Can the Beneficial Use Doctrine and Cannabis Coexist in Colorado?

In Re: The Application of High Valley Farms, LLC (14CW3095)

Can a water user appropriate a water right under Colorado law in order to grow marijuana commercially?  This quandary is a matter of first impression before the state’s Division 5 water court.  The issue was first raised in August of 2014 when Basalt-based High Valley Farms, LLC filed a water court application in order to irrigate its marijuana plants as well as better protect this cash crop in times of drought.  High Valley Farms (“High Valley”) operates a 25,000 square-foot grow operation in the Roaring Fork basin in western Colorado.  The grow operation supplies a recreational marijuana store in downtown Aspen called Silverpeak Apothecary.

In order to claim a water right, a user must first put it to “beneficial use.”  Pursuant to Colorado statute 37.92-103(4), “‘[b]eneficial use’ means the use of that amount of water that is reasonable and appropriate under reasonably efficient practices to accomplish without waste the purpose for which the appropriation is lawfully made.”

As part of the application process, the Division 5 engineer, Alan Martellaro, submitted a Consultation Report to the Division 5 water referee, Holly Krisner Strablinzky, recommending against approval until High Valley addressed a number of concerns.  Among the issues Martellaro raised, High Valley needed to explain how its application shows the element of beneficial use in light of the requirement that an appropriation must be “lawfully made.”

In its response to the Consultation Report, High Valley’s attorney Rhonda Bazil argued that Amendment 64, the 2012 state constitutional amendment legalizing the consumption and sale of recreational marijuana, also legalized the cultivation of recreational marijuana, making High Valley’s proposed use lawful—and therefore beneficial—under state law.

In addition to Amendment 64’s statutory language regarding the legalization of marijuana cultivation, Bazil also pointed to federal policy by the Bureau of Reclamation (“BOR”) saying that—while it would not approve its own facilities or water to be used to by the Colorado marijuana industry—it would not prohibit the use of other water that merely passes through its facilities for these businesses to utilize.  The BOR instituted this policy in 2014, the same year High Valley filed its original application.  The BOR has since renewed its stance until May 2017. Bazil highlighted that her client’s proposed augmentation water would come from non-federal sources (Wolford Mountain Reservoir) and is thus consistent with the BOR’s policy.

Additionally, Bazil pointed to the McCarran Amendment, a 1952 law in which the federal government ceded its power to manage water rights to the states, arguing this law favors High Valley’s interpretation of “lawfully” because state law exclusively controls in water law issues and marijuana cultivation is legal according to the state constitution.

Bazil also argue that the state water engineer has previously approved of the use of water to grow marijuana plants on two different occasions: once in October 2014 for a well and once in March of 2015 for irrigation purposes.  In those two statements supporting the use of water for marijuana cultivation, the Colorado state engineer said that state officials should allow water rights holders to use their irrigation rights to irrigate any type of plant that is legal to grow under Colorado state law, including marijuana.

If water officials rule that growing marijuana fails to constitute a beneficial use, the decision could have widespread implications for Colorado’s entire cannabis industry, which is dependent on water.  Ultimately, Bazil cautions that an adverse decision could call into question the ability of Colorado marijuana grow operation without access to municipal water to grow plants.

But High Valley’s argument is not without some vulnerability.  For example, a recent state Supreme Court decision that works in High Valley’s disfavor is Coats v. Dish Network, LLC.  In this case, a paraplegic Colorado medical marijuana patient challenged the drug policies of his corporate employer, Dish Network, after being terminated for testing positive for marijuana use.  In this decision, the Court interpreted a “lawful” activity as one that must be legal under both state and federal law in the context of an employment statute.  Thus, even though the employee had a right to use marijuana medicinally under Colorado state law, the Court upheld the corporation’s decision to fire him because marijuana’s federal designation under the Controlled Substances Act precludes it from being a lawful use federally.  If the issue raised in High Valley’s application were to reach the state Supreme Court, the same rationale may be used to deny the applicant’s proposed use as not satisfying the lawful aspect of beneficial use under both state and federal law.

Most cannabis growers in Colorado have been using water in order to grow their marijuana plants without running into water law issues.  This is because these grow facilities most likely use municipal water, whereas High Valley is asking Division 5 to approve an entirely new water right.  The application includes approval for a groundwater water right, a surface water right, a water storage right, and a plan for augmentation and exchange.  The company has sought water rights for exchange and augmentation from two other water districts, in order to safeguard its ability to access water rights in times of scarcity.  Currently, High Valley has an existing domestic well on site and two irrigation ditches that already provide water to its operations.

