It is not often that the government has the opportunity to regulate and oversee an entirely brand new market; and, in the case of California, when it legalized recreational cannabis for adult-use, it decided to mandate involvement of labor unions in the state’s emerging cannabis industry, through implementation of a Labor Peace Agreement (“LPA”) requirement. Because this fundamental choice by the state has posed headaches and dilemmas for licensees, cannabis business operators in California should ensure they receive counsel from reputable management-side labor attorneys before entering into any LPAs with unions. Amidst this haze and confusion, we offer some context and observations from a labor and management relations perspective.
Of note, despite going into effect over a month ago, only a tiny percentage of licensees and operators are complying with the mandate. Moreover, whether intentional or not, California’s LPA mandate has caused a union turf war, where bigger established unions have been looking to muscle out their smaller competitors for the dues of the thousands of workers in California’s burgeoning canna-industry. Critically, however, the legality of the LPA mandate is still being determined by the courts, where serious Constitutional questions abound, and because other states have been considering similar mandates, observers will continue monitoring what happens in California on this issue.
Background on LPAs and the Mandate
Under California’s adult-use cannabis regime, licensed commercial operators with 10 or more employees must enter into LPAs with “bona fide” labor organizations in order to receive, renew, and theoretically maintain their licenses. The mandate was expanded on July 1, 2024 to impact smaller businesses. Interestingly, there are whopping questions about whether licensees are meaningfully complying with the mandate and whether the enforcement scheme behind this mandate actually has any teeth.
As outlined by the governing regulations, an LPA is defined as “an agreement between a licensee and any bona fide labor organization that, at a minimum. . . prohibit[s] labor organizations and members from engaging in picketing, work stoppages, boycotts, and any other economic interference with the applicant’s business. This agreement means that the applicant has agreed not to disrupt efforts by the bona fide labor organization to communicate with, and attempt to organize and represent, the applicant’s employees. The agreement shall provide a bona fide labor organization access at reasonable times to areas in which the applicant’s employees work, for the purpose of meeting with employees to discuss their right to representation, employment rights under state law, and terms and conditions of employment.”
According to publicly-available statistics on the California Department of Cannabis Control (“DCC”) website, there are approximately 8,900 active licensees in the state; however, a staggeringly-low 652 total LPAs are on file. This represents only about 13.65% of the licensees, which may be evidence that operators, especially smaller ones, do not want this regulatory mandate in the first place. Of note, out of its 310 total enforcement actions, the DCC has only suspended three operators for failing to comply with the mandate, and each of them also had other pertinent violations which may have led to the suspension decision.
However, although this may not be a problem for some licensees until their license comes up for renewal, operators should be aware that any person can anonymously file a complaint against a licensed (or unlicensed) cannabis operator through the DCC. Furthermore, union members, employees, and the labor organizations themselves can also seek recourse through filing a complaint with the state’s Agricultural Labor Relations Board (“ALRB”). Per California’s Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”), the same law that regulates the licenses in this space, the ALRB has been tasked with deciding whether labor unions which enter into LPAs with business operators are “bona fide” or not.
Sparking a Union Turf War
Through use of this ALRB complaint process, larger and traditionally-more powerful unions have begun asserting that upstart unions trying to break into the cannabis industry are not “bona fide labor organizations” as defined by MAUCRSA.
Under MAUCRSA, a labor organization is defined as “any organization of any kind, or any agency or employee representation committee or plan, in which employees participate and which exists, in whole or in part, for the purpose of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work for employees.” If the ALRB determines that a labor organization is not “bona fide,” it can declare any LPAs that the organization has entered into with licensees to be unenforceable.
Moreover, the National Labor Relations Board’s position on LPAs is that even after an employer has entered into one with a union, multiple labor organizations can still compete to organize the unit’s employees until a representative is officially certified. See Maryland Live Casino, Case No. 05-CA-083966, Advice Memorandum dated January 28, 2013 (Casino in Maryland who required any interested union to sign LPA per state’s gaming law did not violate the National Labor Relations Act (“NLRA”) by denying access to a third interested union who refused the terms of the LPA). This inherently lends itself to uncomfortable union turf wars, as we are starting to see in California.
The Teamsters Attack
In fact, in two instances last year, the International Brotherhood of Teamsters (“Teamsters”) filed ALRB complaints against upstart unions, Professional Technical Union Local 33 (see 49 ALRB No. 3, July 2023)and National Agricultural Workers Union (see 49 ALRB No. 4, Oct. 2023), where it was determined that neither union was “bona fide” and thus their LPAs were declared null and void. The ALRB found that these unions failed to respond to basic information requests, did not maintain a presence in the state of California, and did not actually engage in union organizing efforts.
Interestingly, in the National Agricultural Workers Union (“NAWU”) case, after the Teamsters filed their complaint, it seems that NAWU capitulated to their larger foe and decided against organizing cannabis operators in California altogether. According to a note sent from NAWU’s counsel to the ALRB: “NAWU is a ‘grassroots’ labor organization [that] formed in January 2020 [and] that organizing has been ‘excessively difficult’ due to the COVID-19 pandemic and ‘workers’ lack of interest’ and that despite entering into approximately 18 LPAs, NAWU ‘has been forced to shut down’ due to ‘obstacles and associated costs . . . [and] will be notifying all employers with which it has entered LPAs that it is withdrawing from them.’”
Rather than sharing the dues that the state has put them in a position to earn with its mandate, it is clear that the priorities for large unions such as the Teamsters are keeping smaller “grassroots” unions out of their industry. This seems to be true even though the vast majority (over 80%) of operators are possible new LPA targets, who are legally-required to give at least one union access to their employees for the purpose of organizing via government fiat.
But is the LPA Mandate Even Legal Anyway?
According to one operator, Ctrl Alt Destroy, who filed a constitutional challenge in the Southern District of California in April, the LPA mandate violates operators’ rights to due process under the Fifth and Fourteenth Amendments of the federal constitution and also is pre-empted by the NLRA. See Ctrl Alt Destroy, Inc. v. Elliott et. al, Case No. 3:24-cv-00753, ECF 1 (S.D.CA 2024). The state has filed a motion to dismiss the Complaint. Interestingly, since filing this challenge in April, the Teamsters have also tried to intervene in the case, as Ctrl Alt Destroy had actually previously signed an LPA with Professional Technical Union Local 33 which was declared unenforceable by the ALRB as noted above based on the Teamsters’ ALRB complaint.
What This Means Now – And in the Future – For Operators in California and Beyond
While the district court will soon rule on the government’s motion to dismiss and the Teamsters’ motion to intervene, the state’s mandate remains in effect, even though the vast majority of operators appear to be failing to comply with it. Whether this is perhaps because of a lack of worker interest (as NAWU indicated) or perhaps a lack of initiative by the unions in California remains to be seen. In the meantime, other states are also looking to California and deciding whether to implement their own LPA mandate in their cannabis industries, so this issue could soon impact national operators and businesses outside of California. Given this “purple haze” of confusion, we remind ‘ganjapreneurs’ big and small that Seyfarth offers a one-stop shop for all of the legal advice that they need to navigate all aspects of cannabis regulation in California and beyond. Specifically, this includes potential consultation and advice with our renowned labor law specialists around LPAs and efforts to organize cannabis licensees thereafter.
