License and Permit Fees for Medical Marijuana

Will Medical Marijuana open a new revenue stream for municipalities? Early indications are that some OMAG members believe that it will, and in more areas than just sales tax collections. OMAG cautions its members against enacting excessive permit or licensing fees as those fees cannot be used for revenue generation.

License and Permit Fees Cannot Be Revenue Generators

Oklahoma municipalities may exercise police powers and the power to tax. The power to tax is restrictive and typically requires a vote of the people. The power to protect the health and welfare of the public, on the other hand, is largely left to the discretion of the municipality.

The Courts have upheld the charging of permit and license fees as a valid exercise of police powers when the municipality is seeking to defray or recover its actual costs in issuing licenses or permits and any costs directly associated with regulating the occupation.[i] If the amount of the fee is not limited to the "necessary or probable expenses of issuing the licenses and the necessary supervision and regulation of the business", it will not be considered a valid exercise of police powers and will be invalidated.[ii] 

A common, pre-election objection to SQ 788 was that Medical Marijuana would lead to an increase in crime necessitating an increase in the cost of law enforcement. The increase in the cost of general criminal law enforcement cannot be considered as a cost of regulation for the purpose of recovering that cost via a fee.[iii] Unless the cost relates to the issuance, investigation or enforcement of business regulations, it is not recoverable in a fee. If a given business attracts a criminal element that results in a greater need (and associated cost) for law enforcement, that is not a cost that can be recovered by a license or permit fee.

SQ 788 vests jurisdiction for the regulation and ongoing inspection of the commercial marijuana industry in the Department of Health. Little room is left for independent municipal regulation of the industry. It is thus difficult to identify what costs a municipality will incur above the normal costs for licensing a routine business that would justify the charging of higher (or, in some cases, much higher) license or permit fees for marijuana Growers, Processors or Dispensaries.

OMAG strongly recommends against the charging of higher permit fees for the marijuana industry unless your municipality can show what added costs it expects to incur that directly relate to the issuing of a license or permit and the lawful investigative and enforcement efforts related to that industry. If marijuana is to become a cash crop for Oklahoma municipalities, it will have to be by way of sales tax and not license or permit fees.

Marijuana and Sales Tax

There remains a serious question as to whether municipalities may impose a sales tax on Medical Marijuana. 63 O.S. §426 created a special sales tax for the State without any language making that tax the exclusive tax applicable to Medical Marijuana. The issue remains whether this section merely created a special (higher) rate for Medical Marijuana or whether it created a new kind of tax that municipalities are not currently charging. OMAG believes the most logical reading of this section is that it merely imposes a higher sales tax rate at the State level and that, absent express language to the contrary, the retail sale of marijuana would also be subject to existing municipal sales tax rates. OML has noted on their website that they are " currently working with the Oklahoma Tax Commission to verify municipalities' ability to immediately collect sales tax once SQ 788 becomes effective."

Footnotes:
i. City of Shawnee v. Reid Bros. Plumbing Co., 1949 OK 82, 207 P.2d 779 quoting McQuillin-Municipal Corporations Revised, Sec. 1089.
ii. City of Hartshorne v. Marathon Oil Co., 1979 OK 48, 593 P.2d 97.
iii. Red Slipper Club, Inc. v. City of Oklahoma City, 1979 OK 118, 599 P.2d 406 distinguishing Jack's Supper Club v. City of Norman, 1961 OK 82, 361 P.2d 291 by noting that, in Jack's, cops engaging in routine regulatory (not law enforcement) inspections - the cost of which could be recovered in a license fee.

DISCLAIMER:  The process leading up to the implementation of medical marijuana in Oklahoma has been a long one and is still on-going. OMAG attorneys have sought to keep updating this webpage with the most up-to-date information possible. OMAG members seeking advice on the medical marijuana statutes should be aware that there may not be clear-cut answers on some of the issues. OMAG offers this guidance to help your municipality make informed decisions about policies and procedures, directly or indirectly related to medical marijuana, until some of the issues can be decided by the Legislature or the Courts. If you have questions or concerns about the information contained in these articles, please email one of the attorneys in the OMAG Legal Department at omaglegal@omag.org.

