November 22, 2010

Councilman Charlie Brown

2324 East Exposition Avenue
Denver, CO 80209-4701

Sent by U.S. mail and via electronic mail to: charlie.brown@denvergov.org

Re: Proposed Changes to Denver’s Medical Marijuana Ordinance

Dear Councilman Brown,

Thank you for your continued willingness to communicate with us concerning proposed changes
to Denver’s medical marijuana ordinance. As you are aware, our firm specializes in land use
law, including municipal compliance, are we welcome the opportunity to speak with you
regarding our concerns about draft language relating to Medical Marijuana Centers (MMCs) and
Optional Premises Cultivation (OPC) facilities.

After reviewing a November 8th draft, introduced by you and Councilman Nevitt, we have
provided below questions and concerns about the language, as it appears in its current firm. As
we discussed with you, we plan to attend the December 1, 2010 medical marijuana sub-
committee hearing where we will plan to address the panel briefly to provide more context to
these concerns. In the meantime, please feel free to circulate this memorandum to your fellow
council members and encourage them to contact us if we can provide any assistance.

1. According to the draft language (see Sec. 24-503(c), the City will make MMC
applications ready “On and After January 3, 2011” and MMCs will be required to return
completed versions by March 1, 2011. Based on our prior conversation with you, the
City will likely delay both dates. Please confirm the new dates, if you know them now,
or keep us in the loop as to when you anticipate the new applications being made
available.

2. We have had several clients express concern about the City’s methods for measuring
distances between MMCs for purpose of ordinance compliance. Under Sec. 24-507
“Criteria for licensing; waiver of public hearings,” the language states that “the director

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 shall deny any application for a license that is not in full compliance with the CMMC,
this Article XII, and any other applicable state or city law or regulation.” While a plain
reading of this section appears to merely codify a previously recognized authority granted
under law to municipal agencies, it may raise questions concerning whether it affords the
director adequate discretion to consider extenuating circumstances some applicants face,
as well as confusing or complicated language appearing in the City’s Code.

As an example, we have represented multiple clients who have appealed recommended

denials of their City dispensary applications due to their alleged failure to meet the 1,000
foot distance requirement between the client’s dispensary and the closest other
dispensary. While the City has maintained that this distance should be measured without
consideration of starting points that measure the nearest points between the two buildings
housing the dispensaries, prior case law concerning other industries, including Denver
liquors stores, suggests that the methodology for measuring such distances could be
reasonably measured by using at least two or three different methodologies, and that in
fact, courts have recognized that utilizing the two nearest points of any two buildings to
be measured (a methodology commonly referred to “as the crow flies” can present a more
accurate measurement consistent with an ordinance’s plain language, as well as its
drafters’ legislative intent.

In addition, the code as written may improperly deny administrative relief as it does
afford the licensing director the opportunity or authority to provide stays or delays of
enforcement. While licensing is certainly a distinct issue from zoning or any authority
afforded to the Board of Adjustment, fairness and good public policy demands that
wherever possible, the City consider the unintended consequences arising from
regulatory attempts relating to this young industry, and in doing so, provide relief to those
applicants who have been penalized for reasons outside their control or own doing.

3. Sec. 24-508(b) “Prohibited locations” prohibits any MMC license from being granted in
“any residential zone district as defined by the zoning code of the city, or in any other
location where retail sales are prohibited by the zoning code or by any ordinance
governing a planned unit development.”

In light of the City Council’s July 2010 passage of “Blueprint Denver” this language is
overly broad and subject to possible contradictory interpretations. We are very
concerned that a strict reading of this language could be used to force MMCs or OPCs
out of business due to the fact that much of the City now permits mixed use zoning,
including residential and commercial uses being allowed in a single dwelling or location.

4. Sec. 24-510 “Licensing requirements—optional premises cultivation licenses”

addresses requirements for OPC licenses and articulates that “A local optional premises
cultivation license may be issued in any location where commercial plant husbandry and

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wholesale distribution of plant products is permitted by the zoning code. [Any location
that qualified as a ‘locally approved’ optional premises cultivation operation as of July 1,
2010 in accordance with section 24-411 (c) and the CMMC shall also qualify for
licensing under this section, regardless of the current zoning of the property, so long as
application is made by the same owner for the same location under this Article XII.]”

