August 21, 2019

Colorado Court of Appeals: Marijuana Business Cannot Cultivate Marijuana as Accessory Use When Zoning Code Precludes Cultivation for Primary Use

The Colorado Court of Appeals issued its opinion in Colorado Health Consultants v. City & County of Denver on Thursday, September 6, 2018.

Retail MarijuanaCultivation as an Accessory UseVested InterestEquitable EstoppelTaking.

Colorado Health Consultants, d/b/a Starbuds (Starbuds), is a retail marijuana business located in an I-MX-3 zone, which is a special context zone for industrial mixed use. In 2013, the zoning authority issued Starbuds a zoning permit for retail sales. Starbuds separately applied with the Department of Excise and Licenses (Department) for a retail marijuana cultivation (RMC) license, which was issued in 2014. The following year, Starbuds sought renewal of the RMC license and, following an uncontested hearing required by the Denver Revised Municipal Code (DRMC), the license was renewed.

Starbuds again sought renewal in 2016. The DRMC had been revised and a hearing was no longer required, so the Department immediately renewed the RMC license. Several days later the Department discovered that an interested party had requested a hearing on the renewal application. A hearing was held at which Starbuds argued that under DRMC § 6-214(a)(1), the Department was not authorized to conduct a hearing. In a detailed written recommendation the hearing officer recommended the Department deny the renewal request. She found that plant husbandry was not a permitted use in the I-MX-3 zone and the original license had been issued in error. She also rejected Starbuds’ argument that plant husbandry was a permitted “accessory use.” The Department adopted the findings and denied the renewal.

Starbuds filed a C.R.C.P. 106(a)(4) complaint arguing that the Department did not have the authority to hold a public hearing on the renewal application because plant husbandry was a permitted accessory use. It also alleged that the Department was equitably estopped from denying its renewal application and the denial was an unconstitutional taking. The district court affirmed the Department’s order.

On appeal, Starbuds first contended that the Department abused its discretion and legally erred in concluding that plant husbandry is not a permitted accessory use in an I-MX-3 zone and that its zoning permit did not authorize plant husbandry. An RMC license requires that the retail marijuana establishment be located in a zone “where, at the time of application for the license, plant husbandry is authorized as a permitted use under the zoning code,” with a few exceptions. The parties agreed that plant husbandry is not permitted in the I-MX-3 zone. Starbuds argued, however, that marijuana cultivation is a permitted, unlisted accessory use based on the zoning administrator’s issuance of its retail sales permit. The Department rejected this argument because “retail sales” was the only use permitted by the permit. The court of appeals held that because plant husbandry is prohibited as a primary use, it cannot be an accessory use, so the RMC license renewal application was properly denied.

Starbuds then challenged the Department’s subject matter jurisdiction to conduct a hearing under DRMC § 6-214(a)(2) and (3), given that the Department could only have issued the RMC license under § 6-214(a)(1), which contains no hearing provision. The Department separately possessed the discretionary authority to conduct a hearing under DRMC § 32-30. Further, plant husbandry is not a permitted primary or accessory use in an I-MX-3 zone, and therefore Starbuds was never eligible to receive an RMC license in the first instance.

Starbuds further argued that the district court erred in finding that equitable estoppel did not apply to provide it relief, contending that the Department’s decision to hold a hearing caused an injury. First, it was unlikely that Starbuds detrimentally changed its position in reliance on the approval in the nine days between the application approval and its revocation. The record supports the trial court’s finding that the Department mistakenly issued the RMC license in the first place, and Starbuds presented no evidence that its reliance on an unlawfully issued license was reasonable. Moreover, Starbuds was not ignorant of the provision that plant husbandry was not permitted in its zone.

Starbuds last contended that the denial of its RMC license was an unconstitutional taking because it had a reasonable expectation of continued licensure and did not receive due process. There is no vested right in the renewal of a license, and nothing precludes Starbuds’ continued operation as a retail establishment, which was the primary use for which it was zoned. And Starbuds was afforded due process through the renewal hearing. The Department’s denial of Starbuds’ RMC license renewal application did not constitute an unconstitutional taking.

The judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.

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