As previously reported on this blog a Colorado Court of Appeals decision in 2015 allowed a developer/declarant to retain a right to consent to amendments to a common interest community’s declaration that require arbitration of construction defect claims.

The Colorado Supreme Court has now weighed in on the case involved, which is known as Vallagio at Inverness Residential Condo. Ass’n v. Metro. Homes, Inc., affirming the decision of the Court of Appeals.

Vallagio involved a residential development in which the declaration, created pursuant to the Colorado Common Interest Ownership Act (“CCIOA”) included certain dispute resolution provisions, including an arbitration requirement.  The dispute resolution provisions also stated that those provisions could “not ever be amended without the written consent of the Declarant,” who was the developer of the project. Continue Reading Colorado Condominium Construction Defect Issue: Colorado Supreme Court Affirms the Right of Declarants for Condominium and Other Common Interest Communities to Require Binding Arbitration of Disputes

The Denver Business Journal is reporting that, on Monday, Commerce City became the third city in the Denver metro-area to enact an ordinance addressing construction defects in condominium and other common interest community construction. Continue Reading More Local Action on Construction Defects

doj memo.jpgToday, the federal government made clear that it does not currently intend to interfere with Colorado’s efforts to implement a system to regulate the cultivation, distribution and sale of marijuana to adults for recreational purposes.  Federal authorities also clarified their approach toward state-regulated medical marijuana industries. 

Specifically, United States Deputy Attorney General James M. Cole issued a memorandum directed to all United States Attorneys, setting forth the Department of Justice’s (DOJ) policy toward marijuana businesses in states that have legalized marijuana for medical and/or recreational use.  The memorandum is cast as guidance for prioritizing the “limited investigative and prosecutorial resources” available to the federal government.

Like the two previous federal memoranda addressing state-level efforts to liberalize marijuana laws, which were issued in 2009 and 2011, today’s memorandum makes clear that marijuana remains illegal for all purposes under federal law, and that federal authorities will enforce federal drug laws where appropriate.  Particularly, the memorandum highlights eight enforcement priorities that will guide federal authorities:

  • Preventing distribution of marijuana to minors;
  • Preventing revenue from marijuana businesses from going to criminal organizations;
  • Preventing diversion of marijuana from states where it is lawful to other states;
  • Preventing state-authorized marijuana activities from being used as a pretext for other illegal activity;
  • Preventing violence and use of firearms in the marijuana industry;
  • Preventing driving under the influence of marijuana and other adverse public health consequences associated with marijuana use;
  • Preventing cultivation of marijuana on public lands; and
  • Preventing marijuana possession or use on federal property.

While the memorandum stresses that it does not change federal law, and does not bind federal authorities, it makes clear that federal authorities are at least willing to allow Colorado and Washington state an opportunity to implement “strong and effective regulatory and enforcement systems that will address the threat those state laws could pose to public safety, public health, and other law enforcement interests.”  Federal authorities will watch the implementation of these regulatory regimes close, and, if they fail to live up to expectations, federal authorities may act.  If anything, this reinforces the importance of the process playing out at the state and local level in Colorado, as final regulations and procedures are developed and implemented to regulate the coming recreational marijuana industry. 

Today’s memorandum also provides clarifying guidance concerning medical marijuana businesses, noting that they should not be an enforcement priority, regardless of their size or commercial nature, provided that the operation in question “is demonstrably in compliance with a strong and effective state regulatory system.”  This represents a reversal of policy guidance provided in the 2011 memorandum, which had drawn a distinction between medical marijuana patients and their caregivers, on the one hand, and large-scale, for profit commercial enterprises, on the other hand.  In some states, U.S. Attorneys had seized on this distinction to justify targeting large-scale medical marijuana businesses.  In Colorado, however, federal authorities have generally taken a hands-off approach toward state-regulated medical marijuana businesses, which seems even more likely to continue in light of today’s memorandum.

It is important to emphasize that today’s memorandum is nothing more than a statement of current policy. It is not law, and it binds no one.  U.S. Attorneys in various states may have differing interpretations of the policy guidance, which could lead to variations in enforcement from state to state.  If state-level regulatory regimes fail to live up to federal scrutiny, federal authorities could quickly change their approach.  Indeed, nothing prevents federal authorities from issuing new policy guidance down the road, which could reverse course.  For example, when a new presidential administration comes into office in 2017, it could choose to completely ignore the Obama administration’s approach, and instead aggressively enforce federal marijuana laws. 

