A San Bernardino nonprofit club has learned the hard way that even in the face of California’s marijuana liberalization, state officials have yet to consent to the blending of intoxicants in a commercial context.
Arrowhead Elks Lodge, which has existed since 1959 and had a liquor license from almost the time it started, has now lost its right to serve alcohol, based upon its premises, located at 1073 North Mount Vernon Avenue, having been used for promotional events for marijuana, marijuana-based products and cannabis-based palliatives.
Arrowhead Elks was once affiliated with the national organization known as the Improved Benevolent Protective Order of Elks of the World, Inc., though that is no longer so.
Arrowhead Elks was the holder of a Type 51 Club license, which is a retail license issued to a nonprofit entity, authorizing sale of beer, wine and liquor to club members and their guests for on-premises consumption only.
The Arrowhead Elks Club intermittently uses its lodge in San Bernardino for its own purposes, but also regularly rents the premises out for other purposes.
Beginning in 2018 the Arrowhead Elks Lodge premises were leased out to various vendors selling marijuana and cannabis-derived products. On two occasions, August 15, 2018 and April 25, 2019, police served search warrants on the grounds of the Elks Lodge and impounded substantial amounts of cannabis products, as well as other evidence indicating that cannabis was being sold on the premises.
In June 2019, the California Department of Alcoholic Beverage Control issued an accusation seeking to revoke Arrowhead Elks’ alcohol sales license based on unlawful possession and sale of cannabis at the lodge.
According to the California Department of Alcoholic Beverage Control, on at least two occasions, those being August 15, 2018 and April 25, 2019, “Arrowhead Elks had knowingly permitted the sale, or negotiations for sale, of controlled substances or dangerous drugs at its premises in violation of section 24200.5 of California’s Business and Professions Code and its various subdivisions, which impose a general duty on licensed entities to maintain a lawful establishment, and for the licensee to be reasonably diligent in anticipation of possible unlawful activity, and to instruct employees accordingly.”
According to the Department of Alcoholic Beverage Control, Arrowhead Elks had knowingly permitted on its premises possession of a controlled substance for purposes of sale, in violation of Health and Safety Code section 11359.
A hearing on the matter was held before an administrative law judge. Testimony was taken from two officers of the Arrowhead Elks, those being its “house chairman” and its “exalted ruler and president.” Evidence was provided that another officer of the Arrowhead Elks, its “leading knight and vice president,” had hired a security guard for the events and hired another person to put up and take down tables for vendors to use; that Arrowhead Elks had charged cannabis vendors $150 for vending space, plus $100 for “permit purposes,” even though no permits were obtained; and evidence that a particular cannabis event promoter who goes by the name “Lyfe” or “McLyfe” attended a membership meeting of the Arrowhead Elks in August 2017, at which an upcoming “Lyfeevent in January 2018” was discussed.
Arrowhead Elks’ house chairman testified that he, under the “guidance” of the organization’s exalted ruler, was responsible for leasing out the organization’s premises for various events, including cannabis events organized by promoters. The exalted ruler testified that he knew “cannabis events” were being held at Arrowhead Elks’ Lodge. He also testified that he personally ensured that during those cannabis events, including on August 15, 2018 and April 25, 2019, all alcohol was removed from the lodge’s bar and put into a locked “alcohol closet,” to which he had the only key.
The administrative law judge recommended that all counts of the accusation be sustained and that Arrowhead Elks’ license be revoked. The administrative law judge found that Arrowhead Elks “was fully aware that it was renting out the licensed premises to promoters and vendors for cannabis sales events.”
The Department of Alcoholic Beverage Control adopted the administrative law judge’s proposed decision in full. The Elks’ Lodge appealed the decision, whereupon the Alcoholic Beverage Control Appeals Board heard the matter and reversed the department’s decision. In making its reversal, the appeals board found that the decision as to the cannabis related counts was not supported by substantial evidence.
