The precise state of California’s cannabis delivery law might appear hazier than ever. A recent ruling by the Superior Court of California, County of Fresno, upheld a state Bureau of Cannabis Control regulation authorizing retail delivery into “any city” in the state, dismissing the challenge of local governments seeking to ban such deliveries.
But subsequent misinterpretation and incorrect analysis of the November ruling — County of Santa Cruz v. Bureau of Cannabis Control — has made clarity for licensees, consumers, advocates, and attorneys unfortunately elusive.
Where, and under what conditions, can a retail cannabis licensee in California deliver to a consumer located in a different local jurisdiction?
When California voters first approved medical cannabis in 1996 with Proposition 215, the Compassionate Use Act, the law established an affirmative defense to cannabis possession and/or cultivation charges for patients and caregivers when authorized by a licensed physician — and silence on everything else.
Over the next 20 years, a massive gray-market industry evolved to fill the vacuum and supply the newly legalized demand, leaving local governments practically powerless to regulate business activity within their borders. 
In 2016, state voters passed Proposition 64, which established statewide licensing and regulation of adult-use and medical cannabis for the first time, with the enumerated purpose, inter alia, to eliminate illicit cannabis production and sale.
Proposition 64 and its legislative progeny also authorized local governments to decide whether or not to allow the establishment of licensed cannabis businesses within their jurisdictions.
However, after more than three-quarters of California cities subsequently banned cannabis businesses, retail delivery — from the few cities offering licenses — quickly grew to become the primary means of meeting the state’s legendary demand.
In 2018, the Bureau of Cannabis Control issued a regulation to clarify the scope of legal delivery, and which authorized retail licensees to deliver into “any jurisdiction in the state,” subject to specific requirements.
Shortly after, several local governments sued the bureau to invalidate the regulation, claiming, inter alia, that the delivery regulation violated the intent and spirit of Proposition 64, specifically its aforementioned local control provisions, and in light of such putative illegality, sought a statewide injunction against the regulation’s enforcement
Fresno County Superior Court Judge Rosemary McGuire issued a tentative ruling adverse to the plaintiffs in August, before ultimately dismissing the case in late November.
However, despite losing the case, the local governments’ attorney nevertheless publicly claimed victory, while leading cannabis industry attorneys have expressed alarm at the potential local bans allegedly authorized by Judge McGuire’s final ruling.
In light of this apparent paradox, how should licensees, consumers, advocates, and attorneys properly interpret the outcome?
The confusion stems from complex legal issues at the heart of the controversy, which remain unresolved, since they were never raised before Judge McGuire or any court.
In the instant case, the local governments were challenging a single Bureau of Cannabis Control regulation, but the legal issues necessary to properly resolve this question implicate numerous issues of constitutional and business law, commercial intercourse, title transfer, and other legal issues independent of the regulation, as explained below.
As one of the co-authors of Proposition 64, I have a unique familiarity with the underlying law and share this article to help clarify the actual meaning of the case outcome.
Judge McGuire’s statement, in dicta, that the regulation still allows cities to ban deliveries functioned to dismiss the cities’ request for an injunction and is not binding precedent with respect to the larger legal issue(s) not before her court. Unfortunately, this statement took on a life of its own after the ruling, victoriously touted by the plaintiffs and worryingly noted by industry critics.
However, this overreaction is based on a misunderstanding of the procedural posture, and even if Judge McGuire’s dicta were deemed to be persuasive in future cases, it still would not be the end of the story.
The resulting confusion in headlines and press releases notwithstanding, settled California law ultimately is clear that while cities do reserve the right to ban commercial delivery services as part of their general police power and specific local control authority under the Adult Use of Marijuana Act, and its legislative progeny, statewide deliveries nevertheless do remain lawful under specific conditions.
The actual fundamental question on this issue is the precise point where a local jurisdiction’s regulatory authority does — or does not — apply to a given delivery transaction.