That said, the significance of today’s memorandum cannot be understated.  The previous two DOJ memoranda on state-sanctioned marijuana activities have had an enormous impact on the development of medical marijuana industries in a number of states.  In removing the most significant potential barrier to the full implementation of Amendment 64 (and Washington state’s similar measure), today’s memorandum will likely have a similarly profound impact.

 

 

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Last night, Colorado voters approved Amendment 64, and Washington state voters approved Initiative 502.  In enacting these ballot measures, Colorado and Washington become the first states in the country to decriminalize marijuana outside of the medical marijuana context.

What does Amendment 64 mean for Colorado? 

Amendment 64 has two basic parts: (1) within certain defined parameters, it decriminalizes adult possession, use and cultivation of marijuana for recreational purposes; and (2) creates a framework for the establishment of a regulated and taxed retail marijuana industry, which would include cultivation, marijuana-infused products manufacturing, and retail sales.  Respectively, these can be described as the “decriminalization,” and “regulation” components of Amendment 64. 

As an initial matter, it is important to note that Amendment 64 does not affect the federal prohibition on marijuana.  Marijuana remains illegal for all purposes at the federal level, and possession of any amount can lead to serious federal civil and criminal penalties.  Thus, it will still be a federal crime for adults in Colorado to possess, cultivate, or distribute marijuana.  Indeed, Colorado law would be irrelevant, and likely inadmissible, in a federal criminal prosecution or asset forfeiture proceeding arising from federal marijuana charges. 

The status of federal marijuana law will have a significant impact on what happens in Colorado, but the effect of the conflict between Colorado and federal law will likely play out differently with respect to different components of Amendment 64.  Decriminalization will go into effect as soon as the results of the election are made official (which could take several weeks).  At that time, Colorado law enforcement authorities will no longer be able to arrest or prosecute adults possessing small amounts of marijuana, or growing up to six plants for personal use, provided they are otherwise acting in compliance with the requirements of Amendment 64.  Accordingly, though it is inaccurate to say that marijuana is “legal” in Colorado in light of continued federal prohibition, as a practical matter, Amendment 64 largely eliminates the risk that any adult acting within the limits of the amendment would be arrested or convicted of marijuana crimes in Colorado.  There are simply not enough federal law enforcement authorities on the ground in Colorado to deter adult recreational use of marijuana, and federal authorities cannot force Colorado authorities to enforce federal law.  This reduced practical risk of prosecution will certainly have an effect on people’s behavior, and there is likely little that federal authorities will be able to do to meaningfully enforce marijuana prohibition as it relates to adult personal use of the drug.

Regulation, however, is likely a different matter, and its success hinges greatly on the federal attitude and approach toward the creation of the first state-regulated recreational marijuana market in the country.  Because of federal forfeiture laws, the implications of regulation will be of particular concern to real estate owners, landlords and real estate lenders who may be faced with the opportunities to provide industrial and retail space to this new industry.  In a future post, I will discuss some of the real estate-related issues that will arise from regulation. 

The critical period will be the next year or so, while the state enacts regulations, and possibly statutes, to control a newly created recreational marijuana industry.  Implementing regulations are supposed to be approved by July of 2013, and it would likely be late 2013 or early 2014 before licenses would be issued to new marijuana businesses.  Thereafter, licensed businesses would be able to cultivate marijuana, produce marijuana-infused products, and sell marijuana to persons 21 and over at retail stores.  Until then, Colorado adults will have the benefit of decriminalization, and will be able to grow their own without violating Colorado law, but will not be able to purchase marijuana at a retail establishment for recreational use, nor will marijuana be taxed.

Given the uncertain federal reaction to Amendment 64, it remains to be seen whether such a regulated marijuana industry will even get off the ground in Colorado.  Whereas federal efforts to mitigate personal marijuana use would likely be futile in light of state-level decriminalization, federal authorities would have very effective tools at their disposal if they were inclined to prevent the establishment of a regulated and taxed recreational marijuana market in Colorado. 

As a legal matter, it is well-established that state law changes to marijuana laws have no effect on federal marijuana laws, and nothing prevents federal authorities from prosecuting what might appear to be otherwise law-abiding marijuana businesses.  This power is already on display in the context of medical marijuana in Colorado.  Colorado’s existing medical marijuana industry currently survives solely due to Department of Justice and the United States Attorney for Colorado’s restrained exercise of prosecutorial discretion.  These federal authorities have generally not taken any action against licensed medical marijuana operations that are in compliance with Colorado’s extensive medical marijuana industry regulatory regime.  However, earlier this year, the Colorado U.S. Attorney’s Office made a determination that its restraint in exercising its prosecutorial discretion would only go so far.  Specifically, Colorado U.S. Attorney John Walsh has determined that his office will not tolerate the continued operation of medical marijuana businesses located near schools.  Since the decision, his office has been successful in systematically shutting down such businesses merely by making threats of criminal prosecution and asset forfeiture. 

