Judge Stephen I. Goorvitch, Case Number: 24STCP02314, Date: 2024-11-22 Tentative Ruling

Judge: Stephen I. Goorvitch, Case: 24STCP02314, Date: 2024-11-22 Tentative Ruling

[Tentative] Order Denying Petitioner’s Motion to Stay Revocation of Provisional License

The Department of Cannabis Control (the “Department”) revoked a provisional cannabis manufacturing license issued to Petitioner Green Acre Management (“Petitioner”). Accordingly, Petitioner has filed a petition for a writ of traditional mandamus under Code of Civil Procedure section 1085 seeking a writ requiring the Department to hold a hearing before revoking its provisional license. Now, Petitioner seeks a stay of the decision to revoke the provisional license. The Department and its director (collectively, “Respondents”) demur to the petition. Respondents do not have a ministerial duty to provide a pre-deprivation hearing before revoking a provisional license. Even if so, two weeks after revoking Petitioner’s provisional license, the Department denied Petitioner’s annual license application, which automatically cancels any provisional license. Per statute, this court does not have jurisdiction to review or stay any decision by the Department to deny an annual license application; only the California Supreme Court or the District Court of Appeal for the Second District may do so. Moreover, the balance of harms favors Respondents, not Petitioner. Therefore, the court denies Petitioner’s motion to stay and sustains Respondents’ demurrer without leave to amend.

The Department “has the power, duty, purpose, responsibility, and jurisdiction to regulate commercial cannabis activity.” (Bus. & Prof. Code §§ 26010.5(d).) “The protection of the public shall be the highest priority for the department in exercising licensing, regulatory, and disciplinary functions under this division. Whenever the protection of the public is inconsistent with other interests sought to be promoted, the protection of the public shall be paramount.” (Bus. & Prof. Code § 26011.5.)

As part of its duties, the Department issues annual and provisional cannabis licenses. An annual license “shall be valid for 12 months from the date of issuance” and “[t]he license may be renewed annually.” (Bus. & Prof. Code § 26050(c).) As relevant to this petition, the Legislature has enacted a detailed process for suspension or revocation of annual licenses, as well as appellate review of such decisions. (Bus. & Prof. Code §§ 26030, 26031.)

The department may suspend, revoke, place on probation with terms and conditions, or otherwise discipline licenses issued by the department and fine a licensee, after proper notice and hearing to the licensee … if the licensee is found to have committed any of the acts or omissions constituting grounds for disciplinary action.

(Bus. & Prof. Code § 26031(a).) Any appeal of an administrative decision of the Department to suspend or revoke an annual license is heard by the Cannabis Control Appeals Panel. (See Bus. & Prof. Code § 26040, et seq.) Judicial review is limited to a petition for writ of mandate to the California Supreme Court or Court of Appeal:

No court of this state, except the Supreme Court and the courts of appeal to the extent specified in this chapter, shall have jurisdiction to review, affirm, reverse, correct, or annul any order, rule, or decision of the department or to suspend, stay, or delay the operation or execution thereof, or to restrain, enjoin, or interfere with the department in the performance of its duties, but a writ of mandate shall lie from the Supreme Court or the courts of appeal in any proper case.

(Bus. & Prof. Code § 26045(a).) However, these sections do not apply to provisional licenses, like the one at issue in this case. (Bus. & Prof. Code § 26050.2(m).)

Beginning in 2018, the Legislature authorized the Department, “in its sole discretion,” to issue provisional licenses if specified conditions are met. (Bus. & Prof. Code § 26050.2(a); see Stats. 2018, ch. 857, § 1 (Sen. Bill No. 1459).)[1] As relevant to this writ petition, the Department “may, in its sole discretion, revoke or suspend a provisional license if it determines the licensee failed to actively and diligently pursue requirements for the annual license.” (Bus. & Prof. Code § 26050.2(i).) The Department “shall adopt regulations clarifying what constitutes actively and diligently pursuing requirements for the annual license.” (Bus. & Prof. Code § 26050.2(i).) DDC has promulgated such regulations. (See Cal. Code of Regs., tit. 4, § 15001(d).)