This is a fact-dependent inquiry independent of the Bureau of Cannabis Control regulation — thus transcending the instant litigation — and is governed by well-established principles of commercial law.
The state constitution grants cities and counties the ability to “make and enforce within its limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws.”
State law defines a sale of cannabis as:
[A]ny transaction whereby, for any consideration, title to cannabis is transferred from one person to another, and includes the delivery of cannabis or cannabis products pursuant to an order placed for the purchase of the same and soliciting or receiving an order for the same, 
In its dual combination of title and possession, the statutory definition under Proposition 64 is thus consistent with commercial transactions elsewhere in state law generally. This structure leads to the solution of this 21st-century enigma in one of the most foundational 20th century in state, national and international commerce — the Uniform Commercial Code.
The California Commercial Code, the state’s codified UCC, provides that title to goods passes from the seller to the buyer “in any manner and on any conditions explicitly agreed on by the parties.”
While a separate provision establishes a default rule for deliveries that title does not pass “until seller completes his performance with reference to the physical delivery of the goods … except as otherwise agreed,” this default rule, like all others under the UCC, is ultimately subordinate to contrary specification by the parties “as otherwise agreed” in their actual contract(s) for the sale of goods.
Thus, while the default rule of delivery would indeed subject cannabis retailers to the jurisdiction, and potential delivery bans, of the ultimate destination, equally valid state law principles clearly allow for parties to specify alternative locations for the commercial exchange, thus legally stipulating that a sale occurred in a specific jurisdiction at a specified time.
Therefore, stated differently, the general rules of commercial intercourse already allow for parties to specify, via contract, their limited exemption from local cannabis bans at the outset.
Moreover, the contracts can also permissibly stipulate payment method through subsequent cash transfer or letter of credit, rendering the ultimate furnishing of the goods to the purchaser, and cash transfer back to the seller.
California law expressly allows delivery businesses to structure transactions whereby the parties can designate the ultimate location of the transaction — including title, payment and/or physical exchange — according to the parties’ intent.
This principle clearly allows licensed cannabis delivery services the ability to structure contracts in a manner to complete a delivery transaction in the original jurisdiction, and thus immunizing the transaction from subsequent assertions of local authority.
Put another way, the commercial exchange by law occurs only in the original jurisdiction, and despite the destination city’s theoretical authority to ban such transaction, the transaction is legally completed upon entry into the jurisdiction.
The contrary interpretation as proposed by the plaintiff cities, and some industry critics of the ruling, would operate in practice to revoke or otherwise impair this well-established contractual authority under law, and thus would be preempted or otherwise invalid.
Preemption analysis depends upon:
“[B]alancing the needs of local governments to meet the special needs of their communities, and the need for uniform state regulation … and whether local needs have been adequately recognized and comprehensively dealt with at the state level.”
Therefore, any extent a city claims the ability to ban or impair this authority, in practice, would clearly impinge on the constitutional powers of other local governments and/or the state itself.
Additional support for this interpretation comes from the law on state and local taxation. By state law, tax apportionment is deeply intertwined with sales location, and must be based on a measure which “fairly reflects that proportion of the taxed activity which is actually carried on within the taxing jurisdiction.”
However, for purposes of sales-tax assessment, other remote sales, such as door-to-door salespeople — directly analogous to the cannabis delivery operations at issue here — are similarly treated as having their sales occur at the single location of brick-and-mortar headquarters for purposes of state law, despite the entire commercial transaction — offer, acceptance and payment — occurring wholly in the jurisdiction of the destination residence.
This interpretation, properly informed by existing law, thus furnishes a quasi-Solomonic resolution to the underlying dispute, and highlights the partial truths contained in the competing interpretation(s).
While the default rule is that delivery transactions into a specific jurisdiction can be banned by local governments, it is also true that parties to a lawful retail sale can stipulate that their transaction is not subject to the ban’s jurisdiction.