The Department of Alcoholic Beverage Control in turn disputed the findings of its own Alcoholic Beverage Control Appeals Board, removing the issues involved to the California State Court of Appeal, Fourth Appellate District Division Two in Riverside. The matter was heard by a panel consisting of judges Michael Raphael, Carol Codrington and Marsha Slough.
“The department contends that its decision to revoke Arrowhead Elks’s license was supported by substantial evidence, so the appeals board’s finding to the contrary should be annulled. We agree,” the decision, penned by Judge Raphael and endorsed by Judge Codrington and Judge Slough states. “There is also no reasonable dispute that Arrowhead Elks knew that the cannabis sales events were being held at its premises.”
The appeals court panel’s decision continues, “Additionally, there is no question that the cannabis sales events that took place at Arrowhead Elks’s premises were unlawful. Cannabis remains a controlled substance under California law, despite the passage of Proposition 64, which legalized its recreational use. The commercial sale of cannabis is regulated under the Medicinal and Adult-Use Cannabis Regulation and Safety Act. It is not possible to be licensed to sell cannabis at a premises also licensed for the sale of alcohol. A temporary cannabis event license shall not be issued for a premises that is licensed for the sale of alcohol or tobacco. Premises licensed under the Medicinal and Adult-Use Cannabis Regulation and Safety Act ‘shall not be in a location that requires persons to pass through a business that sells alcohol . . . to access the licensed premises’ and premises licensed under the Medicinal and Adult-Use Cannabis Regulation and Safety Act ‘shall not be in a location that requires persons to pass through the licensed premises to access a business that sells alcohol.’ A licensee [under the Alcoholic Beverage Control Act] shall not, at its licensed premises, sell, offer, or provide cannabis or cannabis products. Although Arrowhead Elks’s house chairman testified that the promoters showed him and the leading knight their ‘license’ for the events, he was either mistaken about the scope of the permissions the promoters had obtained, or he was not telling the truth.”
According to the ruling, Arrowhead Elks’ argument that the evidence to sustain the department’s ruling was insufficient because there is no evidence that Arrowhead Elks “kn[ew] that the licensed premises were to be used in an unlawful manner” and whether commercial cannabis sales are unlawful “becomes complicated” in light of the Medicinal and Adult-Use Cannabis Regulation and Safety Act, both failed. “[T]here is nothing complicated about whether temporary cannabis sales events such as those at issue here could be licensed to take place at a location that is already licensed to sell alcohol,” Judge Raphael wrote. “The Alcoholic Beverage Control Act, under which Arrowhead Elks’s liquor license was issued, states plainly that ‘[a] licensee shall not, at its licensed premises, sell, offer, or provide cannabis or cannabis products.’ The Medicinal and Adult-Use Cannabis Regulation and Safety Act implementing regulations state equally plainly: ‘A temporary cannabis event license shall not be issued for a premises that is licensed for the sale of alcohol or tobacco.’ Arrowhead Elks, as the holder of a liquor license, is responsible for familiarizing itself with the law relating to use of its licensed premises and operating those premises in accordance with the law.”
The appellate panel found unconvincing Arrowhead Elks’ argument there was no evidence that “illegal drug sales or possession occurred while [it] was operating its club license, or when its members or corporate officers were present” and that, as a “social club,” it “operates on a temporary or intermittent basis and only when its members are present.”
Judges Raphael, Codrington and Slough stated, “The idea here is, essentially, since the alcohol was locked away and no club members were present during the cannabis sales events, Arrowhead Elks was not using its license at the time, so it should not be subject to discipline based on the activities of the nonmember promoters, vendors, and customers. Both the department and the appeals board rejected this line of argument, as do we. The prohibitions at issue are not triggered by whether the premises were open for the sale of alcohol at the time, but by whether the premises are licensed for the sale of alcohol, and whether Arrowhead Elks allowed those premises to be used in an unlawful manner.”
-Mark Gutglueck