Further, the Department “shall cancel a provisional license upon issuance of an annual license, denial of an annual license, abandonment of an application for licensure, or withdrawal of an application for licensure.” (Bus. & Prof. Code § 26050.2(j).) Unlike for an annual license, the statutory scheme does not provide a hearing or appeal procedure for the suspension or revocation of a provisional license. Specifically, section 26050.2 states:

Refusal by the department to issue a license pursuant to this section or revocation or suspension by the department of a license issued pursuant to this section shall not entitle the applicant or licensee to a hearing or an appeal of the decision. Chapter 2 (commencing with Section 480) of Division 1.5 and Chapter 4 (commencing with Section 26040) of this division and Sections 26031 and 26058 shall not apply to licenses issued pursuant to this section.

On or about December 2, 2020, Petitioner submitted an application for an annual cannabis manufacturing license. (Castelo Decl. ¶ 2.) For reasons not explained by the record, the Department did not decide Petitioner’s application for an annual license in 2021, 2022, or 2023. (Id. ¶ 2.) On or about February 23, 2021, the Department issued provisional cannabis manufacturing license CDPH-10004540 (the “provisional license”) to Petitioner. (Id. ¶ 3.) Petitioner renewed the provisional license in 2022, 2023, and 2024. (Id. ¶ 4.) When Petitioner renewed its provisional license in 2024, it paid a license fee of $50,000 to the Department. (Id. ¶ 5.) Between 2021 and 2024, Petitioner invested approximately $2.4 million to grow its business, hired approximately 26 employees, and entered into numerous contracts with business partners. (Id. ¶ 8.)

On May 17, 2024, the Department gave Petitioner written notice that it was “reviewing provisional license number CDPH-10004540 … for revocation.” (Id. ¶ 6, Exh. A.) The Department’s letter identified fourteen alleged violations of the licensing regulations as the grounds for revocation. (Ibid.) The first thirteen counts in the letter were based on a criminal investigation in March 2021 into unlicensed cannabis operations at two addresses in Santa Fe Springs, California, and related to a business doing business as Muha Meds and Ali Garawi and Muhammad Garawi. The fourteenth count alleged that Petitioner failed to timely report that two of its owners, Ali Garawi and Muhammad Garawi, had been convicted of wire fraud. (Id. Exh. A.)

The merits of the Department’s allegations are not at issue with respect to the motion for stay or the demurrer. Nonetheless, for background, Petitioner’s current Chief Executive Officer and shareholder, Valeria Castelo, declares that “Ali Garawi and Muhammad Garawi first purchased shares of Green Acre no earlier than September 9, 2021” and “sold all of their shares in Green Acre on or about November 15, 2023.” (Castelo Decl. ¶ 11.) Castelo also declares: “Green Acre has only ever had one location in Long Beach, California. Green Acre has never operated in Santa Fe Springs, California.” (Id. ¶ 10.)

On May 24, 2024, two of Petitioner’s then-shareholders, including Ali Garawi, met with representatives of the Department to discuss the allegations in the notice of May 17, 2024. (Garawi Decl. ¶¶ 2-3.) At that meeting, Petitioner’s representatives denied that Petitioner had committed the alleged violations. (Ibid.) In his declaration, Ali Garawi recalls that he told the Departments that “in March 2021, neither I, my brother Muhammad Garawi, nor our cannabis brand, Muha Meds, had any affiliation with Green Acre.” (Ibid.)

On June 19, 2024, the Department gave Petitioner written notice of its decision to revoke Petitioner’s provisional license. The Department indicated that it had “discovered evidence” of fourteen different violations of the licensing regulations, as alleged in the notice of May 24, 2024. (Castelo Decl. ¶ 7, Exh. B.) Pursuant to section 26050.2(m), Petitioner was not afforded an administrative hearing or appeal to challenge the revocation of its provisional license.

