Order Concerning the Application for Water Rights of High Valley Farms, LLC (14CW3095)
Earlier this year, Colorado got its first taste of how the state sees marijuana cultivation within the framework of its water law regime.
In an order which may have far-reaching effects beyond Colorado’s flourishing cannabis industry, Division 5 Water Referee Susan Ryan held that it is proper to issue a new water right to a marijuana cultivator. Ryan issued this industry-favorable order despite the continuing prohibition of cannabis by the federal government. As the cannabis industry continues growing, states will be forced to confront an increasing number of conflicts between their internal water allocation and the supremacy of federal law.
As we have previously reported, the marijuana cultivation facility, High Valley Farms of Basalt, initially filed an application for an underground water right, surface water rights, storage water rights, and a plan for augmentation in 2014. High Valley amended its application twice in response to consultation reports and recommendations of the Division Engineer, which primarily focused on whether or not the company’s use of the new water rights were considered “lawful.” As part of the application process, the Division 5 Engineer requested that High Valley clarify how its application fit with the statutory concept of beneficial use in Colorado water law, specifically the phrase “lawfully.” High Valley responded to these inquiries by referencing the legalization of cannabis cultivation under Amendment 64 arguing that state legalization made High Valley’s proposed water use lawful and thus beneficial.
Perhaps the most important facet of High Valley’s application was that it was not claiming the use of any federal contract water or federal facilities. Using such water would almost certainly mean High Valley would have a harder time arguing federal law shouldn’t be a factor in the central beneficial use question. In 2014, the Bureau of Reclamation announced a policy that federal water could not be used to grow marijuana.
The primary issue before Referee Ryan was whether the State of Colorado could lawfully appropriate High Valley water for cannabis cultivation despite federal prohibition of the plant within the Controlled Substances Act (“CSA”). This issue required Ryan to determine how the term “lawful” operates in the state water law statutes. In addition, Ryan examined whether there was a positive conflict between the Colorado statutes and the CSA.
At the beginning of her order, Referee Ryan began by discussing Colorado’s authority as a state to allocate its own internal water resources. She reviewed the history of interaction between Colorado and the federal government regarding water rights, including the Mining and Reclamation Acts. Through this legislation, Congress established the federal policy of allowing states to construct and operate their own water regimes. Referee Ryan cited California Oregon Power Co. v. Beaver Portland Cement Co., which is United States Supreme Court precedent that supports the idea of “purposeful and continued deference to state water law by Congress.”
The concept of state deference is essential to the future of the marijuana industry in Colorado, which will require increasing amounts of water to operate, allocated primarily under Colorado water law. If Colorado is not allowed to allocate their own water for use in marijuana cultivation, the nascent marijuana industry may face some difficult questions down the road.
Next, Referee Ryan reviewed the doctrine of prior appropriation, which governs in Colorado, and the related concept of beneficial use under the Colorado Constitution. Under the prior appropriation doctrine, “a water right is a usufructuary right that is created when a specific quantity of water is applied to an actual beneficial use.” Regarding the interpretation of these doctrines, Referee Ryan noted that neither the Colorado Constitution nor state water statutes define the parameters of what constitutes beneficial use under state law, which leaves the question of whether growing marijuana constitutes a “beneficial use” open to interpretation by the state’s water referees and water judges.
Switching gears from water law to marijuana law, Ryan’s order next outlined the laws governing the cultivation of marijuana. Specifically, Ryan analyzed the proposed uses outlined in High Valley’s application. Ryan explained that the Colorado Retail Marijuana Code, adopted by the state legislature after recreational marijuana legalization, explicitly contemplated the supply of water for cannabis grow operations within the state.
To support this, Ryan discussed an Order issued by the Office of the State Engineer after legalization, which stated that, “Division Engineers shall allow Irrigation Water Rights to be used to irrigate any type of plant that may be legally grown under Colorado law.” This Order was originally cited by High Valley in its briefings to Division 5.
Nevertheless, while the water used by High Valley would be from local Colorado sources and the ultimate product can only be sold in Colorado, there is Supreme Court precedent regarding how interstate marijuana growing can invoke Congress’s Commerce Clause powers to regulate that activity. Referee Ryan considered Gonzales v. Raich, in which the Supreme Court held that Congress has the power to regulate local cultivation of marijuana even when it does not enter interstate commerce. In this case, however, there is no federal law at issue, therefore the dispute should be settled under Colorado water law, according to Referee Ryan.
Next, Referee Ryan went on to examine potential preemption issues between Colorado law and the CSA. She discussed the 2015 Coats v. Dish Network case in which the Colorado Supreme Court construed the term “lawful” in a state employment statute in the context of a Dish Network employee being fired for using medical marijuana. The Coats court held that the employment statute’s term “lawful” referenced both federal and state law, and as federal law does not allow for any marijuana use, employer Dish was within its rights to fire the employee for federally-unlawful medical marijuana use.
In the Colorado v. Crouse case the Colorado Supreme Court examined whether a Colorado law that required the return of seized marijuana conflicted with the CSA. The court held that the CSA does not preempt state law unless there is a positive conflict – where it is impossible for federal and state law to coexist.
In her analysis, Referee Ryan explained that a lawful appropriation of water does not require an analysis of the legality of the subsequent use of that water. Distinguishing Coats and Crouse, she argued that the case at issue did not involve federal water, and therefore the presumption of a state’s right to allocate its own internal resources applied.
Ryan then determined that no positive conflict existed here between the CSA and Colorado water law, as “nothing in the CSA prevent(s) High Valley from seeking to divert unappropriated water for a specified beneficial use.” Ryan reasoned that complying with Colorado water law here would not make it impossible to comply with federal law, and therefore no positive conflict existed, unlike in Crouse and Coats.
Overall, the final order declared that the term “lawful” in C.R.S. §37-92-103(4) references solely Colorado water law and nothing more. As the application of Colorado law in High Valley’s water rights case does not conflict with any provisions of the CSA, there are no federal preemption grounds to rule against the cultivation facility.
In sum, Referee Ryan ruled that Colorado law does not preclude High Valley from continuing with its application for water rights. For now at least, the order provides some certainty to a growing industry and it gives a glimpse of how the state may proceed in reconciling some thorny and unsettled patches of water law.
Ord. Regarding Issues Raised in the Summary of Consultation, In Re: The Application of High Valley Farms, LLC, No. 14CW3095 (Colo. Water Ct. Div. No. 5 2015).
Kathleen Cunilio, Can the Beneficial Use Doctrine and Cannabis Coexist in Colorado? U. Denv. Water L. Rev. Blog (Dec. 20, 2016), http://duwaterlawreview.com/can-the-beneficial-use-doctrine-and-cannabis-coexist-in-colorado/.
Brent Gardner-Smith, Water court referee finds it lawful to issue a water right to grow pot, Aspen Journalism (Feb. 21, 2017), http://aspenjournalism.org/2017/02/21/water-court-referee-finds-it-lawful-to-issue-a-water-right-to-grow-pot/.
People v. Crouse, 388 P.3d 39 (Colo. 2017).
Coats v. Dish Network LLC, 303 P.3d 147 (Colo. 2015).
Gonzales v. Raich, 545 U.S. 1, 29 (2005).
California Oregon Power Co. v. Beaver Portland Cement Co., 295 U.S. 142 (1935).