Why is a $1,000,000 Per Occurrence Policy Limit Enough?

Why does OMAG have a $1,000,000 per occurrence Policy Limit when there is no limit to civil rights liability under 42 U.S.C. §1983?

OMAG is not a commercial insurance carrier. OMAG was created by the execution of an interlocal agreement, making OMAG an extension of its member municipalities. The purpose of OMAG, as authorized expressly in the Governmental Tort Claims Act, 51 O.S. §167(C), is to allow municipalities to pool their self-insured risk with one another. Id. see also City of Choctaw v. OMAG, 2013 OK 6, 302 P.3d 1164 and Bd. of Cty. Commissioners v. ACCO-SIG, 2014 OK 87, 339 P.3d 866. The extent of the municipal exposure in tort on any given incident is $25,000 per claim property damage, $125,000 (except for the largest municipalities, all of which retain all self-insured risk) for all other claims, and a total cap of $1,000,000 for any combination of claims. 51 O.S. §154.

Obviously civil rights liability under 42 U.S.C. §1983 is not subject to the limits of the GTCA. That said, under §1983, the civil rights claim must be brought against the “person” who, while acting under color of law, violated a clearly established constitutional right. The US Supreme Court, in Monell, v. Dep’t of Soc. Servs., 436 U.S. 658, 690-91 (1978) held that a local government could be considered a “person” under §1983 but only to the extent that the Plaintiff could show that the entity caused the violation of the Plaintiff’s rights. This is what is commonly referred to as the policy, practice or custom requirement and requires a showing that the entity caused the loss by some policy, practice or custom it has adopted that caused the employee to cause the deprivation of a Constitutional right. This is an incredibly high bar to clear, especially considering the dialogue to come. But, in short, it is very difficult to successfully sue a governmental entity for civil rights violations.

The real exposure in §1983 is for the individual public employee who allegedly acts under color of law to violate a clearly established constitutional right. Unlike the entity in a Monell claim, the employee enjoys the protections of qualified immunity. Unlike the entity, however, an employee is liable for their actions if those actions violated a clearly established right (Monell would attach only after the showing of a violation if, and only if, the Plaintiff could also show that the employee acted per the direction of a policy, practice or custom). Why is this the City/Town's problem if the City/Town is not a named party?

Under the GTCA, the City/Town is obligated to defend and indemnify its employee(s) in §1983 claims so long as the employee was acting within the scope of their duties under the GTCA. 51 O.S. §162. The key provision that answers the question is found in §162(A)(2) which states that the indemnification obligation is limited to the GTCA tort cap limits in §154 – i.e. to $1,000,000.

Simply put, the City/Town is obligated to defend its employees (subject to their being in the scope of employment) in §1983 claims regardless of the cost. The City/Town is obligated to indemnify its employees in §1983 claims (subject to scope of employment) up to the tort cap of $1,000,000. OMAG fully insures this liability exposure by (1) fully defending the City and employees in all claims without the defense costs eroding the limits of our liability and (2) fully insuring the City for the GTCA per-claim caps and total aggregate cap and (3) fully insuring the City and employees up to the total liability exposure that the City is legally obligated to cover of $1,000,000. OMAG tailors its limits to the taxpayer legal liabilities – nothing more, nothing less. Many commercial carriers offer higher limits and, in doing so, expose the taxpayer to higher premiums to cover a liability risk that they are not subject to. They literally are insuring a risk that does not legally exist.

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This Loss Bulletin was written by Matt Love, Deputy General Counsel and Claims Director.  You may contact the author at (405) 657-1400.  The information in this bulletin is intended solely for general informational purposes and should not be construed as or used as a substitute for legal advice or legal opinion with respect to specific situations, since such advice requires an evaluation of precise factual circumstances by an attorney.