On or about July 3, 2024, the Department issued a letter regarding the “Denial of Annual License Application CDPH-10004540 Premises Address: 515 W 17th Street, Long Beach, CA 90813.” (Resp. RJN Exh. 1.) The denial of the annual license was based on substantially similar violations of the licensing regulations specified in the notices of May 24 and June 19, 2024. In the letter of July 3, 2024, the Department notified Petitioner of its right to appeal the denial of the annual license. (Ibid.) On July 9, 2024, Petitioner filed its request to appeal the Department denial of its annual license application. (Cribbs Decl. ¶ 2, Exh. A.) That administrative hearing process has not been completed. (See id. ¶¶ 3-4.)

On July 19, 2024, Petitioner filed its verified petition for writ of traditional mandate pursuant to Code of Civil Procedure section 1085. The petition alleges that “Respondents had a clear duty under Section 1 of the Fourteenth Amendment to the United States Constitution and Section 7 of Article I of the California Constitution to respect Green Acre’s due process rights when revoking the Provisional License.” (Petition for Writ of Mandate (“Pet.”) ¶ 19.) Based on this legal theory, Petitioner further alleges that it “is entitled to a peremptory writ of mandate vacating the revocation of Petitioner’s provisional license CDPH-10004540, ordering Respondents to hold a hearing … on whether there is a basis for the revocation of Petitioner’s provisional license CDPH-10004540, and ordering Respondents to afford Petitioner an appeal … of any decision made at the hearing.” (Pet. ¶ 24.)

“A stay of an agency decision in a traditional mandamus case is governed by principles for injunctive relief.” (Los Angeles Superior Court Local Rules, Rule 3.231(e).) The purpose of a preliminary injunction is to preserve the status quo pending a decision on the merits. (Major v. Miraverde Homeowners Ass’n. (1992) 7 Cal. App. 4th 618, 623.) In deciding whether or not to grant a preliminary injunction, the court looks to two factors, including “(1) the likelihood that the plaintiff will prevail on the merits, and (2) the relative balance of harms that is likely to result from the granting or denial of interim injunctive relief.” (White v. Davis (2003) 30 Cal.4th 528, 553-54.) The factors are interrelated, with a greater showing on one permitting a lesser showing on the other. (Dodge, Warren & Peters Ins. Services, Inc. v. Riley (2003) 105 Cal.App.4th 1414, 1420.) However, the party seeking an injunction must demonstrate at least a reasonable probability of success on the merits. (IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, 73-74.) The party seeking the injunction bears the burden of demonstrating both a likelihood of success on the merits and the occurrence of irreparable harm. (Savage v. Trammell Crow Co. (1990) 223 Cal.App.3d 1562, 1571.) “To issue an injunction is the exercise of a delicate power, requiring great caution and sound discretion, and rarely, if ever, should be exercised in a doubtful case.” (Willis v. Lauridson (1911) 161 Cal. 106, 117.)

A demurrer tests the sufficiency of a pleading, and the grounds for a demurrer must appear on the face of the pleading or from judicially noticeable matters. (Code Civil Proc. § 430.30, subd. (a); Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “We assume the truth of the allegations in the complaint, but do not assume the truth of contentions, deductions, or conclusions of law.” (California Logistics, Inc. v. State (2008) 161 Cal.App.4th 242, 247.) “A demurrer must dispose of an entire cause of action to be sustained.” (Poizner v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters.” (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.)

Respondents’ requests for judicial notice of Exhibits 1 and 2 are granted. Petitioner’s request for judicial notice of Exhibit A is granted.

There are two essential requirements to the issuance of an ordinary writ of mandate under Code of Civil Procedure section 1085: (1) a clear, present, and ministerial duty on the part of the respondent, and (2) a clear, present, and beneficial right on the part of the petitioner to the performance of that duty. (California Ass’n for Health Services at Home v. Department of Health Services (2007) 148 Cal.App.4th 696, 704.) “An action in ordinary mandamus is proper where … the claim is that an agency has failed to act as required by law.” (Id. at 705.) Petitioner contends that it has a “protectable interest” in the provisional license and that the Department has a legal duty to provide Petitioner a pre-deprivation hearing and right to appeal before revoking the provisional license under the due process clauses of the United States Constitution and the California Constitution. (Motion for a Stay (“Mot.”) 10-14.)

