use Ordinance  (CMMLUO). The EIR found that the County’s commercial cannabis regulations would have “less than significant” impacts to biological resources, cultural resources, geology and soils, hydrology and water quality, but also would have “significant and unavoidable” impacts on air quality, utilities, and service systems.  (The County adopted the Final EIR in May 2018 with detailed “Findings and Statement of Overriding Consideration” and mitigation monitoring program.)

On other end of spectrum, some counties (like Napa) have banned commercial cannabis businesses altogether, finding the banning ordinances not subject to CEQA because banning the industry could not potentially have direct or foreseeably indirect impacts on the environment (a starkly different conclusion than CDFA’s PEIR, which found regulation environmentally superior to prohibition).

One final note about a certain CEQA exemption—embedded in MAUCRSA—that some localities have invoked (such as Trinity County and the City of Davis).  This exemption states:

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, 2019.

(Business and Professions Code § 26055(h).)

While at first, this CEQA exemption may appear a gift from the legislature, it comes with some important caveats.  First, it expires on July 1, 2019, so full-blown CEQA compliance applies to the enactment of all local cannabis ordinances after then.  Second, even though the exemption streamlines the environmental review process for local jurisdictions when adopting cannabis regulatory ordinances, the exemption expressly makes the issuance of each individual local cannabis permit in such a local jurisdiction subject to CEQA compliance. Finally, in general, CEQA exemptions and findings don’t necessarily immunize a project applicant (here, local jurisdictions) from lawsuits (see, e.g., the cases of San Diego, San Mateo, and Trinity County, above).

These CEQA-related hurdles could deter local jurisdictions from enacting cannabis regulatory ordinances after July 1, 2019.  Indeed, Max Mikalonis and Jacqueline McGowan of K Street Consulting LLC in Sacramento have identified CEQA challenges as contributing to possible extinction events in 2019:

If a local government does not adopt a cannabis ordinance prior to July 1, 2019, and that ordinance does not require discretionary review of projects and therefore an analysis under CEQA, then the local government itself will have to conduct the appropriate EIR for their regulatory ordinance. [Technically, the appropriate CEQA review, which is not necessarily an EIR.]  And while some counties have done so over the last two or three years– largely as a result of litigation by environmental groups– such a move will create an additional barrier to local governments expanding licensing and the creation of a viable retail market.

Local governments that want to get off the sidelines and start regulating medicinal and adult-use cannabis activity need to have their ordinances adopted sooner rather than later, in order to avoid the more cumbersome CEQA requirements for local regulatory ordinances that “kick in” on July 1, 2019.

CONCLUSION

CEQA compliance is not only a hurdle on each permit and license application, but it can also alter the regulatory landscape where cannabis businesses operate.  CEQA challenges to one’s local cannabis ordinance can affect one’s ability or likelihood of obtaining a permit.

The state licensing agencies and many local jurisdictions already have conducted significant legwork evaluating cannabis businesses’ potential environmental impacts, through initial studies, negative declarations, and environmental impact reports.  Many of these environmental documents are potential time-saving tools, but they should be used with a healthy dose of caution due to their limited scopes.

Our next post will focus on these risks and other CEQA hurdles for permit/license applicants and will offer some practical advice for minimizing the costs and litigation risks of CEQA compliance.

The above information is provided as a public service. It is not intended as legal advice. Written by Andrew Kingsdale and edited by Omar Figueroa of Law Offices of Omar Figueroa.

For answers to your legal questions or legal assistance, including with establishing and implementing a trade secrets protection plan, please contact the Law Offices of Omar Figueroa at (707) 829-0215 to schedule a confidential legal consultation.

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