While this language codifies the existing regulations for OPC’s, the next section (b)
causes us great concern, both in its potential negative impact on several of our clients, but
due to its potential to unintentionally harm the overall supply and control of medical
marijuana, both inside Denver, as well as in or to other jurisdictions.”

Titled “Provisions related to cross-jurisdictional licensing,” it requires that

the licensing director “shall issue optional premises cultivation licenses only when the
medical marijuana center or the medical marijuana-infused products
manufacturing to which the cultivation is related is also located in Denver County
and is owned in common with the optional premises cultivation operation as
required by the CMMC. Any applicant for a medical marijuana center license or a
medical marijuana-infused products license in Denver County may obtain an optional
premise cultivation license in a jurisdiction other than Denver County and shall provide
proof of such licensing to the director.”

Shall we understand this language to mean that any lawfully operating OPC whose MMC
(retail or edibles location) shall not be required to comply with this new jurisdictional
requirement, shall it be adopted?

As we discussed briefly last week, innovative property owners are increasingly exploring
opportunities to turn large vacant warehouses into legally-subdivided units properly
equipped and licensed for OPCs. This model will centralize growing, potentially
decreasing the number of separate facilities used for growing. This will benefit law
enforcement efforts and also allow medical marijuana growers to continue operating
independently, while also gaining the economies of scale afforded through shared costs
for security, utilities, and other infrastructure requirements.

We strongly encourage Council to reconsider this language, and instead, maintain its
current position allowing for OPCs to lawfully operate in Denver even when their MMC
is located elsewhere.

As Council is aware, Denver affords one of the most open and transparent industry
regulation models in the state. Unfortunately, as fate would have it, it is surrounded by
municipalities and counties that have not gone the same direction. To the West,
Lakewood has imposed strict zoning rules that make it almost impossible in all but a few
commercial/retail districts to operate a viable OPC. To the East, Aurora has banned
MMCs and OPCs altogether. And to the North and South, the majority of jurisdictions

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 have imposed stringent rules on MMCs and OPCs that make Denver the only viable
location for OPCs for many of our clients.

Should Council adopt this new change, dozens of MMCs will be forced to shut down or
to find OPCs in jurisdictions located almost entirely outside the metropolitan area. While
the City’s draft ordinance language seeks to tightly limit “off-site delivery of product by
licensee” (see Sec. 24-508(d)), any effort to ban OPCs that do not also have their MMCs
located in Denver will mean more medical marijuana is being transported through Denver
by car as caregivers and MMCs seek to obtain and provide medical marijuana from one
municipality to the next.

In addition, the policy would inevitably result in increased vacancies in Denver’s

commercial warehouse districts, areas already hard hit by the state’s continued economic
woes. We have spoken with Matt Cook at the Department of Revenue, as well as
Lakewood City Attorney Tim Cox to suggest that a regional collaboration may be
possible here that would prevent the harms created by competing local ordinances
adversely impacting each other’s citizens and businesses. While Denver is certainly
entitled to express concern about the large quantity of OPCs seeking to open and operate
within its territorial boundaries, the current proposal is overly restrictive.

Over the last year, we have spoken with several legislators who championed House Bill 1284’s
comprehensive state regulatory structure for MMCs. We believe it was not their intent to put
MMCs out of business, or worse, drive them underground. Rather, lawmakers sought to impose
reasonable rules and regulations on an industry that had previously operated without adequate
standards, controls, or certainties. In codifying these rules, lawmakers also sought to afford local
governments discretion in implementing regulations best suited to their citizens. We look
forward to working with you to help Council reach this goal.

In closing, please feel free to contact us at your convenience to discuss any of the above issues in
more detail. Thank you for your service to our City and County.

Sincerely,

/s/ Robert T. Hoban

Partner
Hoban & Feola, Attorneys At Law

s/ Jessica P. Corry
Special Counsel
Hoban & Feola, Attorneys At Law