The due process clause of the Fourteenth Amendment of the U.S. Constitution provides that no state may “deprive any person of life, liberty, or property without due process of law.”

Not every denial of a fair hearing for which a remedy may be available under state law implicates constitutional due process. . . . A person seeking a benefit provided by the government has a property interest in the benefit for purposes of procedural due process only if the person has a legitimate claim of entitlement to it.

(Las Lomas Land Co., LLC v. City of Los Angeles (2009) 177 Cal.App.4th 837, 853, citations and internal quotations omitted.) Under federal law, “a benefit is not a protected entitlement if government officials may grant or deny it in their discretion.” (Town of Castle Rock, Colorado v. Gonzales (2005) 545 U.S. 748, 756.)

Article I, section 7(a) of the California Constitution states that “[a] person may not be deprived of life, liberty, or property without due process of law.” “Although under the state due process analysis an aggrieved party need not establish a protected property interest, the claimant must nevertheless identify a statutorily conferred benefit or interest of which he or she has been deprived to trigger procedural due process under the California Constitution.” (Ryan v. California Interscholastic Federation-San Diego Section (2001) 94 Cal.App.4th 1048, 1071.)

Under the California Constitution, the extent to which procedural due process is available depends on a weighing of private and governmental interests involved…. Specifically, determination of the dictates of due process generally requires consideration of four factors: the private interest that will be affected by the individual action; the risk of an erroneous deprivation of this interest through the procedures used and the probable value, if any, of additional or substitute safeguards; the dignitary interest of informing individuals of the nature, grounds and consequences of the action and of enabling them to present their side of the story before a responsible governmental official; and the government interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirements would entail.

(Rodriguez v. Department of Real Estate (1996) 51 Cal.App.4th 1289, 1297.) The analysis under the federal due process clause is similar. (See Mathews v. Eldridge (1976) 424 U.S. 319, 334-335.)

Petitioner contends that all four factors set forth in Rodriguez support a finding that Petitioner is entitled to “a pre-deprivation hearing before a neutral factfinder and an appeal from Respondents’ decision to revoke the provisional license.” (Mot. 13-14.) In contrast, Respondents contend that the four Ramirez factors do not entitle Petitioner to procedural due process. (Oppo. 9-12.)

A threshold issue, however, is whether the federal or state procedural due process analyses are triggered at all. (See Ryan, supra, 94 Cal.App.4th at 1073-74.) Under federal law, the claimant must show a “legitimate claim of entitlement to a benefit—not simply a unilateral expectation or an abstract need.” (Id. at 1064.) And, under the California constitution, the claimant must identify “a statutorily conferred benefit or interest of which he or she has been deprived.” (Id. at 1071.) In addition, “only those governmental decisions which are adjudicative in nature are subject to procedural due process principles. Legislative action is not burdened by such requirements.” (Hobbs v. City of Pacific Grove (2022) 85 Cal.App.5th 311, 322.) Finally, “[l]ike legislative acts, ministerial acts are not within this constitutional realm[,] ... because ministerial decisions are essentially automatic based on whether certain fixed standards and objective measurements have been met.” (Id. at 323, citations omitted.)

Petitioner argues that a provisional license is similar to a license which enables one to pursue a profession or earn a livelihood, such as a chiropractic license or a liquor license. (Mot. 10.) However, unlike such licenses, the provisional licenses issued by the Department are conditional and expressly limited by statute. Specifically, the Department “in its sole discretion” may revoke a provisional license “if it determines the licensee failed to actively and diligently pursue requirements for the annual license.” (Bus. & Prof. Code § 26050.2(i).) Also relevant to this case, the Department is required to cancel (i.e., “shall cancel”) a provisional license “upon issuance of an annual license, denial of an annual license, abandonment of an application for licensure, or withdrawal of an application for licensure.” (Bus. & Prof. Code § 26050.2(j).) Section 26050.2(m) also states that “revocation or suspension by the department of a license issued pursuant to this section shall not entitle the applicant or licensee to a hearing or an appeal of the decision.” And the regulations expressly declare that “a provisional license does not create a vested right in the holder to renewal of the provisional license or issuance of an annual license.” (See Cal. Code of Regs., tit. 4, § 15001(b).) Because a provisional license can be revoked in the Department’s sole discretion or cancelled by operation of law, Petitioner has not shown that is has an entitlement or statutorily conferred benefit protected by the federal or state due process clauses.