Whether through appeal or subsequent case law, it is clear that courts must clarify this issue to reduce uncertainty and avoid widespread upheaval throughout the legal cannabis marketplace.
In the meantime, what other steps can attorneys, industry, consumers and advocates take to help? While some critics have suggested legislative action, this is a circumstance declaratory of existing law, and given the applicable principles of preemption, it is unlikely that any legislation would even meaningfully resolve these issues.
Instead, the primary responsibility for the solution is properly vested in the original defendant — the Bureau of Cannabis Control. The BCC can and should amend Regulation 5416 with further clarity to help ensure a uniform statewide regulatory framework that properly defers to established powers of local control. A suggested version is as follows:
(e) Notwithstanding existing local or other government authority, a delivery transaction shall be considered, for purposes of state law, as a commercial ‘sale’ occurring entirely in the authorized jurisdiction of a retail licensee, when such delivery transaction includes:(1) A lawful purchase, for delivery, by a legally qualified consumer; (2) A valid contract between the purchaser and retail licensee including specific provisions designating the licensed retail jurisdiction as the exclusive location for title transfer and all incidents to the commercial exchange; and (3) The transport, tender of, and payment for such product, completed to both parties’ satisfaction and consistent with all applicable contractual provisions and state law.
Such an amended and clarified version would be consistent with the principles above, declaratory of existing law, and it would provide necessary clarity and assurance for licensees to operate.
It would identify the UCC-based elements for enforceable title transfer modification — viz., goods identified in contract, and parties agreeing to title, delivery and payment provisions, etc. — sufficient to vest sales authority in a single local jurisdiction.
Whether through the courts, legislature or subsequent rulemaking, all cannabis licensees, consumers, advocates, policymakers and attorneys alike can be assured that the eventual outcome will ultimately reflect the above principles of settled state law.
A version of this column first appeared in Law360.
(1) Compassionate Use Act (1996), codified as Health and Safety Code (HSC) § 11362.5
(2) See City of Monterrey v. Caarnshimba (2013), 215 Cal.App. 4th 1068, 1092, observing that “the precise parameters of a Dispensary operating lawfully under California law remain undefined by case law or statute”
(3) Adult Use of Marijuana Act of 2016 (AUMA), codified as Business and Professions Code (BPC) §§ 26000-26211, Labor Code §147.6, Water Code § 13276, HSC §§ 11018, 11018.5, 11357-11361.8, and 11362.1-362.45, Food and Agriculture Code §§ 81000-81010, and Revenue and Taxation Code §§ 34010-34021.5. Re-codified via SB 94 (2017), Medical and Adult Use Control and Regulation and Safety Act (“MAUCRSA”)
(4) BPC § 26200
(5) California Code of Regulations, Title 16, Section 5416(d). See also Bureau of Cannabis Control (2018), Initial Statement of Reasons, Regulation 5416(d), page 110
(6) County of Santa Cruz, et al v. Bureau of Cannabis Control (2020), Fresno County Superior Court, case number 19CECG01224
(7) Law360,https://www.law360.com/articles/1299305(8) https://www.law360.com/articles/1330651
(9) MJBusinessDaily (November 2020), “California Marijuana Industry: Delivery Lawsuit Outcome Not a Win” https://mjbizdaily.com/california-marijuana-industry-delivery-lawsuit-outcome-not-a-win/
(10) Note 5 (supra), Order page 9(11) California Constitution, Article 11, Section 7
(12) BPC § 26001(aa)
(13) California Commercial Code (COM), § 2401(1)
(14) COM § 2401(2)
(15) COM § 5104
(16) Northern California Psychiatric Society v. City of Berkeley (1986) 178 Cal.App.3d 90, at 101.
(17) City of Los Angeles v. Shell Oil Co., 4 Cal. 3d 108, 124 (1971).
(18) California Department of Tax and Fee Administration, Regulation 1802. Place of Sale and Use for Purposes of Bradley-Burns Uniform Local Sales and Use Taxes