Why Oakland's Proposed 25% City Ownership of Cannabis Licensees Is Unconstitutional

Oakland's City Council is considering amendments to its cannabis licensing ordinance. The most controversial aspect of these amendments would require every single business obtaining a cannabis license for a facility in Oakland to give the city 25% ownership of the business.

There are many objections to the proposed amendment. One fundamental question, however, is whether Oakland has the Constitutional power to take ownership of a business in this way. The Fifth Amendment to the United States Constitution provides that private property shall not "be taken for public use, without just compensation." Similarly, Article I, Section 19 of the California Constitution provides that “Private property may be taken or damaged for public use only when just compensation . . . has first been paid to, or into the court for, the owner."

For the City of Oakland to take 25% ownership of a business is, undoubtly, a taking of property under the Federal and California Constitutions. The constitutional protections for property have long included intangible property, such as business ownership, just as much as real property like real estate. Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1003 (1984) ("That intangible property rights protected by state law are deserving of the protection of the Taking Clause has long been implicit in the thinking of this Court.").

And, under the proposed amendments, the City is not offering any compensation for this seizure of property. Proponents might argue that forcing licensees to hand over 25% of their business to the City is not a "taking" because it is voluntary; no one is required to apply for a license. But that is dead wrong. The United States Supreme Court has repeatedly held that "the government may not deny a benefit to a person because he exercises a constitutional right." Regan v. Taxation With Representation of Wash., 461 U.S. 540, 545 (1983). Even though the City of Oakland is not required to grant cannabis licenses, our state and federal constitutions do not allow Oakland to withold those licenses unless businesses agree to give up 25% ownership without compensation. "Extortionate demands of this sort frustrate the Fifth Amendment right to just compensation, and the unconstitutional conditions doctrine prohibits them." Koontz v. St. Johns River Water Mgmt. Dist., 133 S. Sct. 2586, 2595 (2013).

Oakland has long been on the leading edge of cannabis policy, to the betterment of City and its residents. If the City Council approves these amendments, many potential licensees will leave Oakland behind and never return. Even if some businesses remain, however, the City would find itself in court, fighting a losing battle, while other cities and counties around California leave Oakland in the dust, attracting cannabis businesses and the jobs and tax dollars they represent.

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