To the extent the Department must afford due process before revoking a provisional license, Petitioner does not demonstrate that it is entitled to a pre-deprivation hearing and right to appeal. Although the provisional license is important to Petitioner’s business, Petitioner has only a conditional and limited interest in that license, as discussed. Based on the statutory scheme, Petitioner does not have a reasonable expectation that it may continue to use the provisional license should the Department determine, as it did in this case, that Petitioner’s application for annual license should be denied. (See Bus. & Prof. Code § 26050.2(a), (i), (j).) The risk of erroneous deprivation of Petitioner’s interest in the provisional license is low because, as discussed, the provisional license must be denied automatically should the Department decide to deny Petitioner’s application for an annual license, which occurred in this case. For these same reasons, Petitioner has not shown any “dignitary interests” that required the Department to give Petitioner more notice and opportunity to respond than it did. Finally, the governmental interest is significant and outweighs any private interest that Petitioner may have in the conditional privilege to operate a cannabis business with a provisional license. “The protection of the public shall be the highest priority for the department in exercising licensing, regulatory, and disciplinary functions under this division.” (Bus. & Prof. Code § 26011.5.) That priority would be severely hindered if the Department was required to provide pre-deprivation hearings before revoking provisional licenses for applicants who DCC has determined, in its discretion, lack the qualifications for an annual license.

Regardless, even if there was a due process right to a hearing before the Department exercises its discretion to revoke a provisional license, Petitioner still would not be entitled to relief from this court. On or about July 3, 2024, the Department issued a letter regarding the “Denial of Annual License Application CDPH-10004540 Premises Address: 515 W 17th Street, Long Beach, CA 90813.” (Resp. RJN Exh. 1.) As noted, the Department is required by law to cancel a provisional license “upon . . . denial of an annual license.” (Bus. & Prof. Code

§ 26050.2(j).) Accordingly, even if the court were to stay the revocation decision of June 19, 2024, Petitioner’s provisional license would remain cancelled by operation of law based upon the denial of July 3, 2024. This court does not have jurisdiction to stay a decision to deny an annual license. (See Bus. & Prof. Code § 26045.)[2]

Petitioner’s remaining arguments are not persuasive. The merits of the Department’s decisions to revoke Petitioner’s provisional license and to deny its application for an annual license are not at issue in this petition. Petitioner seeks a writ of traditional mandamus under Code of Civil Procedure section 1085 requiring the Department to hold a hearing. This is not a petition for writ of administrative mandamus under section 1094.5 challenging the Department’s decisions. By statute, the court lacks jurisdiction over such a challenge to the Department’s decisions. (Bus. & Prof. Code § 26045(a).) Accordingly, Petitioner’s discussion of the merits of those decisions is irrelevant. (See e.g. Mot. 16-17.) Similarly, Petitioner does not show that it is relevant that its application for an annual license was pending before the Department for several years. (See Oppo. to Demurrer 6-7.) The evidence does not explain why the Department did not decide Petitioner’s application for an annual license in 2021, 2022, or 2023, and it is possible that the delay was caused from Petitioner’s failure to complete all requirements. (Castelo Decl. ¶ 2.) Regardless, for the reasons discussed above, the statute gave Petitioner clear notice that it did not have any vested or protectible interest in a provisional license.