In sum, water is a state resource and under the Colorado constitution, “[t]he right to divert the unappropriated waters of any natural steam to beneficial uses shall never be denied.”  However, the water right High Valley wishes to receive is for a novel purpose: growing state-legal, yet federally-illegal marijuana. Thus, whether Division 5 officials will deny the company its sought water rights remains unseen, but the decision could spur wide-ranging repercussions for Colorado’s entire marijuana industry.

Coincidently, the Roaring Fork Club, one of High Valley’s neighbors and an opposer in the grow operation’s water application, was also at the center of another significant Supreme Court decision on the limits of beneficial use.  In 2015, the Court held in St. Jude’s Co. v. Roaring Fork Club, LLC, the Court held that fly-fishing failed to constitute a beneficial use under the very same statutory definition High Valley is arguing over.  In that decision, the Court wrote that the club’s proposed “uses” of the water could not be considered a beneficial use because the only purpose its application provided was the unquantifiable subjective enjoyment of the club’s guests.   Thus, the club was denied a new appropriation of “aesthetic, recreation and piscatorial (fishing)” water rights for its private fly-fishing stream.  While Roaring Fork Club’s opposition statement does not touch on the beneficial use issue, it does argue that approving High Valley’s application could potentially injure its own vested and conditional water rights.

Currently, the final decision in High Valley’s application is pending even though the application’s initial filing occurred more than two years ago.  In High Valley’s two amended applications, there has been a repeated increase in the size of water right sought.  Originally, the farm wanted a right to use 2.89 acre-feet on a yearly basis from the Roaring Fork River as well as its on-premises well.  Most recently, however, the farm is seeing to use 9.24 acre-feet annually, more than three times the original amount.

As of writing, the Division 5 referee has postponed a planned October status conference in anticipation of another Consultation Report from the division engineer.  As soon as this report is submitted, both High Valley and the opposers will each have thirty days to respond, respectively. Then the referee will schedule the status conference. When a ruling is eventually issued regarding the application, if High Valley’s requested water right decree is denied, the company can appeal the decision to the water court judge. Then, once the water court judge makes a determination, that eventual ruling could also be appealed directly to the Colorado Supreme Court.

Overall, the issue High Valley Farms application raises is an important one, and not just for the Colorado marijuana industry. As other states are legalizing marijuana for medical and recreational uses, those regulatory regimes could also implicate water law issues. Decision-makers in those states are surely looking to this eventual decision as an example in determining how legalized marijuana might fit into their particular water law frameworks.

Kathleen (K.C.) Cunilio

Image: Flickr user Aram Vartian, Creative Commons.

Sources:

Colo. Const. art. XVI, § 5, 6.

Colo. Rev. Stat. Ann. §37-92-103(4) (West 2016).

Coats v. Dish Network LLC, 303 P.3d 147 (Colo. 2015).

St. Jude’s Co. v. Roaring Fork Club, LLC, 351 P.3d 442 (Colo. 2015).

Brent Gardner-Smith, Silverpeak owner applies for water rights for pot greenhouse, ASPEN JOURNALISM (Oct. 14, 2014), http://aspenjournalism.org/2014/10/14/silverpeak-owner-applies-for-water-rights-for-pot-greenhouse-near-basalt/.

Brent Gardner-Smith, Basalt water case could affect state’s pot industry, ASPEN JOURNALISM (Feb. 8, 2016), http://aspenjournalism.org/2016/02/08/basalt-water-case-could-%E2%80%A8aff ect-states-pot-industry/.

Brent Gardner-Smith, A hazy legal question lingers over water rights for Basalt marijuana facility, ASPEN JOURNALISM (Sept. 7, 2016), http://aspenjournalism.org/2016/09/07/a-hazy-legal-question-lingers-over-water-rights-for-basalt-marijuana-facility/.

Allen Best, Cannabis in Colorado, water rights and federal law, MOUNTAIN TOWN NEWS (Feb. 21, 2016), http://mountaintownnews.net/2016/02/21/4076cannabis-in-colorado/.

Charles Bethea, High Times with Aspen’s Cannabis Kingpin, OUTSIDE (Mar. 4, 2016), http://www.outsideonline.com/2059671/high-times-aspens-cannabis-kingpin.

Bureau of Reclamation, Reclamation Manual (Temporary Release): Use of Reclamation Water or Facilities for Activities Prohibited by the Controlled Substances Act of 1970, PEX TRMR-63 (May 16, 2015), http://www.usbr.gov/recman/temporary_releases/pectrmr-63.pdf (last visited Nov. 8, 2016).

Resp. Am. Summ. Consultation, In Re: The Application of High Valley Farms, 14CW3095 (Nov. 13, 2015), https://www.documentcloud.org/documents/3101645-2015-11-13-13-39-33-Response-to-Amended-Summary.html#document/p1/a317097 (last visited Nov. 8, 2016).