In the circumstances, it is entirely reasonable to question whether federal authorities will allow the development of a regulated market for marijuana outside of the medical context.  If national or Colorado-based federal authorities decide to draw a line in the sand on this issue, it could set up a significant conflict.  Alternatively, if Colorado’s medical marijuana experience is any guide, federal authorities may decide to simply weigh in at the margins, thereby constraining the retail recreational marijuana industry in Colorado, without entirely foreclosing its development.

Colorado’s governor appears to recognize this distinction between the effect of decriminalization and regulation.  Following the announcement of the voters’ approval of Amendment 64, Governor Hickenlooper made a statement strongly affirming Colorado’s intent to push forward with decriminalization, while expressing skepticism about the prospects for regulation: 

I think the federal government is probably going to come down just like in prohibition–you can’t do it by state by state–but I think at the very minimum we should work aggressively to decriminalize it; make sure kids don’t get felony records.  I mean, the voters–the voters are pretty clear what they feel and what they want, so within the limits of federal law and whatever the federal government will permit, we have to figure out what’s a–how are we going to go forward.

He continued, acknowledging the difficulties involved in regulation of marijuana:

If the federal government says its going to be illegal and they’re going to prosecute, we don’t have much of a voice there.  We’re not going–we’re not going  to secede from the union.  But, we do recognize that the public has spoken loudly and we’re going to communicate that to our friends in Washington.”

It will be very interesting to see how this plays out over the next weeks and months. 

In a coming post, I will discuss some of the Amendment 64-related issues that should be relevant to Colorado property owners and landlords.

Photo: eggrole (flickr)

 

Yesterday, Reuters reported on California federal law enforcement authorities’ latest effort to crack down on medical marijuana businesses.  Though medical marijuana is legal under California state law, it remains illegal under federal law.  In recent months, federal authorities have sent hundreds of letters to California property owners/landlords of properties housing medical marijuana businesses, demanding that marijuana activities at their properties be terminated.  In absence of compliance with the demand, the letters threaten institution of civil forfeiture proceedings against the properties, and criminal charges against the owners/landlords.

Under federal law, real property used to commit or facilitate the commission of violation of federal drug laws is subject to forfeiture by the government.  Apparently, given the legality of medical marijuana on the state level, many owners/landlords are not aware of their exposure under federal law.  The article referenced above describes how using this threat (as well as the threat of criminal prosecution) has proven more effective and less costly than other avenues of enforcement.  In many cases, the threat of forfeiture will spur the property owner/landlord to evict the medical marijuana business tenant, thereby accomplishing the authorities’ goal of shutting down the operation.  According to the article, targeting owners/landlords has led to the shutdown of hundreds of medical marijuana businesses. 

Significantly for property owners/landlords, while eviction spares the owner/landlord of the risk of losing the property to forfeiture and also criminal prosecution, it also comes with its own costs for owners/landlords.  These include significant legal expenses, and potential exposure to state law civil claims from the medical marijuana business tenants. 

This approach seems to be a broad and coordinated effort among federal authorities in California.  In contrast, while federal authorities in Colorado have also targeted property owners/landlords of medical marijuana businesses, their efforts have been much focused.  Thus far, at least, only properties located near schools have come under federal scrutiny in Colorado, with the United States Attorney’s office in Colorado sending out letters to groups of owners/landlords of such properties on multiple occasions.  These letters also threatened seizure of property, and have been effective in causing the owners/landlords to ensure that the medical marijuana activities in their properties cease. 

It is unclear whether federal enforcement efforts targeting landlords will spread in Colorado.  Colorado has a much more extensive regulatory system for medical marijuana than does California, which many believe has contributed to the largely hands-off approach of federal authorities in Colorado.  However, the apparently broad use of real property forfeiture proceedings in California, or at least threats of doing so, should serve as a reminder to property owners/landlords in Colorado that allowing their properties to be used for medical marijuana activities, even in full compliance with Colorado law, places them at risk of losing their properties in federal forfeiture proceedings.  Criminal prosecution of owners/landlords is also a possibility.