Based upon the foregoing, Petitioner has not shown that Respondents have a ministerial duty to provide Petitioner a pre-deprivation hearing before revoking the provisional license. Even if so, the provisional license would remain canceled by operation of law as a result of the Department’s decision to deny Petitioner’s annual license application, and this court does not have jurisdiction to stay that decision. Because Petitioner has not demonstrated a reasonable likelihood of success on the merits, it is not entitled to a stay.

For the second factor, the court must consider “the interim harm that the plaintiff would be likely to sustain if the injunction were denied as compared to the harm the defendant would be likely to suffer if the preliminary injunction were issued.” (Smith v. Adventist Health System/West (2010) 182 Cal.App.4th 729, 749.) Because Petitioner has not demonstrated a reasonable probability of success, the court need not reach the balance of harms. Regardless, the balance of harms weighs for denying preliminary injunctive relief. Although Petitioner claims to have relied detrimentally on the provisional license, Petitioner has not shown any reasonable expectation that it could continue to use the provisional license should the Department determine that Petitioner’s application for annual license should be denied. (See § 26050.2(a), (i), (j).) The Department has, in fact, determined that Petitioner’s application for an annual license must be denied. By contrast, the Department has a strong public safety mandate. The Department’s letter denying the annual license alleged multiple, serious violations of the licensing regulations. (Resp. RJN Exh. 2.) “The protection of the public shall be the highest priority for the department in exercising licensing, regulatory, and disciplinary functions under this division.” (Bus. & Prof. Code § 26011.5.) That priority would be irreparably harmed if the stay requested by Petitioner was granted. Because the balance of harms weighs for denying preliminary injunctive relief, Petitioner is not entitled to a stay.

In their demurrer, Respondents contend that the petition fails to state a cause of action because “the provisional license was a conditional, limited license that … did not confer a property right for which due process protections would attach.” (Dem. 7:5-7.) Respondents raise a legal question which the court may decide from the face of the petition and judicially noticeable records, including the notice if June 19, 2024, revoking Petitioner’s provisional license and the notice of July 13, 2024, denying Petitioner’s application for an annual license. (Resp. RJN Exh. 1, 2.) As discussed, Respondents do not have a ministerial duty to provide a pre-deprivation hearing and right to appeal before revoking a provisional license. Even if so, Respondents denied Petitioner’s annual license application two weeks later. Such decisions automatically cancel provisional licenses, and this court does not have jurisdiction to stay or review decisions to deny annual license applications. Accordingly, the court sustains the demurrer.

A demurrer may be sustained without leave to amend when there is no reasonable possibility that the defect can be cured by amendment. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) In assessing whether leave to amend should be granted, the burden is on the complainant to show the court that a pleading can be amended successfully. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348-349.) “Liberality in permitting amendment is the rule.” (McDonald v. Superior Court (1986) 180 Cal.App.3d 297, 303; see also Kittredge Sports Co. v. Sup.Ct. (1989) 213 Cal.App.3d 1045, 1048 [“even if the proposed legal theory is a novel one, ‘the preferable practice would be to permit the amendment and allow the parties to test its legal sufficiency by demurrer….’”].) However, leave to amend may be denied if “the complaint shows on its face that it is incapable of amendment.” (City of Stockton v. Sup.Ct. (2007) 42 Cal.4th 730, 747.) In its opposition brief, Petitioner has not requested leave to amend. Nor can Petitioner amend to cure the defects identified in the court’s order. Therefore, the court denies leave to amend.

4. Respondents’ counsel shall provide notice and file proof of service with the court.

[1] With certain exceptions, the statute placed various sunset dates in 2022 and 2023 on the Department’s authorization to issue provisional licenses. (Bus. & Prof. Code § 26050.2(a).) The California State Auditor report submitted by Petitioner indicates that “[t]he State continues to issue provisional licenses to a subset of cannabis businesses—local retail equity applicants—but no longer issues provisional licenses otherwise.” (Pet. RJN Exh. A at 12.)

[2] Petitioner has filed an appeal of the denial of its annual license but that administrative process has not been completed. (Cribbs Decl. ¶¶ 2-4, Exh. A.)